In his landmark 2006 review of the economics of climate change, Lord Nicholas Stern asserted that “climate change is the greatest market failure in the world.” Market failures are a prime reason why governments intervene in the economy. It stands to reason therefore that addressing climate change will require state intervention.
Indeed, the fact that carbon emitters do not face the full environmental costs of their actions, and will therefore not curtail their carbon output without government intervention, is only one of many market imperfections, policy failures, and behavioural barriers that hold back the transition to a net zero, climate-resilient economy.
Clean technologies are unlikely to become competitive fast enough without initial support from the state. Energy users have been notoriously reluctant to adopt even straightforward efficiency measures, like loft and wall insulation. Flood protection and the creation of zero-carbon industrial clusters entails coordination problems and network effects that governments are best able to address. The list goes on.
It is difficult therefore to imagine a successful climate change strategy that does not involve a strong, proactive, and decisive state. But there are political choices. The need for climate action is apolitical, driven by science, but climate solutions are not. Climate objectives can be pursued through the policy instruments of the political right as well as the left.
The need to rapidly decarbonise power generation, for example, follows analytically from the techno-economic evaluation of different net zero pathways. But the way the power sector is decarbonised (offshore wind and nuclear rather than onshore wind), how this is incentivised (renewable subsidies and carbon prices rather than regulation) and who pays for it (electricity consumers rather than taxpayers) are political choices.
The transition to net zero is complex, and private actors look to the state for leadership and direction. They do not always get it. UK investors have been spooked repeatedly by the chopping and changing of climate policies – from feed-in tariffs to energy efficiency support. This is hugely detrimental. Tackling climate change does not just require a strong state, but a reliable and predictable one. A state which allows decision makers to plan ahead.
The role of the state will evolve as the zero-carbon transition unfolds. Carbon emissions will always be a pollutant that requires taxing or regulating, but the need to support clean technologies will abate as they become cost-competitive. Eventually, private initiative will take over and the state can retreat.
Instead, governments will face increasingly greater demands for protection against those climate risks that can no longer be avoided. The state will have to deliver more flood protection, better heatwave plans, and new phytosanitary measures against climate-related pests, and much else.
It is worth remembering that the state consists of more than just the national government. The devolved administrations and local authorities have major roles to play, both in reaching net zero and in managing climate risks. Many pertinent decisions are taken at the local level, including those related to planning, housing, and local transport. Climate change therefore requires competent local government.
A recent survey by the Climate Action Network found “strong, vibrant, and broad support” for climate action at the local level. Three out of four local authorities, from across the political spectrum, have declared a climate emergency. Many are exploring new ways of engaging with civil society, including citizens juries and local climate commissions. These new institutions are intrinsically participatory, rather than state-led. Their aim is to create broad-based coalitions for climate solutions that benefit both local communities and the environment.
Both at the national and the local level, therefore, a way forward is emerging. Climate change clearly requires a more assertive and proactive state, but not necessarily a more controlling one.
Governments have a critical role in incentivising, guiding, and coordinating the transition to net zero and climate resilience. However, their role is to encourage, not replace, private initiative. The innovation, investment, and behaviour changes that are needed to solve climate change will have to come from businesses, people, and communities.
Professor Sam Fankhauser is Professor of Climate Economics and Policy at the Smith School of Enterprise and the Environment, University of Oxford. This article first appeared in our Centre Write magazine State shifting? Views expressed in this article are those of the author, not necessarily those of Bright Blue. [Image: Mika Baumeister]
