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25 October 2023

Delors Centre's Woll: Avoiding the Road Bumps of the Green Transition


Woll proposes three pathways to a net-zero economy by 2050 that ideally should be combined: (i) correcting market signals through taxonomies and taxation; (ii) developing a European industrial policy that supports green innovation but also rewards successful transition plans;...

Green growth requires strategy and coordination. The green transition entails important costs and will fail politically if we do not address socio-economic inequalities. In this Policy Position, Cornelia Woll proposes three pathways to a net-zero economy by 2050 that ideally should be combined: (i) correcting market signals through taxonomies and taxation; (ii) developing a European industrial policy that supports green innovation but also rewards successful transition plans; (iii) facilitating the funding for companies and financial institutions lending to those invested in green technology.

This policy position is based on remarks delivered at the 31st Franco-German Meeting in Evian from 7 - 9 September 2023. For the same meeting, the Jacques Delors Centre Berlin prepared a discussion input, which can be found here. Nicole Gnesotto, Vice President of the Jacques Delors Institute Paris, and Pascal Lamy, Coordinator of the Jacques Delors think tanks network, prepared a paper on European defense (forthcoming).

 

Is green growth possible? Can we succeed in a green transition without slowing down the economy?     

The transition to a net-zero economy by 2050 entails important distributional challenges between firms and countries, but we also know that the green transition will fail politically if we do not address socio-economic inequalities stemming from green adjustment. The French have learned this the hard way when a rise in fuel taxes led to the Yellow Vest movement in 2018. The Germans are reminded of it in the current push back against the proposed heating law that is feared by many less well-off households.         

At the bottom of all of this is one simple fact: achieving a green economy is very costly. Jeremy Rifkin famously referred to the current period as the “Third Industrial Revolution” and it has only just started. After the steam-power-driven first industrial revolution of the late 18th century and the second industrial revolution at the turn of the 20th century powered by oil and combustion engines, the current break must embrace the promise of digital communication and low-carbon energy sources. This is not a marginal adjustment that the market can solve by itself with some light regulatory support, even if one is a technological optimist (and I am).        

A just green transition requires political strategy and coordination, but also solutions to funding that can leverage public and private finances. However, we must also be clear that adjustment entails slowing down and bearing the cost of transition that we would not otherwise have. Despite these obstacles, it is urgent to shoulder this task now, as costs will only rise if we try to catch up later, when others have already advanced on green technologies and the transformation of their economies.           

I would like to develop three pathways towards green growth that I believe should all be on the table and ideally combined to allow us to achieve net-zero by 2050. (1) The first is getting market signals right by shaping prices and profits through taxonomies and taxation. (2) Second, we need to support green tech directly through a new kind of European industrial policy, but also by rewarding transition plans not just for sectors but at the level of individual companies. (3) Third, it is important to facilitate access to funding for companies and for financial institutions lending to those invested in green tech. Let me develop each of these in turn....

 more at Delors centre

full paper



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