Shifting to a green economy: Lock-in, path dependence, and policy options

The research paper examines the economic barriers to a green transition, specifically 'carbon lock-in' where existing high-emission infrastructure reinforces itself. Using a post-Keynesian 'brown-green capital' model, the author argues that a transition cannot be achieved through carbon pricing alone but requires sustained public investment and a dynamic policy mix. The paper finds that the macroeconomic impact of green investment depends on whether an economy is 'wage-led' or 'profit-led', and that investor uncertainty often leads to underinvestment in green capital even as it becomes more productive.

• The macroeconomic effect of increasing green capital penetration depends on whether an economy is wage-led or profit-led. In a wage-led regime, rising green capital is stimulating in a brown capital-dominated economy but depressing in a green capital-dominated one.
• Carbon lock-in creates a self-stabilizing effect for brown economies, meaning that a 'neutral' investor hedging against uncertainty is likely to underinvest in green capital, even at high levels of green capital penetration.
• A carbon price can serve a macroeconomic purpose beyond marginal emissions reductions by controlling inflationary pressures caused by public green capital investment in wage-led economies.
• A low-carbon transition cannot be achieved through price signals alone; it requires targeted public investment in infrastructure and complementary assets to induce private investment.
• Path dependence implies that the sequence of investment matters; in a brown capital-dominated economy, there are private benefits to investing in brown capital first, which further hinders the shift to green capital.
• For small open economies, the effect of a carbon price is ambiguous because it operates through both domestic profit channels and the balance of trade, making their performance dependent on the actions of trading partners.
• Green capital is initially assumed to be more labour-intensive to operate than brown capital, which can lead to increased labour demand and potential inflation if the labour market is tight.

APA

Kemp-Benedict, E. (2014). Shifting to a green economy: Lock-in, path dependence, and policy options. Stockholm Environment Institute. https://www.sei.org/mediamanager/documents/Publications/SEI-WP-2014-08-Brown-green-capital.pdf

Chicago

Kemp-Benedict, Eric. Shifting to a green economy: Lock-in, path dependence, and policy options. Stockholm Environment Institute, 2014. https://www.sei.org/mediamanager/documents/Publications/SEI-WP-2014-08-Brown-green-capital.pdf.

Wikipedia

{{cite report |last1=Kemp-Benedict |first1=Eric |title=Shifting to a green economy: Lock-in, path dependence, and policy options |publisher=Stockholm Environment Institute |date=November 2014 |url=https://www.sei.org/mediamanager/documents/Publications/SEI-WP-2014-08-Brown-green-capital.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{kempbenedict2014shifting, author = {Kemp-Benedict, Eric}, title = {{Shifting to a green economy: Lock-in, path dependence, and policy options}}, institution = {Stockholm Environment Institute}, year = {2014}, month = nov, url = {https://www.sei.org/mediamanager/documents/Publications/SEI-WP-2014-08-Brown-green-capital.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }