Search

Begin New Search Topic Sustainability Content Type Policy Brief

1. The Rise of “Watt’s Law” and Why Power Could Put a Ceiling on American Innovation

Author:
Maryam Cope
Publication Date:
02-2026
Content Type:
Policy Brief
Institution:
Center for Strategic and International Studies (CSIS)
Abstract:
A foundational advantage of the U.S. digital economy is weakening. For decades, Moore’s Law and Dennard scaling delivered steady improvements in computing performance while keeping energy costs manageable and underpinning productivity growth, industrial competitiveness, and national security capabilities. AI workloads upend these assumptions. Modern AI systems depend on massive parallelism, continuous data movement, and sustained operation across large clusters, making energy utilization and availability more important than peak chip performance. This shift defines the emergence of “Watt’s Law.” Under Watt’s Law, AI capability scales with available power growth multiplied by system-wide innovation driven by full-stack optimization across hardware, software, networking, and operations. This can be measured by growth in tokens per joule of energy. Power is now the significant binding constraint on AI progress. National competitive advantage increasingly depends on who can most efficiently convert electricity into sustained, real-world AI output, rather than who builds the smallest transistors. The implications are strategic. Failure to adapt to a power-constrained scaling regime risks forfeiting a key source of productivity growth and long-term advantage in AI-enabled economic and national security capabilities. It also has implications for U.S. partnerships with energy-rich allies.
Topic:
Science and Technology, Cybersecurity, Innovation, Artificial Intelligence, and Sustainability
Political Geography:
North America and United States of America

2. China’s Solar Industry Is in Upheaval—The Effects Will Be Global

Author:
Michael Davidson and Sandy Qian
Publication Date:
03-2026
Content Type:
Policy Brief
Institution:
Center for Strategic and International Studies (CSIS)
Abstract:
Over the past few years, China’s solar industry has entered a period of intense upheaval. Price wars and margin compression have forced industry leaders—including Jinko Solar, Trina Solar, and JA Solar—to report significant losses. These firms, along with LONGi Green Energy and Tongwei—the industry’s top five—slashed their workforce by over 30 percent in 2024. The market is facing industry consolidation and exits not seen in over a decade, as over 40 smaller firms have filed for bankruptcy, been acquired, or exited the market. Chinese regulators are accelerating this process, which will have ripple effects across global solar markets. Several critical questions arise: Does this phase erode China’s leadership in solar, or entrench it further? Is it a window for others to close the gap, or a prelude to deeper market displacement? And when the current wave of capacity consolidation settles, what will the next global competitive order look like? The answer is already emerging. Rather than opening space for rivals to catch up, the current shocks are forging a more resilient Chinese solar core. By embedding deeper into global value chains and securing a technological lead, China is effectively reshaping the industry’s future trajectory to its own long-term advantage.
Topic:
Sustainability, Industry, Solar Power, and Energy
Political Geography:
China and Asia

3. Energy Infrastructure and the Defense Industrial Base

Author:
Joseph Majkut, Alexander Palmer, and Raj Sawhney
Publication Date:
03-2026
Content Type:
Policy Brief
Institution:
Center for Strategic and International Studies (CSIS)
Abstract:
Can the energy infrastructure serving the U.S. defense industrial base sustain production under mobilization? This paper focuses on three scenarios for mobilization consistent with baseline production, defense buildup, and peer war. Using embodied energy methods, the research team estimates that war production rates would require 17.4 petajoules (PJ) of energy annually, a relatively small amount nationally, but one that would need to be concentrated at facilities in already stressed grid regions. Facilities for the defense-critical production of steel, aluminum, titanium, and semiconductors are clustered in regions already facing eroding reserve margins and surging data center demands. Natural gas deliverability constraints compound these risks, as key facilities depend on gas both as direct fuel and as the primary source of regional electricity generation. This paper recommends extending defense-critical electric infrastructure designations to industrial nodes, creating dedicated permitting and finance pathways to facilitate energy production, and integrating energy resilience into supply chain risk assessments.
Topic:
Climate Change, Energy Policy, Infrastructure, Geopolitics, Sustainability, and Defense Industry
Political Geography:
Global Focus

