INSIGHTS pieces
Environmental Economists should fully embrace Evidence-based Policy-Making
by Nils Handler (DIW Berlin)
Current State and Future Goals
In the fight against climate change, the numbers are staggering. Today, global CO2 emissions stand at 51 billion tons per year. The ambitious goal is to reduce this to zero by 2050. This transition is critical to mitigating the worst impacts of climate change, yet it presents an enormous challenge.
The Dual Reality: Bad News and Good News
The Bad News: Emissions are on an unabated rise, despite various climate-change agreements such as the Paris Agreement.
The Good News: Costs for various net zero technologies such as solar PV, wind energy and lithium-ion batteries have declined substantially over the past decades. We need further such cost degressions as part of green growth strategies.
Evidence-Based Green Innovation Policies
Despite the push for green innovation, only 3.7% of innovation policies are rigorously evaluated. This lack of rigorous assessment undermines the effectiveness of these policies and their potential impact. Recent studies highlight a return on investment of 21-37% for evidence-based policy-making, underscoring the importance of evaluating green innovation initiatives.
The Role of Randomized Controlled Trials (RCTs)
RCTs can provide robust evidence on the effectiveness of green innovation policies. For instance, subsidies for electric vehicle charging stations can be evaluated to determine their actual impact on promoting electric vehicle adoption. Such evaluations help ensure that public funds are used efficiently and effectively.
Overcoming Obstacles to Rigorous Policy Evaluations
To enhance the efficiency and impact of green innovation policies, several steps are recommended:
- Create Awareness: Highlight the successes of evidence-based policy-making in various fields to build support for similar approaches in green innovation.
- Produce "What Works" Reviews: Conduct comprehensive reviews of existing evidence in climate-related research areas, ranking them using established evaluation scales.
- Identify Knowledge Gaps: Determine where RCTs and other rigorous methods can fill gaps in our understanding and policy practice.
Co-Creating Rigorous Evidence for the Climate-Critical Decade
The following ten-step approach is proposed to create rigorous evidence for green policies:
- Creating awareness for the need for more evidence-based policy-making and its past successes in various fields (ex-post vs. ex-ante assessment; RCTs vs experimental approaches).
- Produce “What works”-reviews for climate-related research areas such as green innovation, technology development and deployment, green industrial policies and/or energy demand reductions. These should rank existing evidence along the Maryland Scale. Such comprehensive reviews need to carefully assess the generalizability of the individual trials.
- Identify relevant knowledge gaps that RCTs can help fill, both in theory and in policy practice, or regulatory variation (quasi-experiments: RDD/IV). As an example, the US evidence-based policy making act requires this for each governmental agency as part of their respective learning agendas.
- Overcome political obstacles to rigorous policy evaluations; that is create an openness to experiment and humility about limits of knowledge.
- Overcome legal obstacles to randomization, such as the legal requirement for equal treatment of all recipients of public funds based on the rationale of dynamic welfare gains resulting from better evaluations. Test whether the experimental clauses of regulatory sandboxes in Germany (“Reallabore Energiewende”) could be utilized for this purpose. Enable political reforms for the Energy Transition via positive examples.
- More financing for rigorous and experimental policy evaluations such as EU-Funded Trials for short, medium and long-time horizons[1].
- Equip public servants, civil society, and young researchers with the capabilities to implement rigorous evaluations and integrate the findings into better policies.
- Share knowledge and lessons learned, from macro to micro, with policy-makers, through conferences[2], communities of practice, research networks[3], and databases[4].
- Creating better institutions: J-PAL / Innovation Growth Lab related to climate policies to match researchers with implementing partners, acquire funding, and help implement RCTs; national experimental units, as well as institutions and accelerators at the European level.
- Turn rigorous policy evaluations, from macro to micro, into a standard process of decarbonization policy design in Europe.
Conclusion
Achieving net zero emissions by 2050 is an immense challenge but also an opportunity to reshape our economic growth models. By adopting evidence-based policies and rigorously evaluating green innovation initiatives, we can ensure that our path to sustainability is both effective and efficient. The journey from 51 billion tons to zero will require coordinated efforts, innovative solutions, and a steadfast commitment to integrating economic and environmental goals.
