Investments via the financial system are essential for fostering the green transition. However, the role of existing financial regulations in influencing investment decisions is understudied. Here we analyse data from the European Banking Authority to show that existing financial accounting frameworks might inadvertently be creating disincentives for investments in low-carbon assets. We find that differences in the provision coverage ratio indicate that banks must account for nearly double the loan loss provisions for lending to low-carbon sectors as compared with high-carbon sectors. This bias is probably the result of basing risk estimates on historical data. We show that the average historical financial risk of the oil and gas sector has been consistently estimated to be lower than that of renewable energy. These results indicate that this bias could be present in other model-based regulations, such as capital requirements, and possibly impact the ability of banks to fund green investments. As the financial system is increasingly important in catalysing the green transition, it is critical to assess the impediments it may face. This study shows that existing financial regulations may impair the shift of financial resources from high-carbon to low-carbon assets.

Markets must be made biophilic: that is, compatible with life flourishing on Earth. To do so, we must abandon prevailing notions of market efficiency and reconceive markets as social evolutionary systems embedded in nature. Such a reconception enables us to see that constraining markets within biophysical boundaries would not result in zero-sum trade-offs with the economy, but instead would drive market evolution to new forms of prosperity.

Abstract The debate around what role the financial system should play in fostering the green transition has been steadily growing. Companies are increasingly being required to quantify and disclose climate risks. However, the influential role played by existing accounting and financial reporting requirements, and broader financial regulation, has not been broached as issues of concern in this debate. Analyzing data and classifications from the European Banking Authority, we test whether existing frameworks might inadvertently be disincentivizing divestments from brown assets. We find that a significant bias exists – differences in the provision coverage ratio (PCR) reveal that banks must account for nearly double loan loss provisions for lending to non-brown sectors as compared to brown. We argue that this bias could be present in other model-based regulations, such as capital requirements, and possibly impact the ability of banks to fund green investments. Finally, we analyze the evidence and possible underlying mechanisms of this bias in risk-based regulations and present some avenues for further research.

The contributions of economists have long included both positive explanations of how economic systems work and normative recommendations for how they could and should work better. In recent decades, economics has taken a strong empirical turn as well as having a greater appreciation of the importance of the complexities of real-world human behaviour, institutions, the strengths and failures of markets, and interlinkages with other systems, including politics, technology, culture and the environment. This shift has also brought greater relevance and pragmatism to normative economics. While this shift towards evidence and pragmatism has been welcome, it does not in itself answer the core question of what exactly constitutes ‘better’, and for whom, and how to manage inevitable conflicts and trade-offs in society. These have long been the core concerns of welfare economics. Yet, in the 1980s and 1990s, debates on welfare economics seemed to have become marginalised. The articles in this Fiscal Studies symposium engage with the question of how to revive normative questions as a central issue in economic scholarship.

The contributions of economists have long included both positive explanations of how economic systems work and normative recommendations for how they could and should work better. In recent decades, economics has taken a strong empirical turn as well as having a greater appreciation of the importance of the complexities of real‐world human behaviour, institutions, the strengths and failures of markets, and interlinkages with other systems, including politics, technology, culture and the environment. This shift has also brought greater relevance and pragmatism to normative economics. While this shift towards evidence and pragmatism has been welcome, it does not in itself answer the core question of what exactly constitutes ‘better’, and for whom, and how to manage inevitable conflicts and trade‐offs in society. These have long been the core concerns of welfare economics. Yet, in the 1980s and 1990s, debates on welfare economics seemed to have become marginalised. The articles in this Fiscal Studies symposium engage with the question of how to revive normative questions as a central issue in economic scholarship.

The public health crisis caused by corona virus disease (COVID-19) has required social distancing measures that have resulted in drops in economic activity and employment not seen since the Great Depression. In response, several countries have introduced government guarantees of worker paychecks. This paper provides a simple analysis of the potential fiscal costs of introducing such a guarantee in the US The analysis finds that a program providing a 100% paycheck guarantee for all non-public sector workers, capped at an annual salary of $100,000 and including healthcare benefits, would cost approximately $115.7 billion per month, or $347 billion for a 3-month program. The paper considers the sensitivity of this estimate to assumptions as well as alternative proposal scenarios. The paper concludes that the benefits of such a program in preserving employment are likely to far outweigh the fiscal costs.

In this invited comment piece, I argue that the Lima de Miranda and Snower SAGE framework represents not just another “beyond GDP” alternative but is an important contribution to a larger shift underway in economics regarding our understanding of human behavior and the nature and purpose of economic systems. Recognizing this broader shift helps us see how SAGE might be strengthened and built upon. In this spirit, I suggest some starting points for strengthening the normative foundations of the SAGE framework, discuss an alternative interpretation of the welfare effects of inequality, propose further work on the “material gain” part of the framework, and and briefly suggest an alternative approach to SAGE’s utility maximizing decision model. I conclude that SAGE provides a framework for a very rich future research agenda.