4. Defragmenting European Union climate policy

Author:
Michael Pahle, Darius Sultani, and Georg Zachmann
Publication Date:
02-2026
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
There is broad agreement that the European Union’s post-2030 climate policy architecture – the framework of rules to reduce greenhouse gas emissions – needs to be simpler and more flexible, with market actors less constrained in how they mitigate emissions. However, simplification should not compromise the EU’s climate goals and changing the architecture is politically contentious. Ringfencing of established climate compliance mechanisms and any delay in containing the emissions of lagging sectors could result in even more fragmentation in an already-fragmented climate-policy architecture. The cost of maintaining this fragmentation will rise, making the system even more inefficient. Higher costs and limited control over emissions in some sectors will undermine the EU’s ability to credibly signal commitment to its climate target, undermining the confidence of investors and international partners. To avoid these risks, simplicity and flexibility must mean the application of a carbon price across all parts of the EU climate architecture, with prices converging gradually. This can be achieved by linking the different systems through exchange rates that guide convergence towards a common carbon price, with the EU emissions trading system as the central hub. Climate policy is most efficient when emissions reductions take place where they deliver the greatest climate benefit at lowest cost. Today’s fragmented climate architecture prevents the efficient allocation of abatement resources, such as clean energy. Firms increasingly have incentives – arbitrage opportunities – to shift mitigation activities between differently priced compliance systems, raising overall costs. As more sectors and international links are added to the EU’s climate architecture, these distortions will grow, requiring ever more intrusive and politicised regulation. Managed convergence of different climate policies should become a core design principle of the EU’s climate policy architecture. By predictably phasing out fragmentation, overly pervasive regulation and complexity can be avoided.
Topic:
Climate Change, Industrial Policy, European Union, Sustainability, Decarbonization, and Energy
Political Geography:
Europe

5. Risks for Europe of US dominance of global asset management

Author:
Dirk Schoenmaker
Publication Date:
04-2026
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Asset managers work on behalf of asset owners, such as pension funds and insurance companies, allocating their holdings of household or other savings. In Europe, the market share of United States asset managers is rising, while that of their European counterparts is declining. US asset managers may even be about to overtake European asset managers in Europe. However, there are differences between US and European asset managers, and these could play out in the context of the European Union’s savings and investment union plan. On environmental, social and governance (ESG) engagement, European asset managers remain active, while their US counterparts increasingly vote against social and environmental resolutions. This is counterproductive for Europe’s sustainable finance agenda. To preserve the efficiency and efficacy of the EU asset management market, three steps should be taken: 1) strengthen stewardship policies, 2) create a central supervisor and 3) enhance strategic autonomy. Stewardship policies should be tightened and asset managers should highlight how their ESG policies aligns with those of the asset owners for which they work. A major element of this tightening would be the requirement to publish a detailed record of voting on shareholder resolutions. Strong supervision by the European Securities and Markets Authority should ensure that US asset managers are appropriately supervised across the EU. Asset managers apply a hub-and-spoke model, operating from Dublin and Luxembourg. National supervisors cannot effectively oversee the Europe-wide operations, which may create blind spots. A successful savings and investment union needs strong European players to allocate European savings to European investments. The European Commission should act to counter a home bias towards US investments. When hiring asset managers, pension funds and insurers should evaluate not only the lowest cost in the short term, but also financial and ESG performance in the long term.
Topic:
Climate Change, Finance, Investment, Sustainability, Capital, and Banking
Political Geography:
Europe, North America, and United States of America

