ISRF are starting the month with a workshop called “Redesigning Finance for Climate Justice.” It culminates the first year of finance seminars led by the economist Daniela Gabor. 

Throughout we have been aware that we were fighting an uphill battle. For eight or nine years after the Paris climate accord was signed in December 2015, politicians felt a duty to take climate change seriously, at least in what they said. That period has come to an end. 

Global finance hasn’t opposed the climate Great Retreat, pushed by the world’s most belligerent climate change denier, Donald Trump. His actions include the dismantling of green industrial policy in the U.S., a re-withdrawal from the Paris climate accords, and continuous lobbying against EU climate rules.  He seems determined to use the rest of the U.S. carbon budget on military mayhem and murder. From all this, top executives and many national leaders understood that they could drop the mask and evade whatever climate commitments they didn’t like.

In spite of renewed interest in industrial policy, North American and European governments have left the green transition in the hands of finance and industry. The vast majority of climate-related investment is private rather than public. Governments have generally reneged on their pledges of major financing. The result is what political economists have come to call a “derisking” regime: governments don’t direct private investment but instead subsidise it. They use carrots rather than sticks. Government guidance of industry or finance is minor and can be bypassed. Government coercion is out of the picture: finance wouldn’t stand for it, we hear, and anyway it would block market signals and reduce efficiency. 

Good overviews of the issue have been written by J.W. Mason, “Varieties of Industrial Policy,” and by Gabor & Benjamin Braun, in “Green Macrofinancial Regimes.”  Here’s a table from Gabor and Braun:

Figure 1

The West’s default is the upper left quadrant: low public spending and weak public discipline of finance and industry. Plunging through the policy window temporarily opened by COVID-19, the U.S. went from weak to robust derisking under Joe Biden before Trump reversed it.

But Biden also relied on financial incentives like tax breaks and subsidies—carrots rather than sticks. Biden and Trump policy share low-to-no government discipline of capital.  Europe’s governments have the same aversion to high-discipline regimes. 

The world’s biggest example of public discipline of private capital, at the very large scale one needs to address climate change, is obviously China. Its overall energy use continues to grow, as has its use of coal, and yet, in Adam Tooze’s words:

The expansion of China’s green energy capacities and, in particular, its solar PV production capacity is world-changing. At this point, China alone already has 50 percent more production capacity for PV panels than is thought to be necessary to hit an “optimized” Net Zero trajectory for CO2 emissions.

Here’s the chart by which Tooze illustrates his point.

Figure 2

The chart startles someone like me who studied solar photovoltaic (PV) development in the 2005-2015 period when renewable costs were much higher than carbon’s and manufacturing capacity was grossly inadequate to address the climate challenge.

Tooze puts boundaries around his admiration for China’s efforts with a range of essential green technologies. He notes it reflects an aggressive geoeconomic strategy. He goes on to criticise the environmental and social costs of China’s extractivist model of development as well as an “authoritarian environmentalism” that relentlessly pursues “the subordination of natural resources and the irreversible incorporation of traditional and indigenous communities.” He reminds us that Xi’s China does not allow independent environmental movements. 

And yet the architecture and processes of its industrial policy could and should be analysed and adapted. Our seminar’s first paper, by Cornel Ban and Xuan Li, was an empirical study of the role of government “guidance funds” in transmitting a general developmental direction. The directions are set by central government but then developed through an architecture so intricate and complex, yet highly functional, that it seems to me to be beyond the organisational and even the cognitive capabilities of the West.

It’s not just China leaving the U.S. corporate model in the dust. This is another figure from Tooze.

Figure 3

How can the U.S. and also Europe move toward the “five times faster” standard required by meaningful mitigation of climate change?  China’s example suggests that Europe and North America need to have the capacity to operate multi-layered allocation systems that involve blended resources and collaborative negotiations at every step. Do they?

Here are sample requirements from a Gabor paper that our workshop will discuss. Writing for the European Parliament’s Directorate-General for Economy, Transformation and Industry, Gabor notes the pervasive influence of the 2024 Draghi Report on Competitiveness, which used a familiar lexicon of accelerating technology transfer through bigger capital pooling and deregulation. Gabor writes (references omitted): 

In pursuing the Draghi recommendations, the EU institutions and Member States should avoid replicating Europe’s earlier de-risking-based industrial strategies, and instead forge genuine state capacity and market integration required for a transformative, globally competitive industrial policy. . . . [I]n East Asia and later China [a] strategy combining incentives and discipline ensured that private capital remained committed to transformational priorities when market signals changed and pressured the state into creating ‘compulsive institutions’ to design and enforce stringent performance criteria, monitoring and enforcement mechanisms, and curbs on market power. Credit policy institutions, including the central bank, state-owned banks and private banks, were critical elements of  the compulsive toolkit, with close control over credit flows deployed as disciplining mechanism.  Such compulsive institutions were largely absent in both the EU Green Deal Industrial Plan, announced  in January 2023, and in the 2025 Clean Industrial Deal.

Gabor urges European institutions towards” high discipline” and probably high spending as well, which are the elements of the lower-right-hand quadrant in Figure 1, the Big Green State.   

Big green states need to build the “compulsive institutions” that they don’t now have, with procedures they need to design, through analytical structures they need cadres to master, with conceptual and discursive tools they need to invent. 

And this is only halfway to the strong version of economic planning. To get a sense of its demands in a future post-capitalist society, relish the details in Aaron Benavav, “Beyond Capitalism—2.” His paper for our workshop discusses ways of getting there.

