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Publié le
Mardi 15 Septembre 2015
Michel Aglietta (CEPII) and Étienne Espagne (CEPII) draw six political economy lessons from the dynamics of climate negotiations and their connection to the new macroeconomic normal that has emerged in the aftermath of the 2008 crisis. A specific proposal follows.
More Political Economy Needed in Addressing Global Warming – Plus a Proposition

More political economy is needed in the climate agenda if we do not want the efforts towards the Paris Conference of Parties (COP21) and beyond to turn into new disillusions (Perrissin et al., 2014). This assessment is now widely shared among economists and policy makers who have experienced the aftermath of the 2009 Copenhagen summit.

But what does “more political economy” actually mean? Paths tend to rapidly diverge when answering this question. For some, it seems to mean there exists a“first-best climate policy option”to be pursued, and the political economy context should be dealt with separately, as inevitable collateral damage. Advocates of a single global carbon price, with temporary compensation in the transitional phase, can be put in this category (Tirole and Gollier, 2015). The theoretical goal here dominates the political path. For others, more political economy means taking a pragmatic approach, so that every possible way of increasing the penetration of low-carbon technologies and behaviour is worth taking, even at the cost of redundancies and inefficiencies. Advocates of sectoral industrial policies or of multiple and partially redundant objectives (such as emission reductions and renewable energy objectives at the same time) can be placed in this category, where the political path dominates the theoretical goal.[1]

We argue that this opposition is artificial at best and probably even counterproductive. The best climate policy instrument and political environment have to be determined together simply because there are numerous feedback loops between the two. In this sense, there is no abstract “first-best climate policy option”, just as there are no abstract “political constraints” to deal with. Both political and economic paths must be defined in the transition towards low-carbon societies (Stern and Calderon, 2014). These preliminary observations lead us to draw six political economy lessons on future global warming policies.

Since the Kyoto Protocol and the subsequent failure of the Copenhagen negotiations, the climate negotiation agenda has put aside the question of carbon pricing in favor of a spontaneous commitment by member countries – the so-called INDCs (Intended Nationally Determined Contributions). This way of dealing with climate strategies can be seen as a last resort, validating the failure of first-best climate policy options. But it can also be seen as the basis for a new paradigm in climate policy, as the Cancùn Conference called this shifting point of view in 2010 (Skea et al., 2013). This new paradigm basically reveals that the fight against global warming cannot be conducted at the expense of the endogenous development of developing countries.The first political economy lesson can therefore be summarized as follows: Do not hope for a meaningful carbon price if it leads to less development for the developing world.

The second political economy lesson stems from the aftermath of the financial crisis. Public budgets are extremely tight in developed countries, and this has been exacerbated by inadequate public policy reactions. Central banks have forcefully intervened to counteract deflation, but there has been very little effect on the ability of the financial system to make loans to the businesses. Investment levels in the eurozone are still below their pre-crisis level, and the output gap is constantly revised downwards due to the degradation of potential output (Aglietta, 2014). The recent rebound in Europe is mainly due to two temporary exogenous shocks: the drop in oil prices and the fall of the euro. The conditions for a sustainable investment recovery are still not there. Hence the second political economy lesson: Substantial compensation on a global scale won’t be possible as long as Western governments face extremely tight budgetary constraints.

All central banks are now trying to rebuild some leverage in the real economy. They have used very low interest rates and then developed quantitative tools based on the purchase of debt. But not all debt is equal, and not all credit is useful. Most of the existing quantitative easing tools were based on transfers of existing debt through purchases on the secondary market, mostly of sovereign bonds. But only new investments – and thus new debt – can create profits and growth. And if the latter is to be sustainable, the creation of new debt has to be diverted towards sectors where there is maximum social benefit, which necessarily involves a quality issue (Espagne, 2015). The third political economy lesson follows: Any ambitious climate plan should make full use of the new macroeconomic normal  and even contribute to defining the still to be determined role central banks will play in the coming decades.

