Transitioning to a low carbon economy from a financial perspective

Aug 8, 2018 by

In contrast to prior lectures, Emanuele Campiglio’s does not promote radical changes to our economic system, but his aim is to increase the integration between the financial sector and sustainable investments to achieve a sustainable and prosperous society. The main tools to achieve this goal is to adapt the current financial system to modify the typical rules of the financial actors toward more sustainability. The key is to increase finance for sustainable investments but to avoid disruptions while transitioning.

The 5 following steps are possible pathways in reaching his goal to stabilise the concentration of Greenhouse Gases (GHG) in the atmosphere.

1)   Modify private financial incentives through policies
2)    Increase public financial interventions
3)    Facilitate sustainable financial innovation such as green finance
4)    Support assessment and disclosure of climate risks
5)   Mitigate systemic risk through financial regulation

These are very interesting as Professor Campiglio looked at the low-carbon transition from the perspective of policy makers. He for instance argued that the energy transition could not be tackled from increases in investments without any market intervention regardless of their form. The reason for this is that although green investments can have returns as high as for carbon intensive investments, their risks are much higher, and returns are much more long term with high initial cost. His advice was however to be cautious with the tools to use as they might not always be as effective as desired whether it is introducing command and control regulations to having direct government investments or affecting financial regulations.

His approach hence differed to some of the prior lectures we have had as he advocated to often give a price to carbon and environmental externalities although they might lead to negative responses from individuals and firms who can find it justified to pollute as long as they pay. Moreover, this reinforces the capitalistic paradigm. However, it is certainly true that some concessions have to be taken in order to transition in a sustainable society without negatively impacting our economy.

One very interesting comment from the class was towards Professor Campiglio’s vision of the oil, gas and coal industry which can lobby the governments and financial systems to slow down the transition. Indeed, he talked about the concept of stranded assets for this industry. He explained how the vision of non-renewable resources had changed from being limited in the 1970’s to becoming almost worthless today because there are too many of them and renewable resources are now competitive to produce electricity. The industry would hence use its economic power to influence the government. However, the speaker was optimistic that the problem could be treated in a scientific way and that although these firms can have some effect on the speed of the transition, they too will adapt to the need for changes in global energy production.

To conclude, the presentation was overall very optimistic as it gave us very different tools to address the numerous local environmental problems around the world. It is now our responsibility both as citizens and as empowered individuals to help shape policies in appropriate ways in order to find the most adapted tool for every problems starting with global warming which has sometimes made it very difficult to concentrate on what the lecturers are saying in the Viennese heat.

Written by: Shahriar Soudian and Antonin Boissin

Based on the lecture by: Emanuele Campiglio (“Sustainable Finance: Policies for a Smooth Low-Carbon Transition”)