And how understanding this can help us kick-start the green transition
Before COVID-19, the mayoral candidate of New City had a vision: to replace car lanes with bicycle paths and tree-lined pedestrian boulevards. The plan aimed to encourage calmer walking and biking right at the core of New City. As COVID-19 happened in early 2020, the now mayor took a swift approach to implement the plan. Soft temporary barriers, plants and benches were placed, and former car lanes were repainted and repurposed.
A few months later, the results were disappointing. Post-lockdown meant an increase in traffic which resulted in increased congestion. The paint on the street lanes wore off and was soon overtaken by parked automobiles. The opposition criticised the government for fast-tracking the project without proper planning considerations. The project ended up being viewed as a personal project of the Mayor. Local ‘green’ champions rued the loss of momentum and opportunity of an initiative that, at first, held all the characteristics to improve the lives of citizens and reduce car emissions.
The fictitious story of ‘New City’ above can serve as a cautionary tale to any government aiming to deliver its own ‘green transition’ in the next years. Unfortunately, the signals from climate science could not be clearer: we don’t have the luxury of implementing trial and error policies and risk further delay in transforming our economies towards carbon neutrality. We have ten years to avoid worst-case scenarios and decisively transform the world economy – there is no margin for costly mistakes.So, why even well-intentioned, well-designed policies fail? And what can we do about it?
To understand how we can get to effective change-friendly institutions, we need to have a set of conditions – ingredients to a recipe, if you will.
Ingredient 1. A favourable framework
In general, the change to a greener economy has been focused on innovative projects and building up skills. In this sense, a growing number of initiatives have emerged. Europe is supporting the research of new technologies such as green hydrogen based entirely on renewable electricity like wind and solar. Some cities are leading the way in terms of new urban models, such as Paris mayor’s project of the 15-min city, developed primarily to reduce car traffic. New community initiatives include projects such as urban vegetable gardens, Repair Cafés or free markets. Arguably, the issue of institutional reform has been a neglected part of these investments.
That is not to say that projects are an inadequate solution. Problems arise when such projects are used in isolation, as a kind of a magic bullet to spread change rapidly throughout the economy We also know that over-reliance on technological projects alone can produce unintended consequences. For example, we often assume that if we use more energy-efficient light bulbs in place of … Continue reading
Indeed, we develop most projects under the assumption that the adequate ‘institutional setting’ is in place and is always benign. Arguably, this is not the case for the Green Transition.
The adoption of the Paris Agreement in 2015 was an important milestone in ‘setting in stone’ an international climate institutional framework. The European Commission has recently proposed the first climate directive: the 2050 climate-neutral target is now “enshrined into law”. The wider European regulatory framework now limits the amount of Greenhouse Gases its economy can emit the EU Emission Trading Directive (ETS), the Effort Sharing Regulation (ESR) and the Land Use, Land Use Change and Forestry (LULUCF) Regulation.
But, unfortunately, our unsustainable economy runs deep. It has complex inter-linkages along value chains and within production processes, most casually set up cumulatively throughout centuries. As the European Environment Agency suggests, we still define our actions under a ‘Brown Economy’ umbrella:
“[European] society’s resource use and pollution are tied in complex ways to jobs and earnings across the value chain; to major investments in infrastructure, machinery, skills and knowledge; to behaviours and ways of living; and to public policies and institutions.”
In other words, the practice of isolating economic processes from its environment impact is still widespread. Too often, sustainable considerations are property of siloed environment ministries and agencies — mostly derided technocratic institutions responsible for ensuring protective requirements are in place.
Decarbonisation policies will have to touch every single corner of our economies. The institutional framework that fuelled the climate crisis cannot be used to combat it – we need to change it.
It thus comes as no surprise to say that a green pathway must be enabled through a favourable institutional framework. Such a green framework would mean laws and organisations specifically geared to factor in ecological, social and economic priorities. This also includes values, shared narratives and beliefs that guide our behaviour and how we use resources. Anyone involved in public policy will tell you these are often the most important barriers to change.
Regrettably, there is no ideal form of institutional framework. They differ widely throughout the world; hence it has not been possible to identify the perfect arrangement. Solutions must be developed within each specific context.
Instructions : Develop tailored favourable laws and organisations and support the adoption of favourable social norms
Ingredient no. 2. Effective institutions
What do we mean by ‘effective institutions’? Surely, before we talk about what is failure, we need to understand what we mean by successful policies. Well, we go back to the World Bank once again. Institutions that achieve the intended outcomes are the ones that deliver policy that is: a) consistent b) allows individuals to coordinate with each other, and c) prevents free-riding.
According to this perspective, firstly, policies yield the desired outcomes when they show the government is consistently committed to achieve purported goals. This way, individuals, business leaders or investors feel secure to invest their resources in long-term productive activities.
Secondly, if individuals and business leaders believe the policy will actually be implemented as intended and will be kept even beyond each political cycle, they will coordinate their actions for best results. The best example is a policy to promote the use of electric cars. To be successful it requires trust in its implementation from car manufacturers, battery and charging station developers and city planners.
Lastly, effective policies anticipate and include provisions to limit opportunistic behaviour (free-riding) – often by rewarding compliance or penalising transgression. An example is tax evasion. Not paying taxes does not prevent the enjoyment of public services but is detrimental to the system’s sustainability (and so akin to free-riding).
