The 'Dark Matter' in the Search for Sustainable Growth: Energy, Innovation and the Financially Paradoxical Role of Climate Confidence

Jean-Charles Hourcade, Michael Grubb and Aurélie Méjean
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Jean-Charles Hourcade: CIRED - centre international de recherche sur l'environnement et le développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique

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Abstract: Theories of economic growth have long recognised that innovation is a key but poorly understood force – the 'residual' of neoclassical growth models. These models have no representation of intermediate goods, or of the factors that generate and diffuse innovations, including learning-by-doing and scale economies; they are thus unable to picture how a suite of economic and institutional changes triggers waves of long-term economic progress, which in practice has been the long-term historical pattern. The absence of finance in these models is particularly problematic. The centrality of financial structures to understanding patterns of economic growth is acute concerning policies to shape efficiency, innovation and infrastructure in ways compatible with energy and climate security, since these require substantial upfront investment. However, uncertainty and a lack of confidence deter such investment. Environmental policy could reduce risk and thereby shape ultimately profitable investments. The paper outlines deep relationships between energy/carbon-related finance and wider debates about financial systems after the crisis. The paper finally proposes an agenda for future

Keywords: technical change; climate finance; energy; economic growth theory (search for similar items in EconPapers)
Date: 2015
Note: View the original document on HAL open archive server: https://hal.science/hal-01646242v1
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Published in Finance and the Macroeconomics of Environmental Policies, 2015

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