The net zero fiscal trilemma
Governments face a trilemma between meeting net zero, fiscal sustainability, and political feasibility.
Splurge enough public money on new green projects and you may get to net zero faster. It probably won’t do your re-election chances any harm either, but it might provoke a harsh rebuke from the bond market.
Be more selective and controlled with your subsidies. The debt markets will be more relaxed but you’ll need something else to meet net zero. That has to mean using carbon pricing - whether direct or indirect - to alter behaviour and incentives. The downside is that it could result in higher prices and a backlash from your voters.
Where does the world currently stand on this net zero fiscal trilemma, and what can governments do to solve it?
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