Green bargains: leveraging public investment to advance climate regulation

Abstract

ABSTRACT Climate policy has entered a new era as public investment is increasingly moving to center stage, including recovery spending and long-term climate investment plans. While essential for decarbonization, public investment is not enough – the carrots of investment need to go hand in hand with regulatory sticks. Public investment in clean technologies and infrastructure does not guarantee decarbonization outcomes. Yet, climate regulation, particularly high and comprehensive carbon prices, has remained elusive in the United States and many other parts of the world. Against this backdrop, the big public investment push offers a political opportunity of government leverage. Governments can tie climate requirements to public investment as part of a 'green bargain.’ At the core of these arrangements is reciprocity – linking carrots to sticks – to ensure public investment leads to technological change and emission reductions. Drawing on the experience with ‘reciprocal control mechanisms’ in public investment among late industrializers, this paper advances our understanding of green bargains. It examines the historical precedents of green bargains, introduces a typology, and offers an empirical overview based on an original dataset of implemented and proposed green bargains. We then focus on the design choices related to leverage, scope, and accountability to make green bargains effective at technological learning and advancing decarbonization. The article concludes with a discussion of US and international policy fora that can serve as platforms to develop green bargains as public climate investments expand. Key policy insights Scaling public investment for decarbonization is essential but not sufficient. Climate regulation needs to complement investment to ensure decarbonization outcomes. Yet governments, in particular the US, are falling short of needed climate regulation. Public investment offers leverage to tie climate requirements to government spending on clean technology and infrastructure. Linking carrots to sticks represents a ‘green bargain’ between governments and firms and industries, with reciprocity at its core. This resembles the ‘reciprocal control mechanisms’ of late industrializers. To make green bargains effective, their design needs to facilitate broad scope, high government leverage, and high accountability.