Green macrofinancial regimes

Abstract

Debates about climate policy have neglected the question of macrofinancial pathways to decarbonisation, not all of which are politically and environmentally viable. We propose a theory of macrofinancial regimes, understood as combinations of monetary, fiscal, and financial institutions that shape the creation and allocation of credit/money, and hence the speed and nature of the green transition. Examining recent green industrial policy initiatives, we distinguish between a weak derisking state that tweaks the risk-return profile on infrastructure assets, and a robust derisking state that intervenes directly in the organisation of production by subsidizing capital expenditure in cleantech manufacturing. Although the derisking state is hegemonic today, coordination problems and regressive distributional consequences render this regime unstable. This instability may tip societies into carbon shock therapy, or it may give rise to a big green state, capable of planning and implementing a just green transition through non-market means of coordination.

Towards a public sustainable finance paradigm for the green transition

“…This complements discussions on green industrial (Rodrik, 2014;Kemp and Never, 2017) and monetary/fiscal policy (van't Klooster and van Tilburg, 2020; Gabor, 2023) by directly addressing the current sustainable finance approach that serves as an important source of motivation and legitimacy for economic policies that, in our view, are misguided. While a 'big green state' operating through non-market coordination and disciplining rather than de-risking private capital would lead to a comprehensive decarbonisation trajectory (Gabor and Braun, 2023), countering the urgency of the climate crisis also requires political proposals that do not necessitate a far-reaching and thus time-intensive transformation of institutional frameworks. As we demonstrate using the rather extreme case of Germany, a Public Sustainable Finance paradigm may be carried out within current institutional and political constraints.…”

“…Our suggested Public Sustainable Finance approach contributes to a growing body of policy-oriented scholarship that calls for a greater engagement of the state in the green transition (Deleidi et al, 2020;van't Klooster and van Tilburg, 2020;Mazzucato, 2021) and the implementation of comprehensive green industrial policies (Rodrik, 2014;Kemp and Never, 2017). Developing a proposal how the state can pursue considerable direct investment even within current political and institutional realities, we argue that significant elements of what Gabor and Braun (2023) would call a 'Big Green State'such as the targeted use of public direct investments for the purpose of decarbonisationcan be achieved even in a tight fiscal regime dominated by fiscal hawks. The key here, we argue, are OBFAs that can be used to quickly mobilise public funds, structure long-term investments, and to forge political compromise.…”

“…And third, it is based on incorrect perceptions of the existing institutional constraints as it assumes that the role of the state could not be strengthened within the current fiscal framework. From a macro-financial perspective, current conceptions and discourses on sustainable finance thus reproduce a 'weak de-risking' regime in which the role of the state is confined to enhancing the profitability of green assets (Gabor and Braun, 2023), and where the definition of what counts as 'green' often emanates from the financial sector itself. As a result, sustainable finance in its current form confines the role of the state to supporting financial assets with an unclear sustainability impact while missing out on direct state investments as an essential transformation lever.…”

Derisking Developmentalism: A Tale of Green Hydrogen

“…The state is restrained by new infrastructural entanglements with private finance, on which it relies for the implementation of monetary, fiscal (Braun, 2021), housing or climate policy (Dafermos et al, 2021). CMF introduces the notion of the derisking state to describe and theorize the distinctive mutations in economic statecraft oriented towards the production of investibility (Cooiman, 2023;Gabor, 2020Gabor, , 2021aGabor and Braun, 2023;Kedward et al, 2022;Musthaq, 2020).…”

“…But the derisking state has now taken a developmentalist turn, guided for instance in Namibia by a strategic vision of green industrialization. Active government intervention with transformative ambitions is back after decades of ideological dismissal (Wade, 2018), albeit in a new guise shaped by financial capitalism (Gabor and Braun, 2023). We term this 'derisking developmentalism' and examine its potential to trigger the kind of (green) structural transformation that the early post-independence developmentalists envisaged (Economic Commission for Africa and African Union, 2011; Oqubay, 2015).…”