The first centres on green technologies and industries, a race to decarbonise. China has stolen a march in technologies such as solar and battery manufacture. Latterly the west has stirred, led by the US Inflation Reduction Act’s blockbuster package of subsidies and incentives. The EU is now escalating its own efforts. With an extra investment of around 2-3 per cent of global gross domestic product per year in green technologies needed to hit net zero, this race has a distance to run.
These initiatives have drawn criticism on the grounds they amount to a subsidy race. But an arms race to invest in decarbonising technologies is in fact exactly what the world needs to tackle two global externalities — the climate crisis and the investment drought. The theory of the second best tells us that, faced with an externality, subsidies can help us achieve the best attainable outcome.
This is the key part imo