Companies have the greatest leverage to combat the climate crisis

Framework requirements could be created with a moderate CO2 tax and incentivizing green innovations. To be effective, the latter must also be expanded to developing and emerging countries.
After the elections, one question will be at the forefront for Germany and for Switzerland: Who should pay for the climate protection measures? Should it be the state, as the Greens argue from the point of view of the left ? In other words, taxpayers? Or should the costs be covered by CO2 tax as per ‘polluter pays’ principle, as pro-business parties argue? So that consumption becomes even more conscious, but more importantly industries are encouraged to invest in ecologically efficient innovation? According to French economist Philippe Aghion, the answer is quite clear. For Aghion , who examines Joseph Schumpeter’s theory of „creative destruction“, it is clear that companies have the greatest leverage to combat global warming with their innovations – if they have the right incentives.

In the book he has just published in English, co-authored with Céline Antonin and Simon Bunel, he presents extensive data on the relationship between climate policy and economic innovation. The development of the automotive sector over the last forty years is examined as an example. First, the authors note that companies tend to continue in the direction in which they already have a track record. Without government incentives, they do not diverge from their paths. However, the authors are able to demonstrate that consumer preference and social pressure motivate certain adjustments. Based on population surveys, value change studies and industry developments in over forty countries, they show: Articulated consumer concerns have indeed encouraged the industry to become greener over the past thirty years.

Public pressure alone is not enough

So a public declaration – even if it often does not go far beyond lip service, as the June vote on the CO2 law showed – also has a certain effect. However it should also not be overestimated because the data for the U.S. also show that newly discovered shale gas, which emits less CO2 and has resulted in falling energy prices, quickly weakened corresponding efforts.
To find out what impact a CO2 tax would have on innovation in the automotive sector, the authors ran simulations. These showed that it would have taken a 40 percent (!) increase in the price of gasoline as early as 2005 to count more „green“ than „fossil“ patents as of 2020. Such a measure would never have been enforced then, and even today its chances of implementation would be zero. So what is to be done? Since public pressure alone is not enough and extreme price changes are out of the question, the authors argue for two things: a moderate CO2 tax and incentives for green innovations. To be effective, the latter must also be extended to developing and emerging countries at an affordable price.

„Preventing „emissions havens

However, because this does not allow inventors to exploit their innovation rent, they must be compensated for their investments. In order to prevent countries from positioning themselves as „emissions havens“ (a nice reference to „tax havens“) and tolerating, if not welcoming, uncontrolled pollution, countries must coordinate internationally. In doing so, the authors are referencing Nobel laureate in Economics William Nordhaus, who launched the idea of a „climate club“: an association of countries that mutually commit to CO2 taxes and punitive tariffs, as well as common targets. His model for setting the price of CO2 is based on scientific estimates of the consequences of climate change, but also on the leverage provided by steady technological innovation. The estimated costs are accordingly moderate. His suggestion did not go unheard. A few days ago, economic expert Veronika Grimm called for Germany to take action on climate issues at the European level and for Europe, the United States and China to join forces in this regard – for instance, in a climate club. Who knows: Perhaps the Nobel Prize in Economics and the economic evidence will help in finally getting something done, and at a reasonable cost. If the worst comes to the worst, Switzerland could also consider „docking“ to such an initiative – or, since it is only a club, perhaps even becoming a member!