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This volume examines current and previous environmental policies, and suggests alternative strategies for the future. Addressing resource depletion and climate change are pressing priorities for modern economies. Planning energy infrastructure projects is complicated by uncertainty, as such clear government policies have a crucial role to play.



1. The Absence of Environmental Issues in the New Consensus Macroeconomics is only One of Numerous Criticisms

This contribution focuses on the New Consensus Macroeconomics (NCM) theoretical framework. It outlines and gives a brief explanation of the main elements and way of thinking about the macroeconomy from the point of view of both its theoretical and policy dimensions. There are many problems with this particular theoretical framework. The most important in terms of the focus of this contribution is the absence of environmental issues. A number of further problems related to the New Consensus Macroeconomics, and its macroeconometric counterpart (Dynamic Stochastic General Equilibrium modelling), are summarised. We elaborate, though, on the problematic nature of the microfoundations of the macroeconomics dimension in the NCM theoretical framework in addition to the absence of environmental issues.
Philip Arestis, Ana Rosa González-Martínez

2. The Neoliberal Trajectory, the Great Recession and Sustainable Development

This paper argues that the current global crisis is the direct consequence of a development model that is unsustainable from the financial, economic, social and environmental points of view. Such a model has become progressively dominant since the late 1970s when the neoliberal policy strategy started to become hegemonic. The new policy regime fostered the recent process of globalisation and financialisation, leading to a perverse interaction between the main dimensions of sustainability originating and reinforcing the Great Recession. The crisis, in its turn, worsened many crucial sustainability indicators, generating a vicious circle that might last for a long time. The need for a new sustainability-based economic paradigm is confirmed by the observed gap between the GDP growth indicators and the well-being of individuals and by the nature and requirements of the existing technological trajectory. The paper concludes that we urgently need a radical revision of the current development model towards a more sustainable direction to find a durable escape from the present crisis and start up a more satisfactory development trajectory.
Alessandro Vercelli

3. The Macroeconomics and Financial System Requirements for a Sustainable Future

The paper develops a macroeconomic analysis along broadly defined Post Keynesian and Kaleckian lines, which incorporates ecological constraints on the pace of economic growth. Since growth is viewed as demand-driven, this involves bringing demand into line with the sustainable ‘ecological footprint’. A simple model of demand-driven growth is constructed from which some basic conclusions are drawn of the consequences of slower growth and lower investment, including those for the rate of interest and the rate of profit. The macroeconomic policy to deliver full employment is indicated. The growth of the effective labour force and the sustainable rate of growth of the ‘ecological footprint’ are introduced and the relationships between them and the demand-driven rate of growth is explored. The macroeconomic analysis has to be embedded with analysis of the monetary and financial system. For this purpose a circuitist analysis is presented. The paper considers the ways in which the monetary and financial systems should be restructured to be consistent with sustainable growth and low unemployment. The major aims of this restructuring would be to underpin financial stability, and more importantly to focus the financial sector on the allocation of funds into environmentally friendly investment.
Giuseppe Fontana, Malcolm Sawyer

4. Financing Energy Infrastructure

Addressing resource depletion and climate change are pressing priorities for modern economies. The 2007 Stern Review emphasised that greenhouse gas (GHG) emissions are the biggest market failure the world has seen. These are not ordinary localised externalities: impacts are likely to be large both in global terms and for future generations. In addition, planning energy infrastructure projects is complicated by risk and uncertainty. Given these market failures, clear and coherent government policies have a crucial role to play. Many governments are emphasising the importance of investment in renewable energy infrastructure but there has not been, as yet, any clear explanation of how these projects will be financed. The emphasis on austerity and disillusionment with public-private partnerships leaves private finance as the default solution but risk and uncertainty are likely to deter private sector investment unless innovative financing mechanisms can be found. Also, as more and more shale gas reserves are discovered with the potential for large profits for private sector investors, there is danger that the emphasis will shift back towards non-renewables. This paper will explore these problems of financing constraints, risk and uncertainty for the effective planning and construction of renewable energy infrastructure.
Michelle Baddeley

