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What does it take to make a successful Green New Deal?

By Martha McPh | @MarthaMcph

Photo by @Matthew_T_Rader on Unsplash

Climate change is (finally) being discussed as a serious global threat by international leaders and thinkers, in a broad coalition including politicians, commercial actors, and financiers. Rising summer temperatures and increasingly intense weather events in the developed world are bringing climate change home to key economic actors and decision-makers. The Intergovernmental Panel on Climate Change published a report in October 2018, which gave a 12 year timeframe of action needed to keep global temperature increase to within the conservative 1.5 degree increase agreed in 2015’s Paris Accord.

But fear about the impact of climate change does not, alone, get us to the economic and behavioural transition required to mitigate it. Instead, a green transition must be brought about by turning climate change into positive and socially equitable opportunities for investment and innovation, affecting production, distribution and consumption across the economy.

In December 2018, IIPP published its first policy brief from our Green Economy and Sustainable Growth area. In it, we outlined our manifesto for the characteristics of a ‘Green New Deal’ — a term that is not new, but which is now picking up traction. The Green New Deal: A bold, mission-oriented approach aligns the work of multiple IIPP academics into a holistic approach to economic re-direction for the entire economy.

Firstly, we must recognise that the green transition will take place in a complex global economy, the complexity of which has rarely been acknowledged in economic discussion about green shifts, and specifically when considering theories of climate change. Our toolbox is not appropriate: ideas of ‘market failures’, ‘negative externalities’, and ‘public goods’ do not reflect the dynamism inherent in a green economic and technological transition. This means that our current methods of monitoring and evaluation must be re-thought to take into account the role of characteristics such as feedback loops, path-dependency, non-linear dynamics (explored further in an IIPP policy report titled The economics of change: Policy appraisal for missions, market shaping and public purpose).

It is also clear that green growth cannot take place in industry silos, but requires mission-oriented, economy-wide redirection. Work done by IIPP Director Mariana Mazzucato, IIPP Honorary Senior Research Associate Gregor Semieniuk and UCL Institute for Sustainable Resources Professor Jim Watson has explored the need for change to be cross-sectoral, harnessing supply and demand, innovation and procurement, and public and private actors. In this way, designing for change should also be equitable, including trade unions and ‘brown industry’ workers, such as those in fossil fuel companies, at the decision-making table. Missions, in the mould of Kennedy’s moonshot mission, will help us define ambitious green growth goals, using these to create long-term policy landscapes which then mobilise actors to work on bottom-up, cross-sectoral experiments.

The ‘market-failure’ lens on climate change has led governments and businesses to see themselves as opponents in a zero-sum game. Rather than simply being seen as ‘fixing’ the mistakes of the market, we advocate for the realisation of policy makers and the public sector as vital in creating policy which actively tilts the economy in a green direction. This has taken place in the early stages of the IT, biotech and nanotech industries: why not at a cross-sectoral level in the green transition? Government instruments from procurement policy to prize schemes can be targeted towards innovative organisations willing to take on green investment, as Mazzucato and Carlota Perez have explored. Tax structures which reward long-run investments rather than quick trades are vital here.

Public and private sector drive cannot just focus on specific, discrete parts of the innovation chain. Instead, in the knowledge that the capital needed to get us to a sustainable, inclusive green economy does exist, it must be deployed throughout the upstream and downstream of the innovation chain, from basic to applied research, through trans-national institutional structures, such as the Fraunhofers in Germany or the Catapults in the UK. However, simply increasing the availability, and quantity of finance to green initiatives alone will not bring about the re-directed economy that we need.

Finance is not neutral, and the quality of finance and the financial institutions providing it is not neutral either. Patient, long-term, strategic finance is needed, such as that available from state investment and development banks, which are increasingly engaged in transition: in 2011, Germany’s KfW bank announced it would make available €100 billion (US$120–130 billion) over the following five years to promote renewable energies and contribute to Germany’s Energiewende plan (‘Energy Turnaround’).

We also need forward-thinking, holistic monetary policy. Central banks and financial regulators must play their part in crafting the monetary policy that is required for a green transition. This means shifting away from the current ‘market-fixing’ approach of industry-led disclosure and stress-tests on carbon risk, and towards a full adaptation of monetary policy and financial regulation to the economic and financial reality of a green transition. Ongoing work by IIPP Head of Research Josh Ryan-Collins is engaging central banks and other key actors in discussions around their pivotal role in the green transition.

Finally, and vitally, we know that the green transition can only be a success if it is equitable, bottom-up and inclusive. Movements are already growing, built out of people who want to create millions of green jobs, and who have the grassroots drive and multi-level buy-in to make it happen. In the US, current demands for a Green New Deal came out of a movement — the Sunrise Movement, harnessed by congresswoman Alexandria Ocasio-Cortez, who has campaigned extensively for ambitious, inclusive green growth. This inclusivity should not be seen from a defensive lens, but instead be about proactive stakeholder governance with labour unions civil society organisations and communities at the table before, during and after.

Read the full policy brief, The Green New Deal: A bold, mission-oriented approach.

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UCL Institute for Innovation and Public Purpose

UCL Institute for Innovation and Public Purpose

Changing how public value is imagined, practiced and evaluated to tackle societal challenges | Director: Mariana Mazzucato | Deputy Director: Rainer Kattel