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Commentary. Without changing the engine that is driving production, responsible for 85% of CO2 emissions, compared with only 15% for consumption, it will be impossible to reach the goals of the Paris Agreement.

Green economy and industrial conversion, a perfect couple

Under the burden of economic and financial limitations, Green New Deal measures, issue taxes and pork barrel funding, the Italian budget for 2020 doesn’t manage—and cannot manage—to outline a coherent set of environment-focused structural measures to achieve the goal of fundamentally changing the economic engine of the country without stopping it. The Green New Deal remains a prospect for the future, unfortunately without an appropriate analysis and structural outlook, which weakens the overall project.

Without changing the engine that is driving production, responsible for 85% of CO2 emissions, compared with only 15% for consumption, it will be impossible to reach the goals of the Paris Agreement. The nonprofit research center ESTA, in collaboration with the Environment Ministry, has prepared four working papers (focused on capital, finance, structure and matrix, respectively) intended to outline the policies that would work best for implementing the ambitious project of a Green New Deal. We will hold a talk in Milan (at 2 p.m. on Nov. 29 at Bicocca University in Rodolfi Hall; for registrations contact [email protected]) on the topic of the structural links of the project with the academic world and the social partners.

This could be an opportunity to develop a methodological and innovative approach to outline the best government budgetary policies designed to support the new green techno-economic paradigm. The points of strategic importance can be substantially reduced to three issues.

1) The impact of climate-changing effects on GDP is mostly measured in terms of costs, ignoring capital. 

In reality, costs incurred by some can also represent income for others: the protection of a place, the environmental rehabilitation of an area, the de-pollution of groundwater and/or the finding of deeper aquifers are all effects of climate change that can bring income in the presence of an economic policy that is up for the challenge. 

The dispute over the costs is overshadowing a more profound issue: the amount of national capital that is in serious danger of being compromised because it will be destroyed or rendered unusable by the effects of climate change. To be more precise, given the forecasts regarding floods, there are large areas of the territory that are likely to be deprived of capital and added value altogether.

2) The field of finance cannot be overlooked. 

From what perspective is monetary policy looking at climate change? In the most important institutional documents, including those issued by the Bank of Italy, the issue is tied to ESG (environmental, social and governance criteria) parameters that would allow the issuing of bonds tied to climate objectives. 

Unfortunately, it is difficult to get the financial dynamics—even when considered within the framework of ESG issues—to take into account some relevant risks. For example, the risk of delivering the most credit-capital to areas of lower climate vulnerability—where there would be less of a need for credit-capital to invest—compared to high-vulnerability areas. Or, indeed, the speculative risk, namely the risk of the creation of bubbles in a new large sector that is believed to have a high potential for profitability.

3) It would be appropriate to investigate the relationship between the CO2 trend, the GDP and the production structure. 

Although there is almost unanimous agreement on the objective of reducing CO2 to mitigate the greenhouse effect, this perspective has historically been interpreted by some as a constraint on growth and/or on the use of natural resources. Furthermore, others have argued for introducing taxes to implement the principle according to which “the polluter pays.” It would be much more useful to identify a coherent tax base which would not be tied to consumption, introducing a progressiveness criterion connected to CO2.

The biggest challenge lies in the relationship between CO2 emissions and the structure of production (the development model). Looking at a number of system indicators for the major European countries (patents, R&D, green investments, GDP), it can be seen that not all countries are experiencing the same trends. The differences are tied to the structure of production: the more this is oriented toward the green economy, the more it shows higher growth rates, and vice versa. 

The green economy is based on the industrialization of research and on public policy, the differences between the countries are a snapshot of their technological, and economic position and their ability to become agents of change.

At a first stage of the inquiry, it can be seen that the field of industrial manufacturing, compared to other fields given greater importance by the mainstream narrative (e.g. transport, agriculture), is the one that is responding more than others—in terms of de-carbonization—to the coordinated stimuli coming from research and development and patenting. Furthermore, this is a strategic sector for the green economy, due to the fact that it supplies the goods used by the agriculture, transport, climate control, etc. The type of investigation we are proposing involves looking at CO2 emissions as a dynamic process, and not as a behavioral phenomenon.

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