5. The Effects of the Financial System and Financial Crises on Global Growth and the Environment

The paper considers the links between financial system, economic growth and environmental pollution and damages through: (1) investment in the real economy; and (2) financial instruments for environmental policy. The literature on the effect of finance on pollution is dominated by econometric studies of the effect of financial variables on the Environmental Kuznets Curve. The paper reviews this literature and finds that financial development in general, apart from financial crises, tends to reduce pollution. The paper will explain how financial crises affect the environment through reductions in effective demand, by forcing a switch to earlier technologies, and by encouraging the use of lower-cost, more polluting fuels. The paper explores the causative links between the nature of the recession and the reduction in long-term GDP growth via reductions in the share of investment in GDP. This is followed by an exploration of the necessity of investment and green banking in encouraging environmentally friendly development pathways. It will discuss the problems in modelling the effects of the financial system on the real economy, especially in respect of long-term growth and environmental pollution, with a focus on climate change and the mitigation of climate change.
Annela Anger, Terry Barker

6. Dualisms in the Finance-Economy-Climate Nexus: An Exploratory Essay Drawing on Derridean Thinking

The standard economics that dominates large parts of the mainstream is teeming with dualistic concepts striving to understand the behaviour of our increasingly interconnected economies. The integration of finance-economy-nature (climate) interactions has failed to meaningfully materialise in the literature. In this paper, a form of textual critique and philosophical inquiry is proposed, the deconstruction approach, advocated by the French thinker Jacques Derrida. Established hierarchical polarities populating standard economic analysis are identified, interpreted, criticised, and questioned. Neoclassical-driven economics views disequilibrium as a fall from equilibrium, whilst subordinating monetary dynamics, nature, and the climate to the prevailing importance of the productive economy. The rethinking of economics for improved sustainability governance would need to start from the premise of viewing the economy as a dynamic social construct, subjected to contextual conditions and historicity. Money, the non-human natural world, and our climate need to play more defining temporal and differential roles in economic analysis. The paper encourages reflexivity in economics research. It adopts an exploratory and epistemological approach. The paper should be seen under continuous work in progress.
S. Şerban Scrieciu

7. The ‘Dark Matter’ in the Search for Sustainable Growth: Energy, Innovation and the Financially Paradoxical Role of Climate Confidence

Theories of economic growth have long recognised that innovation is a key but poorly understood force — the ‘residual’ of neoclassical growth models. These models have no representation of intermediate goods, or of the factors that generate and diffuse innovations, including learning-by-doing and scale economies; they are thus unable to picture how a suite of economic and institutional changes triggers waves of long-term economic progress, which in practice has been the long-term historical pattern. The absence of finance in these models is particularly problematic. The centrality of financial structures to understanding patterns of economic growth is acute concerning policies to shape efficiency, innovation and infrastructure in ways compatible with energy and climate security, since these require substantial upfront investment. However, uncertainty and a lack of confidence deter such investment. Environmental policy could reduce risk and thereby shape ultimately profitable investments. The paper outlines deep relationships between energy/carbon-related finance and wider debates about financial systems after the crisis. The paper finally proposes an agenda for future research towards alternatives to classical growth models, intended to address some of their limitations.
Jean-Charles Hourcade, Michael Grubb, Aurélie Méjean

8. On Climate Change and Institutions

Focusing on the climate change economics and policy, the main objective of this paper is to merge the elements of the triad comprising the precautionary principle, the green paradox (GP), and the international collective action. Mainstream climate change economics tackles the correction of the underlying externalities introducing a worldwide price mechanism on greenhouse gas emissions (GHG), which has proven to be unworkable, basically due to institutional failures. Moreover, the perverse incentives of carbon curbing policies might even counteract their aims under the so-called GP of climate policy. The fundamental (Knightian-type) underlying uncertainty around the climate change issue, the lessons learnt from the GP debate, and the acknowledgement that the fundamentals of a green macroeconomic policy around the notion of growth is still pending, evidence the difficulty to develop a coherent and successful global policy to face rising carbon emissions. Keynesian-inspired green macroeconomics can serve to fulfil the overall balance between the economy and the environment.
Ikerne del Valle Erkiaga, Kepa Astorkiza Ikazuriaga


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