6. Green finance or financing green? Bridging the EU’s sustainable-finance and capital-market architectures

Author:
Rebecca Christie
Publication Date:
06-2026
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The European Union has not done a good job of integrating its green goals with its overall approach to finance. Sustainability disclosure and capital markets policy are too separate, even though they both operate in the same global environment. Projects that help the climate transition need money, meaning they need optimal market conditions as well as environmental credentials. Connecting market and green-finance policies would help. At their best, sustainable finance disclosures are used by companies for self-assessment, peer comparison and aligning business models with the needs of the green transition. This, in turn, can lead to innovation, jobs and growth, and more care for the natural environment. At their worst, these disclosures become compliance burdens, demanding tremendous resources to produce data that is little used. EU efforts to simplify sustainable finance rules have not reduced complexity or reconciled the EU’s departures from global sustainable finance standards. To make its sustainable finance policy more fit for purpose, the EU should prioritise the solving of technical challenges; look beyond green bonds to equities, venture capital and other asset classes; use guarantees and subsidies sparingly to incentivise investment and market tools such as securitisation; reduce the role of the EU taxonomy and simplify data collection; and pare back the role of so-called double materiality so that EU rules can be more compatible with global standards, such as those developed by the International Sustainability Standards Board.
Topic:
Finance, Investment, Sustainability, Banking, Green Deal, and Capital Markets
Political Geography:
Europe

7. Allocating international loss and damage finance through national climate funds: prospects for African LDCs

Author:
Mariya Aleksandrova, Washington Onyango Kanyangi, Assouhan Jonas Atchadé, Joanes Atela, and Charles Tonui
Publication Date:
01-2025
Content Type:
Policy Brief
Institution:
German Institute of Development and Sustainability (IDOS)
Abstract:
The new loss and damage funding framework under the United Nations Framework Convention on Climate Change (UNFCCC) emphasises the importance of channelling support through national systems and mechanisms. This approach could prove particularly challenging for African least developed ountries (LDCs), which have been prioritised for support. These countries remain confronted with major challenges to access and utilise international climate finance, especially through direct access. National climate funds (NCFs) can have a potential role in delivering international loss and damage finance to African LDCs that is in line with their national priorities. NCFs can be defined as entities mandated to finance the implementation of national climate strategies and to manage and/or coordinate domestic and international sources of climate finance. NCFs can enhance the institutional capacities of countries by supporting the development of loss and damage strategies, facilitating access to international funding, aligning resource allocation with local priorities, and ensuring the effective tracking of loss and damage finance. This Policy Brief explores the role of NCFs in the evolving global loss and damage finance architecture with a focus on African LDCs. We examine the design features of five NCFs against criteria for assessing their relevance to support measures that address loss and damage. The studied NCFs are: the Benin National Fund for Environment and Climate, Ethiopia’s Climate-Resilient Green Economy Facility, Burkina Faso’s Intervention Fund for the Environment, the Mali Climate Fund and the Rwanda Green Climate Fund. Key policy messages • Despite that only a limited number of African LDCs have established NCFs, these demonstrate their potential to channel loss and damage funding, especially for environmental rehabilitation and climate-resilient recovery efforts. Particular strengths relate to their role in priority sectors for climate change adaptation and in relation to biodiversity loss, drought, land degradation and desertification. • Existing NCFs in African LDCs have inadequate mandates and capacities to manage the complex funding needed for loss and damage. An emerging issue is their presently limited role in linking climate and disaster risk finance. • The NCFs of African LDCs can be instrumental to promote coherence and complementarity with other funding sources at the national level. Countries must establish comprehensive legislative, policy and regulatory frameworks to define the institutional roles of NCFs in loss and damage response, supported by international funding to strengthen their institutional capacities.
Topic:
Climate Change, Development, Climate Finance, and Sustainability
Political Geography:
Africa

