Overcoming Political Economy Barriers to Climate Action

Less than a decade ago, the world united around the Paris Agreement on climate change. Since then, countries have introduced scores of laws, policies, and pledges to reduce emissions. At the same time, there has been rapid progress in developing low-carbon technologies, and the costs of these technologies have tumbled.

However, as the IPCC’s most recent report lays bare, the world is still not on track to hold global warming well below 2°C above pre-industrial levels, let alone 1.5°C. Despite good intentions, the availability of financing and clean technologies, and many economic synergies, one large obstacle remains: the political economy. Socio-economic, political, and institutional circumstances mean that implementing climate action can seem impossible.

Despite good intentions, the availability of financing and clean technologies, and many economic synergies, one large obstacle remains: the political economy.

And yet, there are many countries where climate policies have been successfully implemented. Today, 23 percent of global GHG emissions are covered by carbon pricing schemes, yielding governments with almost $100 billion in annual revenues. From Colombia’s action on green building and Peru’s investments in low-carbon urban transit to Egypt’s reform of energy prices and India’s progress in solar power, a large number of policies that reduce emissions have been implemented.  

However, social tensions are undoubtedly creating setbacks for climate action, and the reasons are not always predictable. For example, in 2005 Indonesia successfully reformed fossil fuel subsidies, but when France attempted to increase its carbon tax in 2018 there were protests in the streets. However, while local contexts differ, there are common underlying characteristics that can help us understand examples of successful and unsuccessful climate action.

A new book from the World Bank - Within Reach: Navigating the Political Economy of Decarbonization - analyzes the dynamics of the political economy underlying real climate policies to better understand what is going on and why. It makes clear that political economy barriers can be overcome, and impactful climate action is possible. But it requires a strategic and dynamic approach.  

Political economy barriers can be overcome, and impactful climate action is possible. But it requires a strategic and dynamic approach.

Key Elements of the Political Economy

First, Within Reach provides a framework of the defining features of the political economy. The 4i Framework can help policy makers consider the political economy in their country and how it may help or hinder climate action. The 4i Framework is made up of:

1. Institutions: the formal and informal rules, norms, and organizations that provide incentives and constraints for economic, political, and social behavior in society
2. Interests: heterogenous distributional impacts, as well as differences in priorities and preferences, that shape all actors’ behaviors
3. Ideas: the beliefs, values, and worldviews that shape all actors’ preferences
4. Influence: the power, authority, and leverage that actors can use to advance their interests and ideas, and their interactions with each other and institutions

Looking at real world climate policies through this lens helps expose underlying reasons why climate policies are successfully adopted in some cases, and meet substantial opposition in others. It also helps identify the strategic opportunities that policy makers can seize to improve the political conditions for success.

A 4-Pronged Approach to Shifting the Political Economy

By adopting a four-pronged approach, Within Reach finds that policy makers can deliver sustainable, transformative climate policy: This approach addresses climate governance; policy sequencing; policy design; and policy process.

Climate Governance: Ensuring governance institutions reflect societal goals and embedding climate action in a positive development narrative can shift the political economy of a country. Policy makers can start by building on existing structures to introduce climate laws, green growth and just transition strategies, and other climate governance frameworks. For example, South Africa created a Just Transition Framework to help simultaneously achieve its development and climate goals. By strategically aligning existing governance institutions, policy makers can help bridge the realities of today with their country’s vision of the future.   

Policy sequencing: Policy is undoubtedly influenced by political economy, but political economy can also be influenced by policy. By taking advantage of this dynamic relationship, and selecting policy priorities that are not only feasible but also build capacity, policy makers can change the political economy context. For example, our analysis of the Climate Policy Database identified a legally-binding emissions reduction target or an emission trading system as two feasible next steps to build capacity and momentum for climate action in Türkiye. By strategically sequencing and leveraging policies, governments can trigger tipping points, leading to a virtuous cycle of increasingly rapid progress on decarbonization.

Policy design: Who benefits, who loses, and who pays are key considerations of any policy design. It is critical to assess and manage the distributional effects of climate policies, including impacts not only on the poor and vulnerable but also on well-organized interest groups, sectors, or regions. To reduce the risk of distributional conflict, and opposition, policy makers can compensate negatively affected people, groups or places. For example, in Indonesia, the government increased social protection transfers to poor households during its fossil fuel subsidy reform. While the Netherlands supported workers who lost jobs, and won the support of trade-unions, during its 10-year coal phase-out.

Policy process: Even when policies have sound design and sequencing, lack of public trust and credibility can stoke opposition. For example, although El Salvador’s 2011 gas subsidy reform benefited all but the wealthiest households, it was unpopular, particularly among the lower-income groups who would benefit the most. However, perceptions improved gradually—and significantly—over time as households benefited from the reform, with the share of people expressing support for the policy increasing from just 30 percent initially to about 65 percent within a year and a half. This is why it is essential to proactively engage and communicate with the public. It not only improves policies’ legitimacy it can also improve policy design.

A Pragmatic Approach to a Dynamic Political Economy

Climate change is a unique challenge, in that policy makers need to balance the speed and scale required to achieve global climate objectives with the time required to ensure political acceptability and social sustainability. Within Reach shows that this is not only desirable but also possible.

As the evidence shows, taking a pragmatic approach to climate policy making, that accounts for and navigates the political economy, ultimately speeds up progress. Appropriate governance frameworks, strong institutional capacity, well-designed policies, and early engagement with stakeholders, especially those likely to oppose, are all essential.

By favoring the possible over the perfect, policy makers can make progress while strategically building momentum and consensus for more ambitious action that achieves climate goals and secures a livable planet.