Bob Hancké, PEACS
21 February 2025
Like every transition, the green transition incorporates a tension that is best captured in the broad concepts of sequencing and systemic network effects. The former refers to the idea that reforms of crucial ingredients of the fossil world are futile or fail unless they are organised in a sensible sequence. Joseph Stiglitz alerted us to this problem in the transition in Central Europe and Russia: privatisation of collectively owned economic assets needs to follow a system of property rights that is underpinned by the rule of law (Stiglitz 2001; King 2007). If you privatise first and then settle property rights, privileging insiders of the old regime, as in Russia after 1991, things end up looking very different from a world in which property rights are established before privatisation, as in Central Europe during that period. While the latter does not imply the absence of mistakes, the former almost invariably leads to an oligarchy populated by party and state insiders. (Have you never wondered why, judging by the share of former officers who are now entrepreneurial billionaires, the KGB has turned out to be the best business school in Russia?)
During the green transition, you could think of such examples as the need for a resilient, larger green electricity grid not after but before or early in the decarbonisation of transport and domestic or industrial energy; or the need for balancing taxes on brown activities and their effects on the real disposable income of households below and just above the median income, something French president Macron ignored before the 2018 gilets jaunes reaction to an eco-tax on petrol. Sequencing is important for technical reasons, as in the example above of a robust electricity system, or for economic reasons, because without a developed charging infrastructure, EVs remain a treat for the happy few with private charging points. And sequencing matters almost certainly for political reasons as well, as the yellow vest protests and the debate about a just transition illustrate. Without intelligent sequencing, innovation of the sort that we need in the green transition will fall flat on its face.
If an outcome requires a previously established arrangement to support it, which itself may require preconditions to function, the problem changes slightly in character. Such interdependencies or network effects highlight the need to think of the transition as a complex, systemic process in which many different elements interact and need to be mutually articulated. Often these are also the same that must be reorganised in an effective sequence for results to eve be possible. The successful mass introduction of EVs, for example, requires several things to fall in line: new plants because it is very difficult to build traditional and electric cars on the same assembly line; many new suppliers for the same reason, since the technology that current suppliers for fossil-fuel related parts specialise in are alien to EV-related technology; new skills for parallel reasons; new charging public infrastructure; possibly a revision of the tax system, etc. It also invites new patterns of product and process design because the product is very different and probably much simpler to assemble, and new skills for car mechanics in garages, because the underlying technology combines low-level engineering skill sets in electronics, software and chemical engineering alongside the existing greasy hands-type skills. And, to complicate matters, many, perhaps even all, of these new elements have to be available early on and pretty much at the same time, else the green transition is likely to get stuck.
Imagine a best-case scenario, in which unions and companies negotiate a cooperative deal to go all-out on EVs. However, since a proprietary charging network makes little sense except, perhaps, for the very largest companies, every car producer is eyeing the government, or some private collective organisation to step in, fund and organise that. Without charging opportunities, especially in the cities where street parking is the norm, uptake of EVs remains low, which limits the gains to be made from an overall shift to electric cars, thus limiting the growth of a new industry. The logic is similar to why government plays a central role in public health or public transport systems. Individual doctors or rail operators could be private actors, but they need an infrastructural exoskeleton to ply their trade: universities, hospitals, etc. for the former, and land rights, tracks, railway stations and roads for the latter. In the fiscally chastened times that we live in, however, many governments are reluctant to finance the construction of these charging points and invest in the massive green electricity network that is part of this project. While there may be ways around the funding gap, that is likely only part of the complex necessary overall solution.
Without this bird’s-eye view of the green transition, much of the attention to micro-level reforms, engaged in isolation, will remain stale. Many necessary steps in the green transition require thinking ahead to second- and third-order upfront needs for the green transition and its ex post effects that determine the success of the targeted reform or innovation. For example, rare minerals that were marginal in a fossil world are central in a green world – but they are very expensive, and their exploitation is often subject to political negotiation and pressure (that is why Trump has been eyeing Greenland and Ukraine). Even recycling those materials (probably quite expensively, especially at the start) can only happen when we have a critical mass of them in circulation. So, the question requires a quick and dirty solution today and something else, possibly very different, in the medium or long term.
These systemic processes have deep real consequences. Many brown industries such as steel, cars or energy production have highly regionally concentrated activities. Companies in these sectors and their suppliers are therefore deeply regionally embedded: you cannot simply pick up a steel, or car plant or a power station and put it somewhere else, and many of your direct and indirect suppliers are located within a short ride from the plant. In addition, many local companies that provide services, like hotels and restaurants, or social organisations like football clubs and schools, benefit from the presence of the large plant. Since greening the economy also means getting rid of brown economic activities, many of these complex regional economies may, almost overnight, go from being among the wealthiest regions in their country to among the poorest. One key concern of trade unionists and local authorities is, not surprisingly, how to avoid hundreds of mini-Detroits in the wake of the green transition – for reasons of social justice, but also, as Brexit and Trump seem to have demonstrated, left-behind households in left-behind regions do not take exclusion lightly.
The success of the green transition thus depends in part on thinking through systemic long-term needs and effects that are, at best, only partly visible at the start; and since there are almost certainly issues that will arise in the future that we cannot anticipate today, we need to keep today’s systems relatively open and forward-compatible, so we do not lock in a bad future when a better one on a very different track becomes possible.
In sum, a green transition is a complicated process with many interconnected parts that raises many issues which need resolution almost at the same time. This requires not just technical coordination, but political intervention to promote such coordination because individual rational actors are unlikely to produce solutions that address the interconnected, systemic nature of the transition. Since many of these, including the institutional ability to provide solutions, have characteristics of a public good – accessible and beneficial to all, and thusnotorious for being undersupplied – the systemic, multi-step and network nature of the transition, and the market failures this invites, make public intervention and guidance a necessity.
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