8. Not yet Trump-proof: an evaluation of the European Commission’s emerging policy platform

Author:
Heather Grabbe and Jeromin Zettelmeyer
Publication Date:
01-2025
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The economic strategy being defined by the 2024-2029 European Commission seems to follow the prescriptions on innovation and single market reform, and the expansive approach to industrial policy, set out by Mario Draghi in his September 2024 report on European Union competitiveness, with two important differences. First, the Commission stops short of calling for World Trade Organisation-prohibited subsidies – this is welcome. Second, the Commission proposes a new state aid framework for national industrial policy rather than expansion of EU-level public investment funding. This runs the risk of weakening the single market and harming competition, with the unintended consequence of protecting incumbents and inhibiting structural change. In terms of specific policies, on defence, the Commission is right to face up to the challenge of defining an EU procurement mechanism that offers sufficient speed and cost advantages to justify large-scale funding. On economic security and international partnerships, the Commission is right to take a broader approach than a foreign economic policy focused only on supply chains. What is lacking is a much greater commitment to providing support for climate mitigation in developing countries. The second Trump presidency creates risks for the Commission strategy. President Trump has gone further than expected in threatening territorial expansion and with the speed, aggression and disregard for the rule of law with which he has started to implement his policies. These factors will complicate the EU-United States relationship. The best defence against both Trump and the competitive and security threats posed by China is to accelerate policies that address the EU’s structural weaknesses: raising productivity growth, defence capacity and economic security. Economic security, in turn, requires more resilient trade relationships, less financial dependence on the US and an improved standing with emerging market and developing economies. The EU should also seize the opportunity offered by the shift in US policy from subsidies to deregulation. While the EU should not race Trump to the bottom on environmental or financial deregulation, it should rapidly improve its own regulatory framework while building on its core strengths: human capital and the rule of law. Unlike tariff wars or discriminatory subsidies, a competition to provide a good business environment is not a zero-sum game.
Topic:
Security, Economics, Industrial Policy, Budget, European Union, Digital Economy, Trade Policy, Donald Trump, Sustainability, European Commission, and Energy
Political Geography:
Europe and United States of America

9. How to improve the European Union’s sustainable finance framework

Author:
Silvia Merler
Publication Date:
02-2025
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The European Union has sought to steer corporate behaviour to support its climate goals by adopting a large body of rules on sustainable investment, sustainability disclosures and sustainability labelling of financial products, underpinned by a taxonomy of activities considered sustainable. It is unclear, however, if this effort has had significant results. Examination of financial market data and metrics of investment flows towards green and sustainable investment shows up several weaknesses – both contingent and structural – in the EU sustainable finance framework, which could limit its effectiveness in aligning capital flows with climate objectives. The Sustainable Finance Disclosure Regulation (SFDR) is aimed at making the sustainability content of financial products more transparent but rests on a concept of ‘sustainable investment’ that is too broad and loosely defined. Meanwhile, the EU Taxonomy Regulation has not yet become established as the reference framework for corporate bond issuance or sustainable investing. The EU also lacks a coherent framework for transition finance – or investment that is not yet classified as sustainable but that represents progress to greater sustainability – despite this being the market segment to which the largest volumes of investment will need to flow in the short to medium run. Five adjustments would make the EU sustainable finance framework more effective at delivering the desired alignment of incentives. First, the taxonomy framework should be completed and clarified. Second, the SFDR definition of sustainable investment should be toughened. Third, the neutrality of the framework across capital market instruments, in particular debt versus equity, should be ensured. Fourth, a dedicated framework for transition finance should be developed. Finally, formal sustainable and transition labels for financial products should be introduced. This approach would make the sustainable finance framework more easily applicable to all kind of companies and all types of capital market instruments, regardless of whether they limit the use of proceeds, and it would be naturally extendable into a framework for transition finance and into a transparent sustainability labelling regime for financial products.
Topic:
Climate Change, European Union, Regulation, Finance, Macroeconomics, and Sustainability
Political Geography:
Europe

