On Climate Change and Institutions

Focusing on the climate change economics and policy, the main objective of this paper is to merge the elements of the triad comprising the precautionary principle, the green paradox (GP), and the international collective action. Mainstream climate change economics tackles the correction of the underlying externalities introducing a worldwide price mechanism on greenhouse gas emissions (GHG), which has proven to be unworkable, basically due to institutional failures. Moreover, the perverse incentives of carbon curbing policies might even counteract their aims under the so-called GP of climate policy. The fundamental (Knightian-type) underlying uncertainty around the climate change issue, the lessons learnt from the GP debate, and the acknowledgement that the fundamentals of a green macroeconomic policy around the notion of growth is still pending, evidence the difficulty to develop a coherent and successful global policy to face rising carbon emissions. Keynesian-inspired green macroeconomics can serve to fulfil the overall balance between the economy and the environment.