Earlier this week, the EU published a series of proposals aimed at reducing its carbon emissions by 55 percent by 2030. The legislation has revived debates on the economic models best suited to facilitating investment and decarbonization.
A Financial Times article by MAX KRAHÉ was circulated widely this week, in which he argued for the importance of central planning in the green energy transition. In an April report for the Royal Belgian Academy, Krahé examines the structural justifications for his position.
From the text:
"As of today, we lack an agreed-upon, reliable methodology for distinguishing between sustainable and non-sustainable investments. Unfortunately, this is not a problem of insufficient data or the imperfect implementation of a theoretically sound methodology. Instead, the problem lies with the basic methodology of the dominant approach that has been used to draw this distinction so far: a bottom-up approach that tries to rate the sustainability performance of individual companies by looking at firm-level performance indicators—such as emissions, the use of land, water, or energy, average and minimum wages, corporate governance structures, and so on—without taking into consideration the wider context into which these firms are embedded. As the report shows, there are deep, conceptual reasons that stand in the way of determining the contribution that individual investments make to sustainable development. In particular, where we cannot identify counterfactuals, the question of sustainability can only be asked of systems as a whole, and not of their individual components. While there is a combination of methods that allows downwards translation, from system-level sustainability to identifying individual sustainable investments, there is no reliable method to translate upwards, from individual investments to their impact on a system’s overall sustainability, and hence to the unsustainability of that individual investment. Concerning this link, the report’s central finding is that upwards translation is impossible in dynamic systems. The link between individual investments and system-level sustainable development is a one-way street."