Toward a Green New Deal

LONDON – The global agreement reached in Paris last week is actually the third climate agreement reached in the past month. The first happened at the end of November, when a group of billionaires led by Bill Gates, Mark Zuckerberg, and Jeff Bezos announced the creation of a $20 billion fund to back clean-energy research. On the same day, a group of 20 countries, including the United States, the United Kingdom, Germany, India, China, and Brazil, agreed to double their investment in green energy, to a total of $20 billion a year.

Of the two pre-Paris announcements, it was that of the Breakthrough Energy Coalition (BEC) – Gates and his fellow entrepreneurs – that grabbed most of the headlines. This is not surprising, given the strong association in the popular imagination between innovation and the private sector. If a technological breakthrough is needed in the fight against climate change, whom should we expect to provide it, if not the wizards of Silicon Valley and other hubs of free-market innovation?

Gates himself is the first to acknowledge that the public perception is far from accurate. “The private sector knows how to build companies, evaluate the potential for success, and take the risks that lead to taking innovative ideas and bringing them to the world,” reads his coalition’s manifesto. “But in the current business environment, the risk-reward balance for early-stage investing in potentially transformative energy systems is unlikely to meet the market tests of traditional angel or VC investors.”

On its own, the free market will not develop new sources of energy fast enough. The payoff is still too uncertain. Just as in previous technological revolutions, rapid advances in clean energy will require the intervention of a courageous, entrepreneurial state, providing patient, long-term finance that shifts the private sector’s incentives. Governments must make bold policy choices that not only level the playing field, but also tilt it toward environmental sustainability. Then – and only then – will private financing follow. So far, however, austerity has prevented sufficient public financing. One hopes that the Paris agreement changes that.