And deploying this weapon is a matter for democratically elected governments and parliaments. Firms and financial market agents need planning certainty if they are to invest long-term in greening the economy.
This is another area where the literature points to a time-inconsistency issue, much like the one facing monetary policy. [12] That’s why it’s important to have an ambitious and credible path for reducing emissions. But it’s not just the responsible politicians who are in the spotlight here.