The world is approaching an historic tipping point. The cost of clean energy technologies such as solar, wind, and batteries are declining rapidly while their performance increases. These technologies have already become less expensive than new-build fossil fuel power generation in many regions and applications. In the coming 10-20 years it is highly likely that clean energy technologies will become less expensive than coal, oil, and gas electricity generation for almost all regions and all applications. When this tipping point is reached, clean, modern, cheap energy infrastructure will rapidly replace dirty fossil infrastructure. While this is good news, unfortunately this tipping point is not going to happen soon enough to prevent dangerous levels of climate change. Electricity generating infrastructure has a long life, typically 20-40 years. The generating infrastructure the world has today already has enough “baked in” future emissions to exceed the 1.5-2 C warming limit committed to in the Paris Agreement. Any new fossil infrastructure being built or planned today risks not only contributing to warming above the Paris threshold, but also being made obsolete before the end of its operating life by rapidly advancing clean energy technologies. G20 nations should take the lead in policies that accelerate improvements in the cost and performance of clean energy technologies, eliminate subsidies and support for fossil fuels, and bring forward the clean energy tipping point. Such policies will bring significant economic benefits to citizens, reduce the risk of being stranded with costly, polluting, fossil infrastructure, and contribute to global efforts to mitigate …

In his target article, Herbert Gintis provides an assessment of the state of modern economics through his own personal and intellectual journey. It is a compelling journey, along whose road I’ve been a fellow traveler. But although that journey has taken me to broadly the same destination, my interpretation of what that means is somewhat different. When there is agreement on facts and analysis, but then differences over meaning, there are usually some deeper philosophical issues at play. I believe that the proverbial elephant in the room (more on elephants shortly) is ontology. My response here will argue that in order to assess the state of economics and have useful debates about its future direction, there must be a shared conception of what kind of system the economy is and how best to understand it. Consistent with the subject matter of this journal, and with Gintis’s own lifetime oeuvre, I will argue that the economy is ultimately a product of human imagination—a complex, adaptive, and reflexive social system that arises from the coevolution of human behavior, institutions, technologies, and culture—and is most productively understood from that perspective. But this is not a perspective standard economics has historically shared.

The world is approaching a historic tipping point. Rapid advances in price and performance are bringing clean energy technologies ever closer to the point where they beat fossil fuel technologies on the merits; where they are quite simply cheaper and better. Solar and wind are already beating coal in a number of situations and locations. Once this tipping point is broadly reached, the full might of markets will come to bear and drive a wave of transformation that will replace the fossil fuel economy with a clean energy economy. Betting on coal at this point in history is about as smart as betting on typewriters in 1976—the year Apple released its first personal computer.This paper will argue that it is almost inevitable that the US and the world will reach this tipping point, but that it is not happening fast enough. Progress needs to be accelerated in the US for three reasons: First, the sooner the tipping point is reached, the lower the risks of damaging climate change. Second, in the race to build and deploy clean energy technologies there are significant first-mover advantages; the next ten years will likely determine which nations lead and which nations follow. Third and finally, for those who believe that government intervention in the economy should be limited, the faster America reaches this tipping point, the faster it can scale back intervention in its energy markets. A relatively brief but forceful policy push over the next ten years can drive the US rapidly to the tipping point where clean energy technologies win on the merits and free market forces take over. Citizens will then enjoy the

This paper defines the '2 degrees C capital stock' as the global stock of infrastructure which, if operated to the end of its normal economic life, implies global mean temperature increases of 2 degrees C or more (with 50% probability). Using IPCC carbon budgets and the IPCC's AR5 scenario database, and assuming future emissions from other sectors are compatible with a 2 degrees C pathway, we calculate that the 2 degrees C capital stock for electricity will be reached by 2017 based on current trends. In other words, even under the very optimistic assumption that other sectors reduce emissions in line with a 2 degrees C target, no new emitting electricity infrastructure can be built after 2017 for this target to be met, unless other electricity infrastructure is retired early or retrofitted with carbon capture technologies. Policymakers and investors should question the economics of new long-lived energy infrastructure involving positive net emissions. (C) 2016 Elsevier Ltd. All rights reserved.

Forecasting and influencing technological progress in solar energy: A new theory looks at an entire technological ecosystem, and understands a given technology in the context of its position within the entire technological ecosystem. Research has shown a major source of improvements in photovoltaics in recent years was improvements in its component technologies. Our research demonstrates that inputs are the primary driver of progress, and not just for solar, improvements in any given component technology is passed through to all the technologies for which that component is an input, and this process is iterated indefinitely. Such iterative processes enable us to classify technologies into trophic levels, analogous to food webs in ecology, based on their distance from natural resources. This theory predicts that technologies higher up in the technology food chain make progress faster than those below, due to the fact that they benefit from all the improvements in the all component technologies below them, technologies such as computers or photovoltaics. This at least partially explains why some technologies make more rapid progress than others.

