Recent election victories for leftist parties in France and the United Kingdom may herald a new era of climate policymaking in Europe. Britain’s new Labour government has ambitious plans to expand renewable-energy capacity; and, although tricky coalition building remains, the climate-skeptic far right has been thwarted in France.
One hopes this momentum can be carried into the G20 ministerial meeting in Rio de Janeiro on July 24. There, rich countries will consider Brazil’s pioneering proposal for a 2% annual minimum wealth tax on the world’s billionaires. Such a tax, along with new climate-financing instruments that are expected to be announced, could support investments in green growth, climate adaptation, and measures to address inequality within countries.
But new investment vehicles will not suffice. As our experience with COVID-19 showed, purely market-based approaches were not enough to tackle a pandemic, nor can they help counter environmental destruction or the world’s yawning wealth gap. Even the rich world is starting to move away from the neoliberal orthodoxy of privatization and deregulation. But as long as developing countries remain hamstrung by the old rules, they will struggle to develop their own economic models and shape their own destinies.
Where previously Western free-trade advocates decried China’s use of protectionism and subsidies to favor strategic sectors, now these practices are de rigueur in advanced economies. The United States is pumping tens of billions of dollars into domestic electric-vehicle and battery manufacturing through the Inflation Reduction Act, using the state to stimulate investment and job creation in green sectors. But addressing climate change is a global struggle, and international trade rules generally do not allow developing countries to boost their own industries in this way. For example, Indonesia – the global leader in nickel, a critical metal in EV batteries – has been punished at the World Trade Organization for pursuing an industrial strategy.
Thus, while neoliberal policy prescriptions fall out of favor in developed economies, they are being repackaged in green boxes for less affluent ones. Policymakers in high-income countries can rely on costly industrial policy levers like tax incentives and loan guarantees, whereas developing countries have no such luxury. The latter must figure out how to create jobs, reduce inequality, and decarbonize their economies all with a much more limited set of tools and technological capacity.
Moreover, richer countries are pushing developing countries to “leapfrog” to renewables at an unrealistic pace. They fail to recognize developing countries’ need for limited fossil-fuel use in the short term, or that unfair trade rules are limiting poorer countries’ access to affordable green technology and cheap capital. Such double standards are indicative of the same power imbalances observed in recent years when wealthier countries hoarded vaccines, slashed aid budgets, and failed to deliver on past climate-finance promises.
This hypocrisy has not gone unnoticed. Authoritarian populists such as former Brazilian President Jair Bolsonaro, Argentinian President Javier Milei, and Turkish President Recep Tayyip Erdoğan have each promoted the narrative that climate policies undermine economic growth. That may be true in many cases, but only because of the trade-offs imposed by neoliberal policies.
If developing countries could shape their own policies, climate investments would drive job creation and inclusive growth. Governments that are being asked to green their economies need flexible financing at concessional rates. They also would benefit from progressive national and international tax schemes that build on recent successes such as the UN Tax Convention, an effort led by developing countries to democratize tax rules and claw control away from closed shops like the OECD.
The waning of neoliberalism gives developing and emerging economies a chance to cooperate on the design of a new paradigm. By devising state-led models that link green strategies with socioeconomic development, they can shield the climate agenda from attacks by authoritarian opportunists. Just as there are different types of capitalism, there are different paths to green development.
Consider Mexico, a manufacturing powerhouse and oil producer that has just elected a climate scientist, Claudia Sheinbaum, to the presidency. Her administration aims to invest $13.6 billion in renewable energy, with a goal of meeting 50% of electricity demand through zero-carbon sources by 2030. If done right, these efforts should promote job creation and reduce inequalities, with state-owned enterprises being leveraged to support the deployment of green technologies. The encouraging announcement of a new ministry overseeing science and innovation could also support the development of advanced manufacturing and high-tech industries.
Brazil is also well positioned to pioneer green policies for the developing world. Freed from Bolsonaro’s destabilizing rule, President Luiz Inácio Lula da Silva’s administration is pushing sustainable development and tax reform. If it can effectively coordinate its industrial policy, infrastructure aims, and green initiatives like the Ecological Transformation Plan, it could power ahead with a robust green growth agenda at home, while expanding its regional and global influence as the host of this month’s G20 meeting and next year’s United Nations Climate Change Conference (COP30).
We can build a new world of climate justice and social equity on the ruins of neoliberalism. To succeed, we need new economic structures that are informed, actively shaped, and maintained by low- and middle-income countries. A fairer global order requires more robust, proactive states that can design and implement policies to drive economic growth, job creation, inequality reduction, and decarbonization.
By Laura Carvalho, Director of Economic & Climate Prosperity at the Open Society Foundations, Associate Professor of Economics at the University of São Paulo.
© Project Syndicate 1995–2024
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