Critical Political Economy and the Role of Finance in the Politics of Global Climate Change

HOW CAN WE USE CRITICAL POLITICAL ECONOMY TO EXPLAIN THE ROLE OF FINANCE IN THE POLITICS OF GLOBAL CLIMATE CHANGE?
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Table of Contents 1.    Introduction. 3 2.    Why Focus on Critical Political Economy and Governance in Climate Action?. 4 3.    Motivation. 5 4.    Research Questions. 6 5.    Theoretical Perspective. 6 6.    Impact and Limitation of UK’s Green Finance Policy on Climate Finance and Climate Change  7 6.1.     Impact of the Policy on Climate Finance. 8 6.2.     Impact of the Policy on  Climate Change. 9 6.3.     Limitations of the Policy. 10 7.    Impact of UK’s Green Credit and Green Bonds on Climate Change. 10 7.1.     Impact of UK’s Green Bond on Climate Change. 11 7.2.     Limitations of UK Green Bonds. 12 8.    Summary. 12 9.    References. 14
1 Introduction
Climate change has shifted from an abstract concept to a real emergency that calls for urgent action from global actors. It remains one of the most challenging political issues in the 21st century. One of the explanations for why climate change is a challenging political issue is that political actors lack the political will to take climate action because of varying political and economic interests (Worker & Palmer 2020, p.2). For instance, those in denial of climate change worry that climate change threatens their interests and, as a result, are quick to discredit any scientific evidence supporting the reality of climate change (Dryzek et al. 2011, p.156). It is imperative to analyse the role of finance in the politics of global climate change to ensure that climate change does not continue to present unprecedented challenges. What is increasingly becoming clear is that mitigating global climate change requires huge investment in climate action. According to Bracking and Leffel (2021), to effectively address global climate change, an investment of $95 trillion will be required by 2030. This investment will take the form of infrastructure such as telecommunication, energy, water, and transportation. The question this raises is, who is responsible for raising the finances required for such an investment? In addition, how will this investment be allocated, and who makes these decisions? This paper seeks to examine the critical political economy and climate finance governance to shed light on the role of finance in the politics of global climate change using the United Kingdom’s (UK) green finance policy, green credits, and green bonds as the case study.
2 Why Focus on Critical Political Economy and Governance in Climate Action?
The critical political economy (CPE) and finance governance play an instrumental role in the politics of climate change. According to Worker and Palmer (2020, p.3), CPE and finance governance are fundamental determinants of sustainability and climate change mitigation because they regulate the articulation of sustainability and climate change goals. In addition, they may create sustainable political commitment and ensure the effective implementation of climate change policies at the global level. Worker and Palmer (2020, p.3) reveal that the challenges in the implementation of climate policies are not experienced only by developing countries but also by developed nations that have the capacity and finances to support the required climate action. It is important to look beyond market failures in response to climate change o address these challenges. According to Xie and Cheng (2021, p.1), mainstream political economy attributes climate change to market failure, while CPE attributes climate change to capitalism and capital accumulation.
Consequently, the solution to climate change, based on CPE, involves addressing capitalism and capital accumulation through approaches such as Zero Growth and Green New Deal (p.10). These approaches require climate governance. Nevertheless, as Luomi (2020) reveals, climate governance at the global level is challenging because it is difficult to assign responsibility for emissions across countries. How can the emission responsibilities of different countries be differentiated while still promoting universal participation?
Further, political economy factors influence domestic climate finance governance and international climate finance governance. For instance, governments may fail to reform fuel subsidies for fear of losing votes and public confidence because the public (consumers) expect low fuel prices (Worker & Palmer, 2020). Such a political economy factor hinders climate finance governance and climate action. However, governments are utilising green bonds and green financing approaches to promote climate finance and action. According to Mamun et al. (2022), green bond financing promotes energy efficiency, renewable energy generation, and pollution and waste control and, as such, is effective in funding decarbonisation. Countries with strong climate finance governance mechanisms experience more significant effects of green financing. However, climate finance governance is hindered by the concentration of power among financial actors, which reduces transparency and accountability (Bracking & Leffel, 2021). The dispersion of power across stakeholders, including non-financial actors, is necessary to ensure that climate finance flows are disclosed, tracked, and monitored. Finance governance also gives countries ownership of the distribution and management of climate change financial flows, which helps them gain political support and will in addressing climate change. A lack of this ownership can hinder global climate change mitigation. Understanding the role of financing in global climate change requires a grasp of CPE and climate finance governance.
