Towards a Public Sustainable Finance Paradigm for the Green Transition (Finance and Society)

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Phillip Golka, Steffen Murau and Jan-Erik Thie

Sustainable finance is often discussed as a solution to the climate crisis, but its impacts are limited and its discourse focuses on mobilising private investments through public de-risking, without considering direct government action. We argue that this is due to an implicit reference to mainstream economic theory assuming that an active state leads to time inconsistency problems and crowding-out effects. However, these assumptions have been sufficiently refuted as public investments may actually crowd-in private capital. We therefore propose a paradigm shift towards what we call Public Sustainable Finance, aimed at empowering the role of the state in the green transition on the discursive, policy, and political economy levels. Studying the case of Germany, we show how Public Sustainable Finance can be introduced despite tight fiscal regimes. To this end, we propose that the Climate- and Transformation Fund be given its own borrowing powers. By borrowing an average of 23 billion euros annually from 2024 to 2030, the existing financing gap that has been exacerbated following the November 2023 constitutional court ruling can be closed, enabling a more rapid and effective green transition.

Golka, Philipp, Steffen Murau and Jan-Erik Thie (2024) ‘Towards a Public Sustainable Finance Paradigm for the Green Transition’, Finance and Society 10 (1), pp. 38-50, doi: 10.1017/fas.2023.15.

Monetary Architecture and the Green Transition (Environment and Planning A: Economy and Space)

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Steffen Murau, Armin Haas and Andrei Guter-Sandu

How to finance the Green Transition toward net-zero carbon emissions remains an open question. The literature either operates within a market-failure paradigm that calls for carbon taxes or cap-and-trade to help markets correct themselves, or via war finance analogies that offer a “triad” of state intervention possibilities: taxation, treasury borrowing, and central bank money creation. These frameworks often lack a thorough conceptualization of endogenous credit money creation and disregard the systemic and procedural dimensions of financing the Green Transition. We propose “Monetary Architecture” as a more comprehensive framework that perceives the monetary and financial system as a constantly evolving and historically specific hierarchical web of interlocking balance sheets. Using the United States as a case study, we stress the importance of a systemic financing dimension that uses all available elasticity space in the monetary architecture while considering a division of labor between firefighting balance sheets such as central banks or treasuries and workhorse balance sheets such as off-balance-sheet fiscal agencies or shadow banks. Procedurally, public workhorses should provide an initial balance sheet expansion and crowd in the rest of the monetary architecture, notably shadow banks, for long-term funding. Firefighters should prevent systemic instability and manage a possible final contraction.

Murau, Steffen, Armin Haas, and Andrei Guter-Sandu (2024) ‘Monetary Architecture and the Green Transition’, Environment and Planning A: Economy and Space 56 (2), pp. 382-401, doi: 10.1177/0308518X231197296.

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