The Political Economy of (Lacking) Commitment to Green Policies

Abstract

The IPCC (2022) views political commitment to policies as a prerequisite for mitigating climate change. We study an environment where citizens’ incentives to invest depend on future policy decisions. In turn, political support for future policies depends on citizens’ investment decisions, as these policies redistribute towards citizens who invest. We show that such redistributive concerns distort politicians’ incentives to commit. Our model explains why redistributive concerns induced some governments to choose extensive commitment by providing price certainty to investors in renewable energy for 20 years. Our model also explains why redistributive concerns can hinder commitment to green policies as suggested by the IPCC. Finally, we show that redistributive concerns can provide credibility to a policy, even if the policy is inefficient.