The key point is the evaluation of the social benefits of credit. Since markets are neither complete nor efficient, they are, among other things, subject to externalities. Some of them are just accepted as such without further debate. Others are much more controversial or problematic, creating a gap between return on investments in the private and social spheres. Once this gap is taken into account, or internalized, in the investment decision, there are no more quality issues for the central bank in its monetary policy decisions. In fact, the evaluation of this gap occurs in the political arena, which is the only relevant place to determine the definition of a social return or the social value of an externality. Global warming is surely the domain of the most extreme and global externalities. The willingness to pay for climate action defines per se a social cost of carbon emissions, or conversely, a value for emissions reductions (Teixeira, 2014). As a result, the fourth lesson is: An absence of immediate optimal carbon pricing does not mean there is no ambitious signal on new investments.

Indeed, such a value can be properly and publicly defined. Once the government (or a public institution such as a public investment bank) makes such a value official, it necessarily gives birth to a new class of assets, which we can call carbon certificates. These certificates, which can only be issued by competent certification agencies, guarantee that a certain amount of emissions reduction has occurred in new investments. More concretely, all kinds of projects that have a certain gap between their social and private return due to the carbon externality can now access financing thanks to this new type of asset. Many sectors of the economy are potentially concerned: energy efficiency in buildings, urban mobility, energy supply capacity, etc. All of them act as inputs or intermediate products for the economy as a whole, which means the productivity effect may be large. However, these sectors are very different, whether it’s the size of the firms, their credit constraints, the technical difficulty in assessing emissions reductions or the duration of the overall projects. Whatever the quality of the certification agencies, there will be a risk that the certification does not capture the full value of the emissions reductions or captures more than was actually reduced. This risk can be mitigated through financial mechanisms (Espagne et al., 2015). Consequently, the fifth political economy lesson is: It is politically more realistic and financially possible to focus the climate ambition on new investments first as the remaining stock of capital is temporarily spared.

The financial sector is encouraged to participate in the process and accept the certificates as repayment for their loans to low-carbon projects as soon as they can transform them on short notice at the public investment bank. Once on the public investment bank’s balance sheet, these certificates can be transformed into long-term obligations through pooling and securitization mechanisms, thus mitigating the risk of certification of the individual projects. Unless there is a systematic bias in the certification process, which can be easily identified, this risk can be entirely mitigated through the pooling mechanism. The most senior risks can be attractive for long-term institutional investors, while the most risky securities may interest speculative funds. This way a secondary market for this certification risk can emerge, which the central bank can intervene in as part of its quantitative easing policy. This technique of secondary market asset purchase is already standard in non-conventional monetary policies. The state would have a strong incentive to pilot the implementation of a progressive carbon tax to generate the resources to reimburse the obligations at maturity (Aglietta and Espagne, 2015). The sixth and final political lesson is therefore the following: Involve and regulate the financial sector so that it serves its original purpose as a maturity transformer and a transition smoother.

Although this particular proposal is only one among many that are more or less closely related (Morel, 2014), these political economy lessons can be applied in a much broader context. With respect to COP21 and beyond, a roadmap for the implementation of such transitional financing instruments is necessary. First, it is relevant for the Paris conference only insofar as it brings the issue of carbon pricing back to the fore. Again, carbon pricing is not about a global carbon tax or an emissions permit market. It is also not about a self-regulatory tool for industries. It is about determining a social value. And the agreement in Paris should leave the door open for an arrangement for such a long-term global signal on which firms could rely to make their investment decisions. Many companies are already calling for such a signal (OLT, 2015). But the concrete implementation at a monetary zone level only requires the political will and some technical certification skills. This is a tool of maximum subsidiarity and minimum initial collaboration, which is valuable for such a large-scale problem. In a sentence, it provides long-term visibility, has immediate credibility while allowing for progressive price coherence.