10. Building coalitions for climate transition and nature restoration

Author:
Jean Pisani-Ferry, Beatrice di Mauro, and Jeromin Zettelmeyer
Publication Date:
07-2025
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Global climate and biodiversity outcomes will largely be determined in emerging and developing economies (EMDEs). We propose a four-pillar strategy to support climate and nature preservation in line with the economic interests of both developing and advanced countries. This would move beyond voluntary pledges to embed climate and nature objectives into the structures of trade, finance and industrial policy, creating a self-reinforcing system of cooperation and reducing the net costs of the green transition. Under Pillar 1, a coalition of advanced and developing countries would link tiered carbon pricing with a common carbon border adjustment mechanism (CBAM). Pillar 2 would create a climate-finance coalition to decarbonise the power sectors of developing countries. Pillar 3 would involve partnerships to develop clean energy-intensive industrial production stages in developing economies with rich renewables endowments; these would feed into the supply chains of the European Union and other energy-importing advanced economies. Pillar 4 would redesign markets to create scalable and credible mechanisms to fund carbon removals. Technology-based removals can be incentivised through the introduction of clean-up certificates into the EU emissions trading system, while nature-based removals would require improved market design centred on a new asset class: nature shares. The four pillars reinforce each other. A multi-country CBAM and carbon pricing coalition (Pillar 1) would reduce the cost of financing power sector decarbonisation (Pillar 2). Linking EMDE membership of the CBAM and carbon-pricing coalition to financial support for the decarbonisation of power sectors would also make it more attractive for EMDEs to adopt carbon prices. Decarbonisation of power sectors (Pillar 2) would be a precondition for developing clean, highly energy-intensive industry in renewables-rich EMDEs (Pillar 3). The Pillar 1 coalition should include the EU, China and as many other countries as possible. Advanced countries and China could underpin the Pillar 2 financier coalition. Pillar 3 would involve the EU and potentially other energy-poor advanced countries, along with EMDEs that are richly endowed with renewables. Pillar 4 would include the main custodians of the planet’s natural capital. Enabling these coalitions will require EU leadership.
Topic:
Climate Change, Economics, Industrial Policy, Trade, Sustainability, Decarbonization, and Green Transition
Political Geography:
Europe

11. Rethinking Social Security from a Global Perspective: What Congress Can Learn from the Experiences of Canada, Germany, New Zealand, and Sweden

Author:
Romina Boccia and Ivane Nachkebia
Publication Date:
06-2025
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
Social Security is projected to reach technical insolvency by 2033, threatening retirees with automatic 23 percent benefit cuts as the program will be unable to pay full benefits on time. The program’s looming trust-fund insolvency creates a legislative forcing mechanism and thus presents an opportunity to reimagine how Social Security could work. Policymakers should consider fundamentally rethinking the program’s structure and transform it into a system that ensures seniors are protected from poverty when they can no longer work, while also freeing up resources for younger workers to save more on their own. With Social Security running large and rising cash-flow deficits since 2010, and given a political desire to protect most current retirees from being affected by benefit reductions, Congress should act now to stabilize the system—not procrastinate any longer, which only ensures that inevitable changes will be more drastic and economically harmful. The longer Congress waits, the more people will be locked into the current unsustainable system, and the higher the burden will be on younger generations to finance it.
Topic:
Poverty, Reform, Fiscal Policy, Social Security, and Sustainability
Political Geography:
Canada, Germany, Sweden, and New Zealand

12. Strengthening EU Participatory Governance: Lessons Learnt from the Platform on Sustainable Finance

Author:
Sebastian Emde
Publication Date:
10-2025
Content Type:
Policy Brief
Institution:
EGMONT - The Royal Institute for International Relations
Abstract:
The European Commission’s participatory governance framework plays a crucial role in shaping EU policies, as exemplified by the Platform on Sustainable Finance (PSF). However, the PSF’s first two mandates revealed deficiencies in terms of transparency, balance, fairness, and accountability, limiting the body’s capacity to enhance the effectiveness and legitimacy of policymaking. As the PSF’s second mandate ended in March 2025, this policy brief discusses several lessons that can be learnt from this experience. It recommends structural reforms to strengthen both the legitimacy and quality of EU sustainable finance policymaking and to enhance participatory governance in the EU more broadly.
Topic:
Governance, European Union, Finance, Transparency, Sustainability, and European Commission
Political Geography:
Europe

13. Harnessing AI for ASEAN’s Future: Governance, Adoption, and Sustainability under the DEFA

Author:
Hilmy Prilliadi
Publication Date:
05-2025
Content Type:
Policy Brief
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
Artificial intelligence (AI) presents transformative opportunities for ASEAN, as its market is projected to reach US$30.30 billion by 2030. AI adoption is expected to contribute 10%–18% of ASEAN’s gross domestic product, benefiting key sectors such as manufacturing, health care, and energy. However, AI integration also highlights challenges, including governance gaps, disparities in AI readiness amongst ASEAN Member States, data governance issues, and sustainability concerns. While ASEAN has made progress through initiatives like developing the ASEAN Guide on AI Governance and Ethics, policy fragmentation and uneven AI adoption across ASEAN Member States underscore barriers to inclusive growth. The ASEAN Digital Economy Framework Agreement (DEFA) provides an opportunity to align AI governance in ASEAN with global standards, ensuring a regulatory framework that balances innovation with accountability. This brief highlights AI’s role in ASEAN’s digital economy and proposes policy recommendations to strengthen AI governance; enhance the population’s digital skills; support AI adoption amongst micro, small, and medium-sized enterprises; promote culturally diverse datasets; and advance sustainable AI infrastructure. By fostering regional cooperation and embedding AI-related commitments into the DEFA, ASEAN can harness AI’s potential while actively mitigating its risks.
Topic:
Science and Technology, Governance, Artificial Intelligence, Sustainability, and ASEAN
Political Geography:
Asia

