Climate transition, risk, and industrial policy: Some post-Keynesian insights for policy makers

It is widely accepted that climate change is damaging global viability across multiple dimensions. This paper explores how changing the conditions under which firms make the decision to invest in decarbonisation may facilitate the necessary reductions in greenhouse emissions to avoid high-likelihood scenarios articulated by the Intergovernmental Panel on Climate Change (IPCC). It uses insights from James Crotty, Victoria Chick, and other post-Keynesian economists about finance and industrial transformation to suggest how to facilitate climate transition despite increasing uncertainty for the private sector. Governments’ interventions to purchase output and provide liquidity assistance may encourage firms to innovate and reduce carbon emissions. The paper considers also the role of central banks in facilitating these processes, both in terms of the negative effects of recent interest rate increases, as well as regarding recent efforts to add environmental sustainability criteria to financial stability reviews, and to create credit facilities for decarbonisation.