The current model of economic growth generated unprecedented increases in human wealth and prosperity during the 19th and 20th centuries. The main mechanisms have been the rapid pace of technological and social innovation, human capital accumulation, and the conversion of resources and natural capital into more valuable forms of produced capital. However, there is evidence emerging that this model may be approaching environmental limits and planetary boundaries, and that the conversion of natural capital needs to slow down rapidly and then be reversed. Some commentators have asserted that in order for this to occur, we will need to stop growing altogether and, instead, seek prosperity without growth. Others argue that environmental concerns are low-priority luxuries to be contemplated once global growth has properly returned to levels observed prior to the 2008 financial crisis. A third group argues that there is no trade-off, and, instead, promotes green growth: the (politically appealing) idea is that we can simultaneously grow and address our environmental problems. This paper provides a critical perspective on this debate and suggests that a substantial research agenda is required to come to grips with these challenges. One place to start is with the relevant metrics: measures of per-capita wealth, and, eventually, quantitative measures of prosperity, alongside a dashboard of other sustainability indicators. A public and political focus on wealth (a stock), and its annual changes, could realistically complement the current focus on market-based gross output as measured by GDP (a flow). This could have important policy implications, but deeper changes to governance and business models will be required.

Eric Beinhocker and Nick Hanauer describe a Copernican change in our understanding of prosperity that replaces simple measures of GDP growth and market performance with the quantity, quality and accessibility of solutions to society's problems.

Ayn Rand would likely be deeply unhappy with the state of American capitalism today. Not just because of an overweening state, large budget deficits, and interventions in the economy such as Obamacare—the issues that so excite her disciples in the Republican Party today—but also because of the morphing of the US economy into a playground of crony capitalism recognizable from the pages of Atlas Shrugged. Rand would have seen the growing reliance of businesses on Washington for corporate welfare, and of politicians on businesses for campaign contributions, as an unhealthy codependency that distorts the free market she so admired.The profits of firms in more than 40 percent of the US economy—in sectors such as agriculture, financial services, real estate, oil and gas, health care, education, and defense—are deeply intertwined with and at least partially dependent on policies in Washington. Various studies show enormous returns on investments in lobbying—for example, the pharmaceutical industry reaps a return of 77,500 percent on lobbying versus 8 percent from actually making drugs. While Rand would have had many differences with the Occupy Wall Street protesters, she would have found common cause with their objections to the power of the K Street lobbyist-industrial complex.

• Integrated economy-energy-climate models otherwise known as Integrated Assessment Models (IAMs), are a critical tool for understanding the likely impacts of climate change and for designing policies to mitigate those impacts; the results of analyses by these models play an important role in political debates and media reporting on climate issues.

In 1987, George Soros introduced his concepts of reflexivity and fallibility and has further developed and applied these concepts over subsequent decades. This paper attempts to build on Soros's framework, provide his concepts with a more precise definition, and put them in the context of recent thinking on complex adaptive systems. The paper proposes that systems can be classified along a 'spectrum of complexity' and that under specific conditions not only social systems but also natural and artificial systems can be considered 'complex reflexive.' The epistemological challenges associated with scientifically understanding a phenomenon stem not from whether its domain is social, natural, or artificial, but where it falls along this spectrum. Reflexive systems present particular challenges; however, evolutionary model-dependent realism provides a bridge between Soros and Popper and a potential path forward for economics.

Institute for Public Policy Research Edited by Tony Dolphin and David Nash August 2012 © IPPR 2012 New era ecoNomics TRANSLATING NEW ECONOMIC THINKING INTO PUBLIC POLICY COMPLEX NEW WORLD Contributions by John Kay\David Nash\Amna Silim Paul Ormerod\Michael Hallsworth Greg Fisher\Geoffrey M Hodgson\Tony Dolphin Stian Westlake\Jim Watson\Pauline Anderson Chris Warhurst\Sue Richards\Eric Beinhocker Orit Gal\Adam Lent Page 2. i COMPLEX NEW WORLD Translating new economic thinking into public policy Edited by Tony Dolphin and David Nash August 2012 Page 3. IPPR| Complex new world: Translating new economic thinking into public policy ii ABOUT THE EDITORS Tony Dolphin is senior economist and associate director for economic policy at IPPR. David Nash is a policy adviser at the Federation of Small Businesses and was until recently a research fellow at IPPR …

135 11: Beinhocker theory that has dominated economics for the past several decades that humans are perfectly rational, markets are perfectly efficient, institutions are optimally designed and economies are self-correcting equilibrium systems that invariably find a state that maximises social welfare. Social scientists working in the new economics tradition argue that this theory has failed empirically on many points and that the 2008 financial crisis is only the latest and most obvious example.Defining what new economics is provides a greater challenge. As of yet there is no neatly synthesised theory to replace neoclassical orthodoxy (and some argue there never will be as the economy is too complex a system to be fully captured in a single theory). Rather new economics is best characterised as a research programme that encompasses a broad range of theories, empirical work, and methods. It is also highly interdisciplinary, involving not only economists, but psychologists, anthropologists, sociologists, historians, physicists, biologists, mathematicians, computer scientists, and others across the social and physical sciences.