DP19969 Green Transitions: Complementarities, Multiple Equilibria, and Tipping Points
With strategic complementarities stemming from peer effects in demand or technological spillovers, propagation and amplification mechanisms increase the effectiveness of climate policies. This suggests that climate goals can be met with smaller policy interventions. However, if there are multiple equilibria, radical policies are needed to shift the economy from a high-emissions to a low-emissions path. Once the radical shift has taken place these policies can be withdrawn. More generally, such policies can set in motion social, technological, and political tipping points. The paper develops an analytical framework within which policies to achieve these tipping points are studied, looking at the extended role for tax and subsidy policies, at dynamics of change, and at policy under uncertainty. Our proposals offer a complementary perspective to scholars that have emphasised insights from the literature on early warning signals to advocate sensitive intervention points to obtain more effective and more transformative climate policies.
