Within Reach: Navigating the Political Economy of Decarbonization

Stéphane Hallegatte and others, for the World Bank

There’s an important idea underpinning this new World Bank book on the political economy of decarbonisation, and an ingenious approach to making the idea operational, helping to choose the policies which will work in different places.

The important idea is about the economics and especially the politics of second best. As the book explains

‘(decarbonisation) policies do not always work for politics: powerful vested interests, winners and losers, ideological battles, and institutional inertia are just some of the political economy issues that make it difficult to capture synergies between development and climate objectives . . . . In recent years, several ambitious climate-related policies have triggered intense public backlash and become highly political issues . . . There are also governance and institutional challenges to consider. It is these political economy constraints, rather than technical limits, that pose the main barrier to more, and more stringent, climate policies.’

The ingenious approach is to think about decarbonisation policy in a dynamic context, building on past experience, targeting tipping points, and moving from the opportunistic to the enduring. Specifically, this translates into a country- (or by extension place-) specific Climate Policy Feasibility Frontier (CPFF), based on (1) the relative likelihood of introducing a policy in the next five years and (2) the capacity-building potential of each policy. In Turkiye, for example, it looks possible to introduce a legally binding climate strategy and emissions reduction target. In Vietnam, by contrast, the priority might be infrastructure investments.

The book has eight authors, most of them at the World Bank, and led by Stephane Hallegatte. Stephane is famous for many things, not least for the debate on degrowth with Jason Hickel that I curated for Development Policy Review in 2021; he is an environmental economist. The book has an extended overview, and five chapters: introducing a political economy framework; analysing climate governance; tackling the question of policy sequencing; on managing distributional effects; and on using public engagement and communication to improve policy design and legitimacy.

To unpack the argument, begin with the four I’s of political economy, as in Figure 1. The chapter focuses on diverging interests, as e.g. between low-carbon and energy-intensive industries, or between labour unions and civic interest groups. ‘Ideas’, the chapter says. ‘are a battleground’: that’s think-tank catnip! And it is important to understand and map the interests, ideas, and influence of different actors. Nothing very surprising there, but the implications are worth re-stating: not just that ‘policy process and design need to consider the political economy’, but also that

‘governments should select and sequence policies on the basis of dynamic rather than static efficiency . . . ,  choosing a more expensive policy today might be more dynamically efficient if it shifts the political economy to make it easier to implement more efficient policies later. By strategically selecting and sequencing policies, governments can build institutional capacity and create policy beneficiaries who will support further policy action.’

Figure 1

Chapter 2 explores climate governance in more detail. It offers a list of frequent governance problems (regulatory capture, uneven enforcement, limited stakeholder involvement, and so on) and introduces the five pillars of the World Bank’s Climate Change Institutional Assessment (Figure 2). A key point is that

‘high political polarization or a contested dominant narrative on climate makes it much more difficult to develop strategic institutions and stable sectoral institutions. . . climate institutions may be blocked or rolled back as vested interests work against them. (In such cases), opportunistic institutions can avoid increasing contestation or polarization, with climate change tailored to other domestic agendas and layered onto existing institutions—for example, by adding climate change mandates or reporting to existing portfolios, such as energy or transport.’

Figure 2

The challenge then – but only as a subsequent stage - is to move from opportunistic to enduring climate institutions and policy: for example, framework legislation, long term strategies, or transition policies. The book notes that ‘policies that can deliver immediate benefits to key groups and the economy more broadly can be politically easier to implement and can help build support for further climate action.’

Chapter 3 takes the theory into the realm of practical policy-making, and introduces the idea of the feasibility frontier. It identifies some 40 different policies, from product standards to legally binding national targets, suggests a way to map them in ‘policy space’, and then describes the frontier approach. An example for Vietnam is in Figure 3: the mapping of the policy space on the left, the frontier on the right. As noted, Vietnam may not be quite ready for carbon pricing, but there is a lot that can be done in the realm of infrastructure. It is good to be ambitious, though, to build momentum through successive policy steps, and to target tipping points which can drive rapid and system change: for example, when renewable energy becomes the cheapest way to generate electricity.

