This article examines the extent to which the post-Keynesian paradigm is suitable for capturing ecological crises, particularly the climate crisis, and developing appropriate solutions. The latest status report on the state of the planet's ecological capacities shows that six out of a total of nine planetary boundaries have already been exceeded. Mitigating global heating, which we focus on in this article, is only one of these planetary boundaries but perhaps the one with the most urgent need for action. Post-Keynesian economics describes the basic workings of capitalism with a particular focus on growth and distribution. However, similar to neoclassical economics and political economy, post-Keynesianism has largely developed without a substantial conceptualisation of the environment. This poses a challenge as to how can post-Keynesianism contribute (more effectively) to addressing the climate crisis in the future?

We argue that post-Keynesian theory, modelling, and economic policy recommendations can address the climate crisis, but there are also some contradictions that are more difficult to resolve and require further research.

First, we attempt to clarify what characterises the problem of the "climate crisis." From our perspective, three interconnected dimensions should be captured, which are relevant to an economic theory that addresses the climate crisis: the extent and speed of decarbonization (ecological dimension), CO2 inequality (social dimension), and the underlying organisational principle of the economic system (economic dimension).
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The three dimensions of the ecological crisis

Ecological dimension: To avoid exceeding the temperature limits set out in the Paris Agreement, greenhouse gas emissions must be largely eliminated, and other greenhouse gases such as methane must be significantly reduced. This must happen in the near future. For example, in Germany, CO2 emissions would need to decrease by a staggering 17% per year if the 1.5°C limit is to be met with a 67% probability (German Advisory Council on the Environment 2022). This "deep decarbonization" requires nothing less than phasing out all fossil fuels, in all sectors, in all countries. Since infrastructures, institutions, and consumption habits have been geared towards fossil fuels, a systemic approach to transforming the economy is necessary.

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Social Dimension: In absolute terms - and that is what matters in the climate crisis - wealthier households have significantly higher CO2 emissions than poorer ones, especially regarding emissions-intensive luxury goods such as air travel. The graph shows that over a third of the carbon footprint of the richest 1% in the EU is consumed for travel by land and air. This group thus has an oversized consumption impact, even though the CO2 intensity of income is higher for low-income individuals. These enormous consumption emissions at the top of the wealth distribution are further outweighed by emissions from investments and capital ownership in this group, resulting from business ownership.

Economic Dimension: The current economic system is based on fossil capital accumulation. The competition for market share and profits puts companies under constant cost pressure, as they are constantly threatened by existing competition and potential new entrants. The accumulation of capital is indispensable if companies want to survive in the cutthroat competition of capitalism. This leads to an inherent imperative for growth.
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Where can the climate crisis be integrated into post-Keynesian analysis?

We find that post-Keynesian theory, modelling, and economic policy recommendations can analyse the climate crisis.

Theory and Models: Post-Keynesian models are capable of capturing the technological change necessary for transformation. With the Leontief production function and an understanding of historical time, they have a realistic grasp of technological change. Moreover, they consider the unplanned effects of transformation investments on growth and CO2 resulting from the increased demand.

While these aspects are useful for analysing the transition, the post-Keynesian insight into the functioning of modern economies is key to understanding the climate crisis and a socio-ecological transition. Net investment, i.e., a growing capital stock and thus growth, is seen as the fundamental driver. While it is possible to formulate post-Keynesian models with a CO2-neutral growth path, positive net investments reflect the factual growth imperative prevailing in the modern capitalist economic structure.

Another important aspect of post-Keynesian thinking regarding the climate crisis is the focus on distribution. This is closely related to the production structure, demand, and hence emissions. For post-Keynesians, therefore, every ecological issue is also a distributional issue, and solutions to socio-economic as well as ecological problems complement each other. As the unequal distribution of income and wealth on the one hand, and unevenly distributed political power on the other hand reinforce each other, this complicates the political feasibility of a socio-ecological transformation from a post-Keynesian perspective. Therefore, reducing inequality is crucial for ecological sustainability. Lastly, the post-Keynesian distribution focus can easily be expanded to intersectional inequalities such as gender inequality, which also have an ecological component.

Economic Policy: Post-Keynesianism prioritises fiscal policy to stabilise economic fluctuations over the business cycle. This is in line with a socio-ecological transformation, as there is no inherent growth target at the macroeconomic level. Post-Keynesians recommend large-scale public expenditure, especially for energy and resource-poor basic services, as well as taxation (including at prohibitive levels) of CO2-intensive luxury consumption. An active welfare state, for example, can contribute to transformation through the low-emission redesign of social benefits. Active industrial policy, also endorsed by post-Keynesianism, can steer the building of green production capacities while simultaneously managing the necessary transition away from fossil fuels and technologies. Post-Keynesian public finance also distinguishes between the different levels of government such as federal, state, and local. This can lead to a strengthening of the state through decentralisation and various forms of public ownership.

