The article “What’s holding back environmental sustainability?” by Michael Howes (Griffith University) makes a very valid point. I report the key passages below.

“What’s going wrong with sustainability initiatives? Three types of failure are recurring and they are mutually reinforcing.

  1. Economic failures stem from the basic problem that environmentally damaging activities are financially rewarded (e.g. a forest is usually worth more money after it’s cut down, in particular in countries transitioning to a market-based economy).
  2. Political failures happen when governments can’t or won’t implement effective policies. This is often because large extractive industries, like mining, are dominant players in an economy and see themselves as having the most to lose. This occurs in developed and developing countries.
  3. Communication failures centre on poor consultation or poor community involvement in the policy process.

Solutions proposed in the article

  1. First, governments need to provide financial incentives to switch to eco-efficient production.
  2. Second, governments need to provide a viable transition pathway.
  3. Finally, leaders from all sectors need to be convinced of both the seriousness of the declining state of the environment and that sustainable development is possible.

Question. But, how will governments manage to provide the right financial incentives (Solution 1) if they are captured by dominant players (Failure 2)? Conversely, how can governments provide a viable transition pathway (Solution 2) and how can leaders be convinced that sustainable development is possible (Solution 3), if the environmentally damaging activities are those financially rewarded (Failure 1)?

This is obviously a very difficult question and the post from the WEF blog has the merit to draw the attention on a general issue that I have noticed in my recent conversations with a number of stakeholders in the debate on climate solutions. There is sort of stalemate whereby markets expect governments to provide “market-based solutions” and governments expect markets to drive the change.

I think this question requires to revise the usual thinking of externality -> market failure -> government fix. In a world of industry players that are larger than governments, it may not help.