State versus Market: Which does better climate policy?

By Henrike Adamsen
Supervisor: Dr. Gesa Lüdecke

Given the aim to achieve carbon neutrality, the question arises: How can we decarbonise the economy without creating a turmoil in financial markets, making thousands of jobs redundant and reducing people’s income? Or in different words: How can we decarbonise our economy without creating a recession that turns our common perceptions of wealth and well-being upside down?
In this discussion about the “right” climate politics, two positions have emerged that are characterised best by their view on technological progress.

Meet Achim Wambach, professor for economics at the University of Mannheim, who endorses the optimistic position. This means that he is in favour of market-based climate policy: Firms will innovate and move technical boundaries because they are competing for consumers.
On the other side, meet Ulrike Herrmann, author and journalist at the German newspaper TAZ, who proposes state limits on resource use and thus strong barriers on economic development. This position is called post-growth. She questions whether the amount of energy necessary to power Germany’s industry and households can be sufficiently supplied by renewable energy. She argues limited environmental resources require an overall reduction of production.

The biggest contrast between the two, however, consists in the judgments regarding technological progress in the future. Economists assume a certain speed of technological change and that this speed increases over time, based on our experiences in the past. Post-growth economists, on the other hand, doubt that technological progress will be fast enough given that climate policy targets are to be reached by 2030. This is why they prepare answers and solutions for the case climate neutrality will not be achieved with technological means alone.

Comparing the economic and the post-growth viewpoint it becomes clear that the positions differ in their priorities. While the latter stance puts the reduction of carbon emissions first, no matter the economic and social costs, the former emphasises the short-term loss of wealth and the break with continuity such a change would entail.

Both positions have their advantages and disadvantages. Hearing Ulrike Herrmann und Achim Wambach exchange their arguments is meant to disentangle a complex discussion and inform the audience about the different positions on the role of state and market with respect to climate policy.

The podcast episode is part of the podcast project future economies. All episodes are recorded in German.