In the post-Keynesian view, monetary policy significantly supports fiscal policy. The endogenous money theory of the "horizontalist" perspective states that central banks set interest rates and do not control the money supply. Thus, post-Keynesian monetary theory does not hinder the fulfilment of ecological tasks by the state.

Furthermore, inflation is, from a post-Keynesian perspective, a distributional issue; companies set prices by adding a markup above unit costs, while wages are set in (collective) negotiations. Inflation can thus be controlled in a post-Keynesian view through price controls and wage restraint if the political power is there.
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Where are the contradictions between post-Keynesianism and the climate crisis?

Elsewhere, integrating the climate crisis into the framework of post-Keynesianism is not so straightforward. We identify various contradictions, such as (1) that a reduction in inequality triggers growth impulses, (2) the capitalist growth imperative, and (3) political power through wealth concentration. While the first of these contradictions could be overcome through industrial and regulatory policies, the growth imperative would require a fundamental restructuring of the economic system, which in turn is hindered by the third contradiction, political power through wealth concentration.

The connection between demand-driven growth and differential savings rates, which are lowest for low incomes and highest for high incomes, leads to a contradiction between post-Keynesian theory and the climate crisis: Redistribution from higher to lower income groups leads to stronger growth due to the higher consumption propensity of the latter. In conjunction with the higher relative CO2 emissions of lower-income groups, redistribution thus leads to an endogenous increase in emissions. However, this contradiction can be dynamically resolved through sectoral shifts within the economy: Basic goods such as heating are less unequally distributed than luxury goods, which are mainly found in the transportation sector. Moreover, these are easier to decarbonize. Thus, reducing global income inequality simplifies the technical feasibility of decarbonization. Also, production could be oriented towards human needs. This ensures the coverage of basic needs and hence a high quality of life, and by simultaneously limiting energy-intensive consumption, income, and/or wealth to a sustainable maximum, it reduces the ecological footprint.

In theory, there are thus solutions to the contradiction between redistribution and ecology. However, the inherent tendency toward capital growth (i.e., positive net investment) is more difficult to resolve, leading to a division into reformist and more radical positions. The latter view capitalism as incompatible with socio-ecological sustainability. Nevertheless, beyond this dichotomy, hybrid forms seem conceivable within post-Keynesianism.

One option could be to change ownership and participation structures. Alongside an active industrial policy, individual sectors of the economy could be removed from profit logic, and their transformation could be democratically planned, thereby reducing the pressure for capital accumulation.

Sufficiency strategies are also conceivable. The satisfaction of basic human needs is technically feasible at a significantly lower energy level based on already available technologies. Demand-side sufficiency strategies not only have enormous energy-saving potential but are also compatible with high well-being. Reduced working hours would not only mitigate the employment effects of lower growth but also lead to higher quality of life.

Another fundamental contradiction alongside the growth imperative of the modern economic system is the question of political power. Influenced by Marxist ideas, post-Keynesianism provides a profound analysis of the interests at play in distributional conflicts. However, this analysis is typically not applied to ecological issues. The reduction of CO2-intensive luxury consumption by the wealthy and the dismantling of fossil sectors are technically and economically feasible but face political resistance from fossil capital. This resistance has been documented since the 1950s, and while the strategies have evolved over time, they remain effective.
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To resolve this conflict, we see three points of intervention: 

Firstly, social movements can change public discourse. If the socio-ecological crisis is understood as genuinely political, the organisation of production and supply can be renegotiated. 

Secondly, researchers can play an important role by conducting critical research and making it accessible, as well as by influencing change. Post-Keynesians often know from their own experience of intellectual and political marginalisation since the 1980s that good economic policy proposals alone are not enough to effect change. In addition to a research agenda for social change, scientists can advocate more strongly in the climate emergency, interact with civil society, and communicate the urgency of the crisis credibly to the public through civil disobedience. 

Thirdly, within capitalism, the interests of capital must shift – or be shifted – for politics to change sustainably. Therefore, from a post-Keynesian perspective, the development and strengthening of those factions of capital that have an economic interest in transitioning to green technologies may be an important strategic goal.
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Disclaimer: This article is a translated version of the intervention that was originally published in German language as part of the Economists For Future Debate Series in the online magazine Makronom. Hence, some of the linked references are in German. The authors would like to mention that this article is a shorter version of a full length paper published in the European Journal of Economics and Economic Policies (EJEEP) and would like to thank the editors for permission to publish this revised and  shortened version.

About the author:

Vera Huwe is currently pursuing her doctorate at the Institute of Socio-Economics at the University of Duisburg-Essen and holds an M.Sc. from University of Bonn. Her work focuses on social-ecological transport policy, intersectional perspectives on inequality and philosophy of economics.

Miriam Rehm is Professor of Socioeconomics with a focus on Empirical Inequality Research at the University of Duisburg-Essen. She is a member of the Austrian Fiscal Advisory Council (Fiskalrat). Her research focuses on inequality, the wealth distribution, labour economics, and gender.

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