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Michel Aglietta and Étienne Espagne, 2015. Financing energy and low-carbon investment: public guarantees and the ECB, CEPII Policy Brief 2015-06, 2015, CEPII.

Espagne, É. (2015). Tout changer à la BCE pour que rien ne change dans le climat?, L'Économie politique, 66(2), pp. 70-81.

Espagne, É., Hourcade, J. C. and Fabert, B. P. (2015). La finance au secours du climat? La Nature entre prix et valeur. Natures Sciences Sociétés, (Supp. 3), pp. 117-121.

Gollier, C., and Tirole, J. (2015). Negotiating Effective Institutions Against Climate Change.

Fabert, B. P., Pottier, A., Espagne, E., Dumas, P. and  Nadaud, F. (2014). Why are climate policies of the present decade so crucial for keeping the 2 C target credible?. Climatic Change, 126(3-4), pp. 337-349.

Ferron, C. and Morel, R. (2014). Smart Unconventional Monetary (SUMO) Policies: Giving Impetus to Green Investment. Climate Report, 46.

Observatoire du Long Terme (2015). Transition Through Innovation, How Innovation can contribute to building a low carbon economy at an affordable cost, Report for R-20 regions for climate action.

Skea, J., Hourcade, J. C. and Lechtenböhmer, S. (2013). Climate policies in a changing world context: is a paradigm shift needed? Climate Policy, 13 (sup01), 1-4.

Stern, N. and Calderon, F. (2014). Better Growth, Better Climate: The New Climate Economy Report.

Teixeira, I. (Minister of Environment of Brazil) (2014), speech at the Lima Climate Change Convention (COP 20/CMP 10), December 10 , 2014,


[1] The way the European climate and energy framework is planned to be implemented by 2020 and 2030 could be a good example of this approach.

Michel Aglietta

Michel Aglietta

Michel Aglietta, par mmadeira

Graduate from the École polytechnique and ENSAE, Emeritus Professor of Economic Sciences at the University of Paris X Nanterre, Michel Aglietta is an Advisor to the CEPII.  He is also a member of the Haut conseil des finances publiques(High Council for Public Finance).  A founder, alongside Robert Boyer, of the Regulation School, he is a specialist in international monetary economics, author of many books on money and the functions of financial markets (Régulations et crises du capitalisme, La violence de la monnaie with André Orléan, Un new deal pour l’Europe with Thomas Brand, Europe : Sortir de la crise et inventer l’avenir).

Michel Aglietta est Professeur Émérite d’Économie à l’Université de Paris X Nanterre et Conseiller scientifique au CEPII.  Fondateur avec Robert Boyer de l’École de la Régulation, il est un spécialiste en économie monétaire internationale, auteur de nombreux ouvrages sur la monnaie et les fonctions des marchés financiers (Régulations et crises du capitalisme, La violence de la monnaie avec André Orléan, Un new deal pour l’Europe avec Thomas Brand, Europe : sortir de la crise et inventer l’avenir). 

Etienne Espagne

Etienne Espagne

Etienne Espagne, par mmadeira

Etienne Espagne is an economist at CEPII, an advisory body to the French Prime Minister. He holds a PhD in environmental economics from the Ecole des Hautes Etudes en Sciences Sociales (EHESS) and is also a graduate of the Ecole des Mines de Paris and the Paris School of Economics. He has published several papers in academic journals in the field of climate change and energy economics and previously worked at France Stratégie.

Etienne Espagne est économiste au CEPII. Il est docteur en économie de l’environnement de l’Ecole des Hautes Etudes en Sciences Sociales (EHESS) et est également diplômé de l’Ecole Mines ParisTech et de l’Ecole d’Economie de Paris. Il a publié dans diverses revues académiques dans le domaine du changement climatique et des politiques énergétiques et a travaillé précédemment au sein de France Stratégie.


Michel Aglietta (CEPII), Étienne Espagne (CEPII)
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