Western experts and Western publics have the habit of outsourcing major mental and organisational efforts to private firms. That means economic analysis and decisions are tacitly assigned to CEOs, billionaires, bankers, consultants, lobbyists, private equity managers, and ministers. 

Insourcing these decisions will require massive intellectual as well as institutional effort, from both policymakers and everyday people. I discussed this issue in a Director’s Note last year as we were beginning our seminar (“Decolonization of Economic Policy”): can we imagine principals in a private equity firm who could work as equal partners with the Liverpool City Region on decarbonization projects? To do so involves psycho-cultural capabilities that Westerners would need to build up from our current low level of attainment. The Big Green State needs Big Public Brains.

Publics often sound alarmed by the personal costs of the green transition. But they do understand the problem and the general solutions.

The best European example is the German public. Between 1998 and 2010, they quadrupled the share of electricity that came from renewables.  This success came from a policy success, guaranteed (high) resale prices to households that installed renewables and sold energy back to the grid (“feed-in tariffs”). There were other social factors in play, and one of them was educational programmes for all ages that created widespread cultural support for everyday use of renewable energy. Mass knowledge about energy worked together with a renewable pricing policy to create this popular support.

So then what happened to German solar power in 2011 and 2012?

I had a front-row seat for its crash and burn. I was interviewing and filming in Berlin and Eastern Germany while the industry went from turbulence to bankruptcy. At least eight German PV manufacturers that focused on new (“thin-film”) technologies went out of business in that period. Most were bought for parts by Chinese, Taiwanese, or South Korean firms. Q-Cells, one of the world’s dominant solar companies in 2009-10, was acquired by South Korea’s Hanwha in 2012. 

Most of the industry people I spoke with were fatalistic: we’d all been raised on the same story of comparative advantage in which manufacturing must be offshored to lower-wage nations as surely as night follows day. 

Regular folks hate this theory, for it naturalises their lower wages and their unemployment. My 2012 fieldwork took me to Halle, Leipzig, Dresden, and other cities and urban outskirts in the former East Germany, where I encountered early stages of a growing disappointment.

Renewable energy was to help revive the economy of the former East. That didn’t happen, and the cities and towns where solar companies were dying helped spawn Germany’s far right. Alternative für Deutschland got 4.7% of the vote in 2013 and over 20% in 2025, with a share of 32-39% in the five former states of East Germany. One reason is that the former East still has a per-capita Gross Domestic Product of less than 3/4^th of the former West, and a continuing productivity gap that renewables manufacturing was to help close.

This was not a death by natural causes. The key policy change came from former Chancellor Angela Merkel, who decided that it cost too much money to derisk solar adoption for consumers (that is, to lower the financial risks in future years of actions like putting family money into solar panels for your roof.)

In a party conference in Autumn 2011, Merkel said "…it was not rational for so many subsidies to go toward a sector which ultimately produced little energy.” Her cuts would make this false claim true for German manufacturing. She didn’t mention the real pressure, which was that German industry didn’t want to pay higher energy costs during the transition.

Germany’s solar price supports were drastically reduced, adoption declined, consumers shifted to buying Chinese panels (for a typical savings of 12%), and in 2012 the Nordstream 1 pipeline multiplied German’s already substantial consumption of Russian natural gas.

In 2011, I was in the Adlershof district of Berlin, and one early evening I was looking up at a party at the thin-film PV company Soltecture’s new building, run by the building-integrated PV panels you can see encasing the building. 

Figure 4: Soltecture, Adlershof, Berlin, July 21, 2011. Photo via Christopher Newfield

“I have to get in there and talk with those people,” I thought to myself.

I did make some appointments for my next trip, but a year later when I came back, Soltecture was gone. Its building was still there, surrounded by weeds, yet fully lit inside, the lights being powered automatically by the panels in the exterior walls.

Merkel’s decision, and the German policy world’s consent, is a major source of Tooze’s tombstone epitaph: “We have at this point to start by acknowledging the collapse of any Western claim to leadership in the global project of green modernization (such as that was).”

What comes after leadership death? One thing is learning from China. Over the past 20 years I’ve seen a massive shift in the U.S. and elsewhere from condescension towards China to respect. Learning’s time has come—with a vengeance.

The second is the gradual arrival of a new era for economic planning. The theory has taken off, and the practices will need to be built, piece by piece.

In our seminar series, one inspiring presentation was given by Juliette de Pierrebourg on a report she co-authored at the l’Institut Avant-Garde in Paris. The report itemised several dozen mechanisms, all of which already exist, for greening finance and industry.

The authors also classified these tools with the same categories that Gabor and Braun used in Figure 1. The X-axis shows levels of state funding, and the Y-axis is the degree of discipline the state applies to private actors.

Figure 5

I have space to say only one thing about this chart. The most effective methods, in the authors’ analysis, were also more affordable to the state: Group 4, which did not involve public spending but, instead, public discipline of finance, based in policy and law.

Building a state that disciplines capital towards public goals will require coercion.  Coercion will mean a power struggle with finance. The outcome of the struggle will depend on confidence. Confidence depends on intelligence. Intelligence has been under attack in the West, but it survives anyway, in Berlin in 2012 as much as 2011, as it does now.

I remember Erik Zürn from my first visit, a member of a thin-film solar research group. I asked him why he thought Germany had done so well in the 2000s with solar adoption.

He thought for a while and said, “Well, we don’t think the future will take care of itself. We see the future as something that has to be confronted.  We all, not just Germans, confront the future.  We try to take the future in hand.”

Figure 6: Erik Zürn, PVComB, Adlershof, Berlin, July 21, 2011

The future: you can’t de-risk it.  But you can plan it—and build it, PV sheet by sheet.