Macrofinance and the green transformation: nudging, attracting, and coercing capital towards decarbonization

Abstract

How should states secure funding to support the green transformation, where the state is an actor that is both public and dependent upon private interests? This pressing issue in international political economy (IPE) has so far generated different and dissonant scholarly discussion. This special issue brings analytic and empirical specificity to these conversations in order to map out the possible macrofinancial strategies that states have open to them. We contend that there are three possible policy strategies that states can adopt, albeit with some degree of combination or overlap. The first strategy embraces macrofinancial policies that attempt to ‘nudge’ agents into specific behaviors and/or rely on market signals as the primary drivers in delivering decarbonisation. The second strategy is one of attracting investment from the holders of existing assets through financial incentives, which is what the existing literature most often refers to as ‘derisking’ The third strategy we identify is ‘strengthening the state’ or, more bluntly, coercing private finance into investing, or bypassing them completely. The authors in this special issue ask what the limitations of each strategy are in specific national contexts, and what the coalitional and distributional consequences would be of embracing these policies that nudge, attract, or coerce.