In a nutshell, consistency and trust are key. Circumstances may change, resources may be withdrawn, but policy objectives must remain stable. Stability can be achieved by setting in stone the rules so that investors feel assured conditions won’t change. These three winning characteristics promote voluntary compliance by individuals and hence increase the impact of a policy.
Instructions: Design consistent policies and build trust in policy-making
Ingredient no. 3. Change-friendly institutions
Of course, one question arises – if we know the necessary ingredients, why do we still design ineffective policies? Like a skewed compass, where policy making is not aligned with the setting, only by chance expected outcomes are reached. In the current ‘brown’ institutional framework, green policy collides with the incumbent ‘way of doing things’ and, consequently, face significant barriers.
Broad reforms to policy making are therefore needed. We can get inspired though from a number of countries that have successfully managed broad transitions in the past, but they had to undertake deep, painstakingly slow reforms. Let’s see one example.
“God did not create hurry”
Old Finnish proverb
In the 1800s Finland was a peripheric Swedish colony. It was among the poorest places in Europe. In 1867–1868, it experienced the last hunger crisis in Europe: 240.000 people died of malnourishment, as agriculture and infrastructure collapsed. A hundred years later, Finland was among the top global developed nations.
According to Pertti Haapala two root causes probably played a determinant role in overturning the destitute conditions of the XIX century. Firstly, the Finnish started placing modernisation at the centre of public debates. A nation-wide consensus was gradually formed and, for the most part, institutionalised in legislation and other social reforms, aiming at improving the material life of its citizens. The second cause is attributed to a transformation in world view and of the individual’s role in society (i.e. individual responsibility, equality, gender roles, parent-child relationship, religion).
From then on, public authorities were able to draft and implement consecutive policies that managed to take advantage of favourable commercial ties with Russia and Western Europe. Policy design was so effective and grounded that the country was prepared for disrupting events. In the early 90s the government institutionalised easy access to the Internet for all and the development of information systems. As soon as Finland was hit by the 1991–1993 depression, the country was already in a position to take advantage of suddenly open global markets for communication technologies. Nokia was just around the corner.
In a democratic society, policy making is always the result of reaching agreements between people (“interests”) who have diverse, or even conflicting preferences. This dynamic — I shall call it a figurative ‘negotiation table’ — is also defined by a country’s institutions.
When the level of polarization is high, as we have been witnessing in the United States, agreements are seldom reached and the outcomes are disappointing, i.e., any policy designed for change will be an isolated attempt. This was the case of post-communist countries, where the initial beneficiaries of the wave of privatisation that followed the fall of the Berlin Wall ended up blocking substantial reform that would jeopardise their valuable head-start.
Where positive interests dominate, decisions are likely to be more adapted to actual circumstances, and they work! This was the case of Finland, above. The intention of successive Finnish governments to design and carry out policies destined to modernise the country had the initial support of the population. However, the stake on inclusiveness and equality was fundamental on the long run. With the right conditions in place, policy’ efficacy was henceforth greatly enhanced as citizens voluntarily contributed to their implementation, even as results were apparent only after World War II.
This dynamic understanding of how policy making actually works helps understand what status quo (‘brown economy’) agreements are possible and what we have to change in the ‘negotiation table’ to expand the realm of political possibilities. This means that change will only come if (i) new interests sit at the table, i.e., if we start taking into account the preferences of new groups (ex. green or future-looking organisations); (ii) change the beliefs of existing social or business interests; or (iii) change current economic incentives, such as launching a carbon tax.
In our times, when nations compete with multinationals and non-governmental NGOs, the state cannot manage such complex processes by itself. Instead it must rely on political and economic alliances – on leveraging the powers of citizens, communities and businesses. Of course, we will require political leadership to overcome difficult moral choices and unleash these collaborative processes. Without political leadership, the change that we need will just not happen fast enough.
Instructions: Design inclusive decision-making processes, for best alignment between the public and policy-makers.
Lessons for policy-makers
Bringing these lessons to the reality of designing effective green reforms – whichever scale it is taking place, would mean broadening the scope to include such policies as:
- Garnering wide-ranging political support, across the political spectrum. Include even those who disagree in the democratic procedures of policy making. A referendum on the green economy could be a start.
- Considering the green transition as a priority across all government programmes. Every policy should be aligned with it.
- Investigating which institutions can contribute to a green transition and which are detrimental. Support the creation of new institutions, if needed, to substitute those that are ineffective.
- Inviting new groups and individuals to political fora that influence decision-making — outside the business-as-usual governmental bubble, especially those that can contribute constructively to a green reform.
- Designing the right incentives to move sceptical individuals in the right direction, especially influential in the decision-making processes. For example, low interest financing of green product development may reduce business risk.
|↑1||We also know that over-reliance on technological projects alone can produce unintended consequences. For example, we often assume that if we use more energy-efficient light bulbs in place of incandescent bulbs, we will use less energy. But historical evidence suggests that in the long run the opposite is true. Efficiency improvements result in cost savings that are invested in increased consumption (so-called “rebound effects”).|
|↑2||the EU Emission Trading Directive (ETS), the Effort Sharing Regulation (ESR) and the Land Use, Land Use Change and Forestry (LULUCF) Regulation|