Institutions, climate change, and the foundations of long-term policymaking

Produced as part of the Competitiveness in the low-carbon economy CCCEP research programme theme

Many policy problems require taking costly action today to reap future benefits; climate change is a prime example. To address these kinds of problems, governments need to make long-term ‘policy investments’. Like any investment, climate change policy investments require that societies pay a little bit today in return for much greater future benefits – in particular a stable climate.

But why do some countries take strong action to address long-term problems like climate change while others do very little? This paper focuses on the role of political institutions, particularly electoral rules, which determine how politicians get elected, and state–business relationships, which determine how industry influences the policymaking process.

The author finds that institutions play an important role in structuring the ‘distributional politics’ of climate change policy. They influence the ability of governments to shift the short-term costs of climate policy investments between voters and industry, which in turn affects how successful they are in adopting strong policies. The author argues that it is primarily these two institutions that drive the climate policy differences we see across countries – for example, between Sweden and the US.

This analysis is the first to link political institutions to climate change policy. The results can be used by policymakers and campaigners to better understand the political economy of climate policy across the high-income democracies. In showing how institutions structure opportunities for and constraints on climate policy adoption, it also provides information that can enable the design of policy instruments that better take account of country-specific institutional settings, rather than relying on one-size-fits-all solutions.

Key points for decision-makers

  • The author finds that proportional electoral rules (usually found in northern Europe) are associated with higher overall levels of climate policy investment and higher short-term policy costs for consumers (i.e. voters) relative to producers (i.e. industry). The reason is that more proportional rules better insulate governments against potential voter backlash from unpopular policies, compared to the ‘first-past-the-post’ majoritarian electoral rules of the English-speaking world.
  • A high degree of ‘concertation’ – institutionalised political exchange between industry and the state (again, typical of northern European democracies) – is also associated with higher levels overall of climate policy investment. Through negotiation and bargaining, the government and powerful economic actors can agree on compensation for the losers of policy change, which can defuse their opposition. This finding runs counter to conventional thinking that polluters always oppose climate policy, highlighting instead the crucial role that institutions play in structuring the incentives of these actors to cooperate with government.
  • How these two institutions fit together within countries results in different ‘varieties of decarbonisation’.
  • In ‘negotiated political economies’ (for example, northern Europe and Japan), where both PR rules and concertation are jointly present, the short-term costs of policy are shifted towards voters and away from industry, which increases political support from cost-bearing industry and reduces public conflict. Moreover, political parties face incentives to reach stable cross-party consensus on climate action. Policy change tends to be incremental rather than radical and suffer few reversals. Levels of climate policy investment are highest in these countries.
  • Conversely, in ‘competitive political economies’ with majoritarian electoral rules and little concertation between government and industry (for example, the English-speaking countries), climate policy investment is lowest. Because governments fear voter backlash, they try to shift costs towards industry. However, this antagonises big polluters, who are thus more likely to publicly oppose climate policy and attempt to get ‘voters’ to do the same. This increases public conflict and division around climate change. Furthermore, climate policy is less likely to enjoy cross-party support, as the two main parties compete rather than cooperate on the issue. Policy reversals are likely after elections.