Governments around the world use subsidies to support it green transition. So-called “green grants” can be useful where there are market failures. When carbon dioxide emissions are underestimated compared to their actual impact on society, or when proposed solutions (such as carbon pricing) are not discussed, subsidies can turn into enterprises but also consumers towards clean technologies. They, in turn, pollute the environment to a lesser extent and at the same time reduce costs.

However, subsidies must be carefully targeted to correct market failures and not discriminate between businesses. They must also be compatible with its rules. World Trade Organization.

Wealthier countries with more fiscal power could come out on top in the race for subsidies, even if the global economy is in worse shape. Emerging market and developing countries with fewer resources will find it difficult to compete for investment with advanced economies in a world dominated by protectionism. This may hinder the transfer of technology to these states. In short, the cost of sustainability can rise.

OUR EUROPEAN UNION. put on the table the European Green Deal, which was proposed European Commission in January, and some of its elements have already been adopted. Green Deal policymakers can take steps to maximize its benefits and avoid its pitfalls. Initially, E.E. it must continue to work with other countries to develop a common and multilateral approach and curb climate change. This could take the form of an agreement on the appropriate use and planning of subsidies, backed up by careful analysis of the climate and economic impacts of different forms of subsidies.

This includes competitiveness, availability of resources and cross-border trade. In the meantime, green grants can be used in a collaborative spirit through open and non-discriminatory initiatives.

Secondly, maintaining the integrity of the single European market. EU state aid rules have placed restrictions on the support that businesses can provide to companies to ensure fair competition. This prevents larger EU countries or economically stronger countries from providing more generous support to their businesses, but at the expense of competitors in other European bloc countries. However, relaxation of state aid rules should be limited in size and duration.

Perhaps this should be accompanied by European funding, which will help the different possibilities of member countries to provide subsidies. Third, the EU. it should focus grants on activities where interventions can bring the greatest climate benefit. This applies both to support the development of new “clean” technologies, and the further development of existing ones, which are still at an early stage.

* Director of the IMF Europe Department. The article was published on the Foundation’s blog.