14. A Burden or a Boost? Corporate Sustainability Due Diligence in European Agriculture

Author:
Marjoleine Hennis
Publication Date:
06-2025
Content Type:
Policy Brief
Institution:
Clingendael Netherlands Institute of International Relations
Abstract:
The next Common Agricultural Policy (CAP) cycle is being discussed amid geopolitical and global trade tensions, and a shift in focus (by the European Commission) to the competitiveness of the European Union (EU). The discussions are taking place in parallel with the introduction of certain sustainability measures of the Green Deal. These measures, such as the Corporate Sustainability Due Diligence Directive (CSDDD), are often presented as contrasting with competitiveness, or as an additional administrative burden. Instead, this policy brief highlights the potential benefits of the sustainability measures for European agriculture. It argues that, if applied astutely, the measures could boost the EU’s competitiveness and food security, whilst easing regulatory burdens, and reinforcing the position of farmers in agri-food chains.
Topic:
Agriculture, European Union, Food Security, Sustainability, and Green Deal
Political Geography:
Europe

15. Budgets Allocated to Disasters and Risk Reduction by Metropolitan Municipalities Before and After February 6 Earthquake

Author:
Kamu Harcamalarını İzleme Platformu (KAHİP)
Publication Date:
04-2025
Content Type:
Policy Brief
Institution:
Turkish Economic and Social Studies Foundation (TESEV)
Abstract:
Disasters such as earthquakes, floods and forest fires in recent years have brought disaster and disaster risk reduction issues to the agenda in Türkiye. This study aims to examine the budgets of 30 metropolitan municipalities and water-sewerage authorities in areas such as pre-disaster risk reduction and post-disaster response. In line with this objective, the performance programs of metropolitan municipalities and water-sewerage authorities for the years 2022, 2023 and 2024 have been examined.
Topic:
Natural Disasters, Governance, Budget, Accountability, Urban, Transparency, Sustainability, and Earthquake
Political Geography:
Turkey and Middle East

16. Keys for sustaining Tanzania’s economic development

Author:
Oliver Morrissey and Maureen Were
Publication Date:
03-2024
Content Type:
Policy Brief
Institution:
United Nations University
Abstract:
Sustainable economic development hinges on the ability of firms and households to maintain growth and wellbeing. How have Tanzania’s firms and households performed in recent decades, and what policies can improve their resilience against future shocks?
Topic:
Economy, Economic Development, Sustainability, and Resilience
Political Geography:
Africa and Tanzania

17. On the Role of Local Government in Promoting Peace and Political-Environmental Sustainability

Author:
Kim Noach
Publication Date:
01-2024
Content Type:
Policy Brief
Institution:
Mitvim: The Israeli Institute for Regional Foreign Policies
Abstract:
The paper discusses the rising power of local government and its ability to independently create and/or advance foreign relations in order to promote peace and good neighborly relations. One of the prominent areas in which local government engages and cooperates with others today is the environmental and climate field, notably in light of the foot-dragging of nation-states around these issues. Given this reality, the paper examines whether relationships and cooperation on the environment might be built between local authorities when their respective nation-states maintain no relations or only cold ones, or are in ongoing conflict. The paper analyses three theoretical axes: 1) the rising political power of local authorities vis-à-vis their nation-states, and as significant actors in global diplomacy; 2) growing local involvement with environmental problems; and 3) the promotion of environmental peacebuilding. The paper analyses the feasibility of joining these axes, and gives relevant examples, focussing on the Israeli-Palestinian-Jordanian space. The main argument arising from the analysis is that local government has the tools and the effective opportunity to advance environmental cooperation as a stimulus to making peace; and further, that processes of this sort are particularly important when there is no political horizon. While Israel and its region are indeed the focus of this paper’s examination of local government and its potential for building relationships, the general insights derived are applicable to other regions of conflict.
Topic:
Climate Change, Environment, Politics, Peace, Sustainability, and Local Government
Political Geography:
Middle East, Israel, Palestine, and Jordan