3 Motivation
Efforts in addressing climate change are geared towards achieving net zero action. However, these efforts require significant funding, as revealed by Bracking and Leffel (2021). The funding for climate action is provided in the form of green bonds, investments, and markets, all forms of climate finance. However, climate finance goes beyond the money required to fund decarbonisation at a global scale (Paterson 2020, p.6). It is also about understanding the financial processes of decarbonisation in the context of CPE.
In addition, many political actors fear that climate action will come at a political cost. One factor that has hindered climate action and mitigation is the perceived political cost of climate change policies. This perceived political cost falls under the purview of CPE and is part of the motivation for examining how CPE can be used to explore the role of finance in the politics of global climate change. Furceri et al. (2021, p.21) note that the political costs of climate change policies include the loss of voters due to factors such as the unemployment of individuals in the non-renewable energy sector. The political costs of climate policies may limit political support as well as public local and national financing and finance policy, which is necessary for global climate change.
4 Research Questions
* In what ways do climate finance policies influence climate finance and climate change?
* Is the transformation of financial systems necessary in the mitigation of climate change?
5 Theoretical Perspective
Policy for global climate change should be considered from a political economy perspective. According to Andreas et al. (2021), political economy is the interaction among politics, economics, and a country's institutional and structural elements. An analysis of climate change and policies from a political economy approach provides insights into how climate policies can take a problem-driven route to create the needed change. It takes into account the structure, institutions, power, and actors in climate change.
One of the key theoretical perspectives of political economy is the Marxist approach, which is concerned with how capitalism affects productivity and development. This gives rise to CPE, which is concerned with challenging the existing structure of a capitalist society. CPE is all about the interaction between public interventions and the capitalist enterprise to drive societal change. This theoretical perspective is particularly important in understanding how capitalism has contributed to climate change and how CPE can be used to explain the role of climate finance in climate change mitigation. According to Stilwell et al. (2022, p.20), capitalism is characterised by overproduction, overconsumption, commodification, financialisation, appropriation, technological dynamism, alienation, and acceleration. These elements play a significant role in climate change as they contribute to carbon emissions, over-utilisation of resources, and environmental degradation. They also hinder efforts toward sustainability as different actors try to maintain the capitalist structures.
CPE creates an interesting interaction between political and economic structures. On the one hand, governments, which represent the political structures, require funds to finance sustainable projects geared towards net zero. These funds allow governments to meet climate change targets and strengthen their political standing. On the other hand, financial markets, which represent the economic structures, have the potential to provide financing geared toward net zero. Understanding the interaction between these structures paints a picture of the role of climate finance in global climate change.
6 Impact and Limitation of UK’s Green Finance Policy on Climate Finance and Climate Change
Access to climate finance in a global capacity is paramount. In an effort to obtain the necessary climate finance, many countries are creating and implementing policies aimed at mobilising climate finance to fund decarbonisation and mitigate climate change (Bhandary et al., 2021). The UK has adopted the Green Finance Policy, which has three objectives. They are greening finance, financing green, and enabling the financial services sector to capture opportunities arising from greening finance and financing green (Department for Business, Energy & Industrial Strategy (BEIS), 2019). Greening finance involves transforming the UK's financial system into green by incorporating economic, environmental and climate factors into the financial decision-making process. Financing green involves mobilising private finance to achieve the carbon targets set by the UK.
1 Impact of the Policy on Climate Finance
The shift to the Green Finance Policy has enhanced the flow of funds from the private sector. According to Climate Policy Initiative (2021), the UK private sector is investing towards ...