Yes, there is enough money to decarbonize the economies of high-income countries justly and sustainably

Abstract

This year a number of factors have converged to substantially increase the impetus for a credible, effective programme to radically decarbonize the economies of high-income countries, particularly in the EU but also more broadly, in ways that would reduce economic inequality and are just and sustainable. These include the European Commission’s European Green Deal, Coronavirus Recovery Plan and revamped Hydrogen Strategy; international calls for a green, sustainable and just coronavirus recovery; a global revival of Keynesian supply-side economics; and increasing interest in direct central bank funding of government stimulus programmes. In this essay I offer a first attempt to draw these elements together to suggest what might be a coherent strategy for action, at least for countries with stable, resilient currencies. One of the key elements would be for central banks to finance their governments’ decarbonization programmes directly by buying government bonds and holding them in perpetuity as insurance against misallocation of funds. The losers in such a strategy would be elements in the finance sector which have come to rely on virtually free bailouts and handouts from central banks via quantitative easing programmes. Resistance to the proposed strategy would probably be fierce from these quarters.

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“…1. The fully modified ordinary least squares (FMOLS) and the dynamic ordinary least squares (DOLS) estimators were both used in the first step of our analysis, which was the application of the co-integrating regressions developed by (Galvin, 2020). These estimators are built with the following components: FMOLS and DOLS are widely used in research because they help eliminate endogeneity issues among regressors and the autocorrelation problem.…”

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“…There is also an alternative view of the existing green finance model, which involves removing of bond mechanisms through additional emission of funds. Based on these arguments, high-income countries have enough money to fund deep decarbonization of their energy sector and other economy sectors over the next several decades in a way that is sustainable, inequality-reducing, more equitable, and having a long-term positive impact on performance (Galvin, 2020). In the event of a significant digression from this, the central bank has a legitimate choice to stop funding the program.…”

“…It is argued that a similar approach is currently being used in a slightly modified form in New Zealand. Arguments are given in favor of the fact that the arithmetic effect on the state treasury would be the same if the national bank bought government bonds directly from the government completely bypassing financial markets (Galvin, 2020). Such approaches only confirm the intention of banks to form their sustainable policy in monitoring the turnover of funds aimed at the implementation of projects in the field of environmental conservation and other environmental policies (Akomea-Frimpong et al, 2021).…”

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“…Rather, monetary and fiscal policy can be coordinated such that national governments can finance whatever expenditure they lawfully authorize (this point is broadly supported by GND-supportive economists, though they differ on the mechanics 3,6,125 ; for Eurozone countries, which do not issue their own currency, financing the needed outlays is more complicated, but feasible. 126 ) The above-mentioned carbon, income, and capital taxes, in addition to their primary functions, facilitate non-inflationary GND-related government outlays by withdrawing money from circulation, though whether the complementary role of such taxes is best understood in terms of paying down public debt or inflation control is a matter of debate among GND-supportive economists. 3,6,125 Existing macroeconomic institutions, such as central banks, need to be ''greened'' so that monetary policy favors low-carbon sectors, while dedicated investment institutions, such as mission-oriented green investment banks, are also needed to make strategic investments in innovative low-carbon technologies and companies.…”