Strategic policy intervention

Two finance-related interventions identified by Farmer et al. (2019) include financial disclosure and the early identification of combinations of new technologies to invest in. Such actions can be interpreted as small kicks that can initiate behavioural changes or endogenous shifts in the system’s dynamics. Changes in accounting standards and disclosure requirements can significantly alter the value of fossil assets, limiting the development of new projects, reducing committed emissions and thus facilitating the transformation of the energy industry (Le Ravalec et al., 2022; Rambaud and Chenet, 2021). Additionally, low-carbon technologies, given their capital-intensive nature, are subject to much higher investment risk than fossil fuel-based incumbents (Schmidt, 2014). Such risk needs to be managed and/or diversified. Hence, focusing resources on specific technological complementarities (e.g. solar PV and energy storage) as early as possible, rather than investing across a broad range of options, can accelerate the development and deployment of novel and unproven technologies. This concentration of resources and identification of complementarities reduces uncertainty surrounding new technologies and enhances the spread of related knowledge and experience.

The utilisation of policy mixes that incorporate a combination of command-and-control and market-based instruments can be likened to kicks that yield positive outcomes for the transition to a net-zero carbon economy (Robalino and Lempert, 2000). Recent advancements in modelling have demonstrated that these policy combinations have the potential to initiate a virtuous cycle, driving technological development, reducing the overall need for public investment, and simultaneously stimulating employment and economic growth (Wieners et al., 2023; Lamperti et al., 2020; Lamperti and Roventini, 2022; Stern and Stiglitz, 2023). Moreover, such positive feedback loops significantly lessen the reliance on carbon taxes by decreasing their intensity. As a result, this enhances their political acceptability and potentially triggers another tipping element.

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