capital subsidy

Financing the green transition: The political economy of investment tax credits

Green policies create economic winners and losers and the unequal distribution of these gains and losses across the population raises questions about the political viability of such measures. This column explores how best to finance the green transition, presenting evidence from a theoretical study of the impact of the introduction of Incentive Tax Credits (ITCs) into a model economy. The authors argue that a mix of debt- and tax-financed ITCs can be used to incentivise investment in green capital, while guaranteeing that most of the population would support the scheme, both at the time of introduction and in the distant future. Without viable political support, there is little hope of getting urgently required policies off the ground.