From flood control to plumbing fleets
"The funding challenge is incredibly complex. Some say that local and regional governments at municipal and state level should have priority, as they are responsible for implementing measures such as flood control. But private-sector stakeholders need money as well if they are to protect the climate: for example, crafts and trades businesses will need to assess and adapt their vehicle fleets," explains Ulrich Klüh. And, he adds, the field of investigation – which includes public and private stakeholders from local to global levels – is so vast that it can hardly be investigated in its entirety. Consequently, the teams involved in the current project each focus on specific aspects, examining how climate finance can be translated into action with a view to German society. "The idea is to analyse the interplay between all stakeholders of climate policy," says Professor Klüh: "from politics to public banks to small and medium-sized businesses." So where do small businesses think differently from banks, politicians, or even climate activists? And how can their respective approaches and rationales be reconciled? To achieve this, the "Climate Finance Society" project aims to create a dialogue between these different stakeholders, for example by organising joint workshops.
Ulrich Klüh believes that we need a shift in paradigm: "To this day, most financial experts think that climate protection is as simple as governments setting high charges on carbon emissions. Then, they believe, businesses would be forced to make investments, which in turn would be supported by governments providing funds through their development banks and the general financial market, and there you go. But in practice, it's not as simple as that." Long before his tenure at Darmstadt University of Applied Sciences, Professor Klüh had noticed how difficult it is for climate issues to gain a foothold in economic deliberations. During the 2008-2010 banking crisis, for example, he served as secretary general of the German Council of Economic Experts. "Back then, I realised how difficult it is to draw attention to the urgency of environmental issues in the face of pressing economic challenges. After all, many stakeholders still don’t feel the same sense of urgency to act on ecological issues as they do on economic concerns."
Five trillion euros needed in Germany alone
According to a study by management consultancy McKinsey, between nine and ten trillion euros will be needed globally each year to fund climate policy; KfW estimates that Germany will need five trillion euros by 2045. "What's most important, however, is not money, but for us to finally understand that the monumental challenge ahead of us can’t be overcome by resorting to established mechanisms alone," says Professor Klüh. "I am increasingly convinced that we need far more governance to support these processes – far more, actually, than I would have ever considered necessary from my perspective as an economist. But, in the short amount of time we have left, governments are the only stakeholders who can take the necessary decisions at the required scale." Professor Klüh’s current research project tries to answer what these decisions will be – ranging from the role of public banks to coordinating the different stakeholders in advisory boards and committees. Among other things, says Professor Klüh, this will require to take better account of the diversity of perspectives on climate finance: "In particular, we must abandon the belief that climate finance is essentially a topic to be left to the financial markets and their stakeholders, which is particularly prevalent among experts in the sustainable finance realm. Another equally important issue is public funding to support climate policy."
In a second project funded by the Hans Böckler Foundation, Professor Klüh explores a specific facet of this issue: wealth taxes and the role they can play in bringing about a socio-ecological transformation. "Wealth taxes have, notoriously, been touted a leftist project that research economists had better steer clear of," explains Professor Klüh: "But this ignores that they could help us achieve our environmental objectives if harnessed intelligently. Wealth taxes could play a much bigger role in this than they are given credit for.” For example, he says, taxing land ownership provides numerous levers for environmental governance: "Unfortunately, though, these were not even mentioned during the deliberations on the recent property tax reform". It is beyond his comprehension how this was at all possible, he says, given the extreme climate situation we are already facing today.
At least the topic of climate change has finally caught on among economists and business experts, and extensive research in this field is underway. Nevertheless, in Professor Klüh’s view, the situation still leaves much to be desired: "The debate still lacks consistency and determination."
Click to learn more about Professor Klüh's economic research.