Funding agency: OENB Anniversary Fund (project number 18890)
Grant size: 87.000,00 EUR
Project duration: 10/2023 - 03/2025
Project team: Gerhard Sorger (lead), Andrei Kalk
Abstract: Climate change poses major challenges for governments around the world. A particularly important aspect of the transition from a traditional economy to a carbon neutral one is that it necessarily creates economic winners and losers. Individual companies or entire industries that are dependent on the use of fossil fuels lose part of their business basis, while other industries benefit immensely from the transition. This situation creates a favorable breeding ground for lobbying and other forms of political influence. The proposed project aims at contributing to the understanding of this problem by modeling climate policy as a dynamic hierarchical game between political interest groups on the one side and the government on the other.
Andrei Kalk and Gerhard Sorger: "Climate policy under political pressure", Journal of Environmental Economics and Management (2023), 102900
Abstract: It is widely acknowledged that there is an urgent need for policies that can reduce greenhouse gas emissions. Yet, the policies implemented by governments are far from sufficient to reach their long-term climate targets. In this paper, we propose a theoretical framework to study the implications of political pressure on optimal climate policy. A key feature of the framework is its ability to capture dynamic inconsistency, which naturally arises from the long time horizon of climate policies and their susceptibility to modifications due to political pressure. Our findings offer a new rationale for why green lobbying can make pollution regulation less stringent. We also show that political pressure from the polluting sector leads to a higher rate of clean energy investment chosen by the government and can facilitate the transition from dirty to clean technologies. Similarly, this transition can be facilitated by political pressure from members of the public who care only about immediate consumption.