Figure 3

Chapter 4 deals with distributional effects. It makes the point, of course, that climate policies have different impacts on income classes, sectors, occupations and places, as well as ethnicity, gender, age, disability, and so on. It emphasises that the ‘near-poor and lower-middle-class households often experience larger and more visible immediate impacts, making them more likely to oppose policies than poor people, who tend to have limited access to modern energy or transportation.’ And it lists the options open to Governments, from green industrial policy, through tax reforms, to social protection and cash transfers. Just transition is a theme. Examples include transport policies in Brazil and DRC, and coal transitions in Europe.

Finally, Chapter 5 deals with public communication and engagement:

‘Opposition to climate reforms arises for many reasons but mostly because actors believe that they will be negatively affected, that outcomes will be unfair, or that they have been excluded from the policy process. Low levels of trust in government can magnify these concerns, for instance, if people feel they are not represented or that elected officials are unaccountable. To overcome such challenges, governments will have to mediate and broker compromises between groups, while ensuring that these groups accept the process and outcomes as fair and credible.’

This last sound easier said than done: ‘feedback and information sessions can help increase participation and inclusion, (but) often fail to make citizens feel genuinely heard.’ Quite. There are examples of policies that are designed to benefit certain groups, but that are opposed initially because trust is low: El Salvador’s gas subsidy reform is a case in point.

However, there are things Governments can do to build trust and support: concentrate on incentives rather than sanctions . . . start compensation schemes early (even before policies are introduced) . . . ensure transparency in contracts and procurement . . .; and in terms of process, citizen’s juries, consultative panels, an ombudsperson, a Citizens’ Advisory Council, or a Climate Assembly.

It would be a mistake to think the book is all about theory. In fact, one of its main virtues is the number of case studies. The book starts with a selection, drawn from a companion volume, ‘Reality Check: Lessons from 25 Policies Advancing a Low-Carbon Future’. Seven examples, taken from the Overview, are in Box 1.

Box 1

*  * *

There is a Iot here that will not come as a surprise to anyone. We live in a world of second best. True. Climate policy has differential impacts. True. The politics are complicated. True. It helps to map the different interests and positions. True. Incentives or compensation for losers needs to be at the heart of any policy. True. Policy can evolve and become more stringent over time. True.

That does not mean it is not valuable to reiterate the points, and provide the evidence. The book does that well.

Hallegatte and his co-authors do something else, however, which is to take the argument forward, or frame the argument differently, at least for me. There are two contributions.

The first contribution can be summarised as ‘don’t try to run before you can walk’. It is helpful to think about a hierarchy of policies, and to start at the bottom, not the top. For example, the book suggest that countries ‘with no prior experience of emissions monitoring or reporting—or with no form of market-based mechanism for reducing pollutants—may struggle to introduce carbon pricing’. In principle, that does not sound like a very new idea either, but it is worth thinking through in terms of climate policy. What, actually, are the key pre-conditions of successful policy in specific contexts?

I've been thinking about climate action in my own home town, Brighton and Hove - and we have a new think-tank locally - Climate:Change. We can think of examples which relae to the World Bank book. For example, data has been an important theme, whether differentiating territorial emissions from consumption emissions in the Carbon Neutral Strategy, or improving the availability and understanding of data with respect to transport policy. In both these cases, better data are a precondition of better policy. From my own work, the value of personal and household carbon footprinting is relevant, as at least a complementary intervention in efforts to reduce consumption emissions.

The second contribution is the emphasis on dynamic efficiency: appreciating, as the book advises, that ‘the political economy is not a static force to navigate. Rather, it is a dynamic relationship that evolves.’

Again, there are examples locally. Think of the fracture of trust between the community and the local authority that led to the eventual abandonment of the Hanover Low Traffic / Liveable Neighbourhood Scheme. Or the debate about process planning versus blueprint planning and the scope for stepped interventions in the area. Andrew Norton has written a guest piece about how to build a new eco-social contract through community engagement. As he says:

‘Policies and technologies to address (our) complex intertwining challenges exist. But despite their well-documented benefits, they also will be disruptive, involve difficult trade-offs between up-front costs and long-term pay-offs, and are sure to be contested by powerful beneficiaries of the status quo. Securing sustained public support for such policies is the political challenge of our lifetimes.’

Climate policy-making in communities is going to confront many of the issues discussed in the World Bank book. Can we make systematic use of its ideas about policy space, the feasibility frontier, and the dynamic cascade of new policy?