The New Political Economy of Climate Change

abstract: Many economists argue that climate change is a result of market failure and needs market-based solutions. Political scientists tend to see climate change as a result of political failures and emphasize the roles played by interest groups, social movements, and political institutions. This review article compares the two approaches and discusses their policy implications. It describes how carbon pricing has become central to economists' policy advice, how economists use integrated assessment models to estimate the "correct" carbon price, and why these estimates are both deeply uncertain and heuristically valuable. By contrast, political scientists seek to explain variation in the tepid and halting climate policies of governments, arguing that they are the result of collective action problems, time inconsistencies, and increasingly distributive conflict. Many political scientists also suggest that certain policies, including subsidies for renewable energy and green industrial policies, will have greater political success because they tend to create new constituencies that can protect climate policies against future reversals. Both approaches are challenged by heightened partisan polarization in the United States and Europe. The author discusses three books that offer new insights about the distributional struggles over climate policies. These books, alongside other recent studies, help to explain why the climate policies of most governments have been frail and uneven, and what may be necessary to change this.