18. Three risks that must be addressed for new European Union fiscal rules to succeed

Author:
Lucio Pench
Publication Date:
05-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The debate on the reform of the European Union’s fiscal rules, the Stability and Growth Pact, has largely focused on their design. This nearly exclusive focus has distracted attention from the equally, if not more, important aspects of implementation. The reform, completed in April 2024, left implementation unaddressed, or at least open to very different potential outcomes. In particular, the reform failed to clarify the interplay between EU countries’ medium-term fiscal structural plans (MTFSPs), which embody the new focus on debt sustainability, and the excessive deficit procedure (EDP), which remains the main enforcement tool under the rules. The need for clarification is urgent as several countries are set to enter EDPs for breaching the SGP’s 3 percent of GDP deficit threshold at the same time as their first MTFSPs are endorsed in autumn 2024. There is a risk that the adjustment paths prescribed by EDPs may be at least temporarily less demanding than the debt-sustainability requirements of the MTFSPs would normally imply. Even if consistency between EDPs and MTFSPs is ensured from the start, inconsistencies may arise over time and be resolved in a way that further postpones the necessary adjustment. The main risk is that the 3 percent of GDP deficit might be perceived as the only target that matters for countries that enter EDPs in 2024, as repeated revisions of the MTFSPs undermine the cogency of the debt sustainability requirements. This scenario is likely to materialise if the countries are allowed to exit their EDPs upon bringing their deficits to or below 3 percent of GDP, while being still far from the necessary correction of the debt trajectory. It is important to shape countries’ expectations on the implementation of the upcoming EDPs in a way that is conducive to the immediate internalisation of the debt sustainability constraint implied by the new rules, rather than allowing it to be viewed as a distant objective. This change in expectations could be achieved by clarifying that, even if a country has been placed in an EDP only for breach of the deficit criterion, it should also satisfy the debt criterion for the procedure to be abrogated.
Topic:
Debt, Reform, European Union, Fiscal Policy, and Sustainability
Political Geography:
Europe

19. Greening Economies in Partner Countries: Priorities for International Cooperation

Author:
Tilman Altenburg, Anna Pegels, Annika Björkdahl, Clara Brandi, and Hanna Fuhrmann-Riebel
Publication Date:
01-2024
Content Type:
Policy Brief
Institution:
German Institute of Development and Sustainability (IDOS)
Abstract:
While polluting industries are still flourishing, the green economy is on the rise. In low- and middle-income countries, the resulting opportunities are mostly underexplored. The Federal Ministry for Economic Cooperation and Development (BMZ)’s new strategy for “Sustainable economic development, training and employment” shifts gears towards a green and inclusive structural transformation, recognising that only a just transition approach with credible co-benefits for societies can gain societal acceptance (BMZ, 2023). It is now essential to provide evidence of how a greener economy can offer direct economic benefits to national economies and the majority of their citizens. Ongoing cooperation portfolios need to be adjusted to this new and timely orientation in the BMZ’s core strategy. We suggest focusing on the following six areas: Eco-social fiscal reform should be a priority area in at least 15 of the over 40 partner countries with whom Germany cooperates on “sustainable economic development”, systematically linking revenues from pricing pollutions to pro-poor spending. Development policy should promote inclusive green finance (IGF) through market-shaping policies, such as an enabling regulatory framework for the development of digital IGF services and customer protection in digital payment services. It should also build policymakers’ capacity in developing IGF policies and regulation. Support in the area of sustainable, circular con-sumption should focus on eco-design, and repair and reuse systems. It should build systems design capa-cities and behavioural knowledge, to integrate con-sumers in low-carbon and circular industry-consumer systems. This will need new collaborations with actors shaping systems of consumption and production, for instance with supermarkets or the regulators of eco-design guidelines. Germany should strategically support national hydro-gen strategies, including a just transition approach and prioritising green over other “colours” of hydrogen. This means strengthening industrial policy think tanks, technology and market assessment agencies, technology-related policy advice as well as skills development, and exploring distributive mechanisms to spread the gains and ensure societal acceptance. Sustainable urbanisation should be a more explicit priority, given its potential for job creation and enterprise development. This means supporting partners in integrating land-use, construction and mobility planning for compact, mixed-use neighbourhoods, and anti-cipating green jobs potential and skills required within cities. Lastly, Germany should support green industrial policy and enlarge policy space in trade rules by promoting the core institutions of industrial policy, for example, technology foresight agencies, coordinating platforms for industry upgrading, and policy think tanks, and working towards reforms of the trading system, such as rules to allow clearly defined green industrial subsidies, preferential market access for green goods and services from low-income countries, or technology transfer. It is evident for all areas that the challenges in low- and middle-income countries will differ from those in high-income countries. It is, therefore, imperative that successful programmes are co-developed with local partners. A just green transition that harvests benefits beyond a healthier environment and is supported by societies will then be achievable.
Topic:
Development, International Cooperation, Economy, Sustainability, and Green Economy
Political Geography:
Germany and Global Focus

