THE POLITICAL ECONOMY OF THE GREEN TRANSITION

Bob Hancké

PEACS

February – March 2025

The world is burning. Stopping that requires, among other things, a reduction of the carbon emissions associated with human economic activity. ‘Net-zero’ carbon emissions is the goal, preferably in less than a generation. But that is not happening, and almost certainly not fast enough. To be fair, we have made progress compared to a decade or so ago. The EU, the US (until 2025) and China have adopted decarbonisation as a key policy objective, central banks are raising the need for financial adaptation, electric vehicles now roam the streets of all big cities in the North, low- and zero-carbon energy production has soared, and the reduction of waste and its carbon footprint is now government policy in many countries. But the list of stalled, watered-down and slowed-down initiatives and policies is also very long: electric car sales are going through wild oscillations because products remain expensive and charging infrastructure is developing too slowly. Coal still takes up almost as much as solar and wind in energy production. International agreements on climate change remain subject to wild political swings in the core countries. And when forced to choose between environment and economy, even centre-Left governments often choose the latter. Procrastination – or worse: regression because of climate denial – runs through the decarbonisation efforts alongside the positive noises. Meanwhile, the earth is heating up at a staggering and dangerous rate: in 2024, global temperatures for the first time went over the internationally agreed maximum 1.5C above pre-industrial levels, that would allow us to handle climate change (Guardian 10 Jan 2024). The green transition may not be a full-on failure, but it has hardly been a roaring success.

Why has the green transition proven so difficult? As I will argue in the first essay in this series, this relative failure is not just a result of the unwillingness by governments to engage the green transition – despite political developments in many western democracies in 2024 and 2025 that have raised that spectre. Even when governments have spent large sums of money to get the green transition going and growing, things seem not to get off the ground at the pace and scale that we need (in the title of a recent book, we need to go five times faster). In fact, the amount of political activity around the green transition lays to rest the argument of stubborn political obstacles: President Biden’s ‘Inflation Reduction Act’ and Green New Deal, the European Green Deal, and industrial policies everywhere, including China, have important green components, while the new Labour government in the UK came into office with an annual £28bn green pledge (since, admittedly, more or less abandoned on the inconsistent altar of austerity and growth). Despite all that political activity, however, CO2in the atmosphere keeps rising without signs of abating.

Because of these perceived political obstacles, some turn to simple technical solutions, supported by simple economics. This is obviously an attractive option, not least because it leaves politicians off the hook. However, as I will explain below, there are deep flaws in such an approach: technology is neither the problem nor the solution, and many incentive schemes are not only very blunt but ultimately also ineffective instruments. It may, in abstract terms, technically not be very difficult to ‘electrify everything’ (see esp. chapter 6) and produce zero-carbon electricity, in the real world both production and distribution require political and administrative organisation, the mass adoption of all-electric solutions requires more than mere acquiescence, and many green energy and transport alternatives are themselves subject to political struggles over the destination, the path, the costs and the effects. The incentive-based schemes, in turn, have been around for a long while now but have failed to produce the desired result of a significantly decarbonised economy. Emission trading schemes (ETS) and Cross-Border Adjustment Mechanisms (CBAM), which operate through prices, have faced the problem of determining the right level without impeding economic activity; and taxes (in the form of fines) on car manufacturers who have not been able to reduce the emissions across newly sold vehicles sufficiently have been watered down significantly when they were supposed to bite. Meanwhile, CO2 in the atmosphere has risen steadily.

I tackle the problem from another angle in this series of short essays, one in which politics is not an obstacle but an integral part of every transition in a democracy (and into a democracy – the inspiration for these thoughts). While, as the historian Jean-Baptiste Fressoz suggests, we know next to nothing yet about the green transition, we have had recent experience with other types of transitions, in Latin America and Central and Eastern Europe, from one political-economic model to a very different one. Transitions – processes of rapid structural change from a consistent system built on one logic to one built on a very different rationale – have always entailed a redistribution of losses and gains across different groups. What we know about those transitions, how political actors influenced them, and how, in turn, they were affected by them, offers rich insights that can be usefully brought to bear on the green transition today. In that sense, this essay is both a part of the debate on the path of the green transition and a programmatic call to drop the simple (and simplistic) first-best world approaches of economics and engineering and embrace the complexities of the gritty second-best world that we live in. The underlying idea is that if we better understand the political economy of the green transition – the processes by which the costs and benefits are redistributed and how winners and losers engage in struggles over that process and its outcomes – we can also better imagine how to design effective green policies.

The essays that I will post over the next few weeks and months are the product of both 40 years of research in sociology, political economy and applied economics, several years of study of and thinking about aspects of the green transition, building on a dozen of case studies and interviews with social actors involved in the green transition, and discussions with many friends, students and colleagues, from the LSE and PEACS, socio-economic interest groups and think tanks (while they should share any praise, I alone should take the blame for errors). I intend to integrate these essays into one long paper and, ultimately, a short book.

Over the next few weeks, I will post an essay on a particular aspect of the green transition once or twice a week on the PEACS website and distribute the links to those essays via social media. I hope the essays stimulate debate and will make sure there is space for comments on the website, especially those that contradict what I say or help us (and me) understand how to approach things differently. If I am irreverent towards those that advocate what I consider simplistic solutions, I should be equally able to take criticism myself. Let’s just all remain civil – no hiding behind pseudonyms, therefore. The aspiration of my initial posting and the comments is that we may all be wiser afterwards. I even may tag interventions that I see as particularly useful with a request to develop them and post them as a stand-alone contribution. That will help us all understand the stakes more clearly and make it easier to cite them, especially if I turn this project into a short book.

Today I will start with presenting the debate on the green transition and the basic analytics of a political-economy framework. Later this week, I will go through the basic conceptual problem with transitions, and next week, I will bring in the two basic political economy concepts that have guided a lot of my thinking in this area (no white rabbits out of a hat: they are time inconsistency and collective action problems). In a few weeks, I will then go over a series of political economy problems related to the actual nuts and bolts of the green transition and finish the series in a month or so with one or two essays on what this approach suggests for green policies. Fasten your seatbelts: here we go.