Green macrofinancial regimes

Gabor, Daniela; Braun, Benjamin

Abstract

Debates about climate policy have neglected the question of macrofinancial pathways to decarbonisation, not all of which are economically and politically viable. We propose a theory of macrofinancial regimes, understood as combinations of monetary, fiscal, and financial institutions that shape the creation and allocation of credit/money, and hence the speed and nature of the green transition. Focusing on two dimensions—the scale of green public spending and the degree of discipline imposed on private capital—we derive a typology of four regimes. Derisking regimes are low-discipline: under weak derisking, a fiscally constrained state tweaks the risk-return profile on infrastructure assets to reduce the carbon footprint of the economy’s existing sectoral structure; under robust derisking, the state subsidizes capital expenditure in cleantech manufacturing directly, and with the ambition to alter the economy’s sectoral composition. Derisking regimes are rendered unstable by coordination problems and regressive distributional consequences. This may tip societies into a carbon shock therapy regime under which discipline is enforced by carbon prices and market competition, resulting in a disorderly transition path. Alternatively, institutional reforms that increase the state’s capacity to spend and to discipline capital may give rise to a big green state regime where coordination is achieved through state-led planning.

Citation

Gabor, D., & Braun, B. (online). Green macrofinancial regimes. Review of International Political Economy, 1-27. https://doi.org/10.1080/09692290.2025.2453504

• Journal Article Type: Article
• Acceptance Date: Dec 16, 2024
• Online Publication Date: Feb 3, 2025
• Deposit Date: Feb 15, 2025
• Publicly Available Date: Feb 15, 2025
• Journal: Review of International Political Economy
• Print ISSN: 0969-2290
• Electronic ISSN: 1466-4526
• Publisher: Taylor and Francis Group
• Peer Reviewed: Peer Reviewed
• Pages: 1-27
• DOI: https://doi.org/10.1080/09692290.2025.2453504
• Keywords: Climate policy, green transition, industrial policy, green finance, derisking, big green state
• Publisher URL: https://www.tandfonline.com/doi/full/10.1080/09692290.2025.2453504