20. Getting Special Drawing Rights Right: Opportunities for Re-channelling SDRs to Vulnerable Countries

Author:
Jürgen K. Zattler
Publication Date:
01-2024
Content Type:
Policy Brief
Institution:
German Institute of Development and Sustainability (IDOS)
Abstract:
Many developing countries are still grappling with the consequences of the pandemic and the associated high debt burdens while facing huge financing needs, inter alia related to climate change. In response, the International Monetary Fund (IMF) issued $650 billion in Special Drawing Rights (SDRs). The G7 and G20 have committed to re-channelling SDR 100 billion of their allocation to developing countries (on-lending, recycling and re-channelling are used interchangeably in this policy brief). The question now is how to implement these commitments in a way that promotes the global transformation and at the same time supports debt sustainability. It is important to note that there are certain restrictions on the re-channelling of SDRs. Most importantly, the re-channelling must be consistent with the SDR’s status as an international reserve asset. There are different interpretations of these requirements. The IMF has encouraged the use of the Poverty Reduction and Growth Trust (PRGT) and the Resilience and Sustainability Trust (RST) for re-channelling. It has also signalled general support for re-channelling SDRs to the multilateral development banks (MDBs). The European Central Bank (ECB) has taken a more restrictive stance. Does the re-channelling of SDRs through the above-mentioned IMF trusts (“the current on-lending option”) effectively support the global transformation? Measured against this objective, the current on-lending regime has two shortcomings. First, it does not sufficiently link foreign exchange support to deep structural transformation. Second, it does not allow funds to be leveraged in the private capital market. In this policy brief, we discuss a promising alternative: recycling SDRs for MDB hybrid capital (“the hybrid capital option”). This option can overcome the two drawbacks of the current system. At the same time, it has its own challenges. Moreover, both the current on-lending option and the hybrid capital option raise concerns about debt sustainability. If implemented in their current forms, they would risk exacerbating vulnerable countries’ debt problems. It would therefore be desirable to modify these options to better integrate debt implications. This could be done by using the on-lent SDRs primarily for programmes that are not “expenditure-based”, but rather help to improve the composition of expenditure and revenue in a socially equitable manner, for example the introduction of regulatory standards, feebates and carbon pricing, or the phasing out of fossil fuel subsidies. Such an approach could have the added benefit of making previously sceptical member states more receptive to the hybrid capital proposal. The mid-term review of the RST, scheduled for May 2024, as well as the full review in 2025 provide good opportunities to further explore some of the issues raised in this policy brief. In addition, the brief identifies three ways in which interested shareholders of the IMF and MDBs could advance the debate on the hybrid capital option.
Topic:
Development, Sustainability, COVID-19, and Multilateral Development Banks (MDBs)
Political Geography:
Global Focus