The politics of climate change is entering a harsher phase. The planet has already moved past symbolic thresholds that structured a decade of diplomacy. The World Meteorological Organization has confirmed that 2024 was the warmest year on record, with average temperatures around one and a half degrees above the preindustrial baseline, and the decade since 2015 has been the hottest ever measured. A cluster of recent scientific assessments concludes that keeping warming below one and a half degrees on a sustained basis is no longer plausible. The question confronting governments is no longer how to prevent a distant danger. It is how to manage a permanent crisis without losing political control at home or strategic leverage abroad.
The conventional story about climate policy is disarmingly simple. Governments are supposed to put a price on carbon, subsidize clean technologies, and pledge credible national targets under the Paris Agreement. If they do these things, emissions should fall in a reasonably linear way. The real world has not followed that script. Global emissions have plateaued rather than declined, current pledges put the world on track for roughly two and a half to almost three degrees of warming, and the latest United Nations analysis shows that existing commitments will cut emissions by only about twelve percent by 2035 relative to 2019, far short of the roughly sixty percent reduction scientists view as necessary for a safe path.
Something is missing from the stylized model of rational states adjusting one policy lever at a time. The emerging literature that treats climate governance as a complex system is a better guide. It starts from a simple observation that is often missing in the diplomatic rhetoric. Outcomes such as ecological degradation or decarbonization rarely follow from a single instrument like a carbon tax. They arise from configurations of policies that interact, amplify, or neutralize each other across time and levels of government.
That perspective has uncomfortable implications for both domestic policymakers and foreign policy professionals. It suggests that the central climate problem of the twenty first century is less about identifying the right instrument and more about governing tangled policy portfolios under conditions of fiscal scarcity, political backlash, and geopolitical competition.
What Complexity Theory Tells Us About Climate Policy?
Recent work applying complexity theory to climate policy in the major industrial democracies provides a glimpse of how different the politics looks once one takes interactions seriously. Instead of treating environmental outcomes as a function of a single variable, these studies use methods such as fuzzy set qualitative comparative analysis and necessary condition analysis to map combinations of policies and structural features that are associated with high or low ecological footprints in G7 countries over several decades.
Several findings stand out. First, energy use remains the most powerful driver of ecological pressure across the advanced economies. When energy consumption per capita is high and overwhelmingly fossil based, even ambitious policies struggle to contain the footprint. Second, the effect of individual instruments depends on what else governments are doing. The Carmona and co authors study finds that low public expenditure on environmental protection and waste management, combined with low taxes on transport and high energy use, is sufficient to produce high ecological footprints in their G7 sample. Conversely, configurations with high expenditure on environmental protection and relatively high taxes on transportation are strongly associated with lower ecological footprints, with Japan, Italy, and France emerging as cases where the policy mix has been comparatively more effective in dampening environmental pressure.
These results illustrate three core ideas from complexity theory that ought to reshape climate politics.
The first is equifinality. Very different policy mixes can generate a similar environmental outcome. A country may achieve a given reduction in ecological footprint through aggressive regulation paired with moderate pricing, or through high carbon and transport taxes combined with targeted public investment, or through strong industrial policy that rapidly transforms the energy system while leaving household incentives relatively unchanged. This variety of viable paths has important political consequences. It means that climate governance is not a single global race to adopt the “best practice” model; it is a set of overlapping experiments in which states search for bundles of policies that fit their institutional structures and social contracts.
The second is causal asymmetry. The set of conditions that explain success is not simply the inverse of the set that explains failure. The configurations that produce high ecological footprints often hinge on permissive conditions such as cheap energy, weak enforcement, and the absence of meaningful environmental spending. The configurations that produce lower footprints typically require more deliberate design, with several instruments working in concert. For diplomacy, this implies that it is easier for governments to undermine climate goals than to deliver them. A handful of badly designed subsidies or exemptions can negate expensive flagship programs.
The third is path dependence. Once a government has built a certain portfolio of measures, from fuel taxes and industrial subsidies to urban design and power market rules, shifting that portfolio becomes progressively harder. Interests form around specific lines in the budget and around implicit subsidies embedded in tax codes. These interests then interact with electoral incentives and media narratives in ways that are difficult to predict ex ante. When a finance ministry proposes to rebalance transport taxation or cut fossil fuel tax expenditures, it is not tinkering at the margin of a neutral system; it is reopening bargains that structured entire sectors.
The result is that climate policy is not an exercise in optimization but in political navigation inside a dense web of interlocking commitments.
Green Spending, Real Budgets, and the Politics of Scarcity
This complexity is layered on top of tight fiscal constraints. The COVID 19 pandemic offered an extraordinary natural experiment. For a brief period, political leaders in advanced economies had both the motive and the opportunity to integrate climate action into unprecedented stimulus programs. Yet the outcome fell well short of the rhetoric.
The OECD Green Recovery Database shows that green measures accounted for roughly seventeen to twenty one percent of identified recovery measures in 2021, but only around two percent of total COVID related spending across the forty three countries and the European Union that were tracked. Some later updates raise the share of environmentally positive measures in recovery packages, yet the overall picture remains consistent. When governments had to choose between shoring up health systems, cushioning incomes, preventing corporate failures, and funding climate priorities, climate measures remained a small budget line.
The message for climate politics is blunt. States are not climate ministries with flags. They are crowded arenas where environmental goals compete with pensions, defense, infrastructure, and debt service. The structural increase in borrowing that followed the pandemic and the energy shock of 2022 has sharpened these tradeoffs. Higher interest rates now mean that every additional percentage point of public debt carries a visible fiscal cost.
From a complexity perspective, this scarcity matters not only because it limits the absolute scale of green spending. It also constrains the capacity of governments to build robust policy portfolios. Well designed climate strategies usually combine carbon pricing, targeted subsidies, infrastructure investment, regulatory standards, and social compensation. Each component costs political and fiscal capital. If finance ministries treat climate action as a marginal add on rather than a core function, the resulting portfolio will be fragile. A change of government, a recession, or an external shock will then unpick the most visible measures and leave the hard to understand exemptions and subsidies intact.
This is precisely what is happening in several advanced democracies. Subsidies for electric vehicles or heat pumps can be reversed rapidly. Carbon taxes embedded in fuel prices provoke immediate protests, as the French experience with the Yellow Vests movement illustrated when planned fuel tax increases linked to a carbon component triggered large scale unrest and forced the government to suspend the measure. Long standing tax breaks for aviation fuel or diesel used by specific sectors, by contrast, survive for decades because they are buried in the tax code and defended by concentrated lobbies.
Climate policy in this environment becomes a tussle over visibility. Highly visible measures such as household energy tariffs, congestion charges, or building standards attract scrutiny and resentment. Less visible instruments such as industrial decarbonization subsidies or preferential loans for low carbon infrastructure can be larger in fiscal terms but attract less political resistance. This asymmetry often produces portfolios that are skewed toward measures that are friendly to organized business while asking more of dispersed consumers, a pattern that then feeds into populist narratives about climate policy as a project of metropolitan elites.
The State as Climate Portfolio Manager; Possible?
The growing use of composite indices such as the OECD Environmental Policy Stringency index underscores how governments and analysts are starting to think in portfolio terms. The index tracks the strictness of climate and air pollution policies across dozens of countries and multiple instruments, providing a measure of how much pressure governments put on environmentally harmful behavior. When combined with data on emissions and ecological footprints, these metrics make one fact very clear. The overall stance of climate policy matters more than any individual instrument, and that stance emerges from interacting regulatory, fiscal, and industrial decisions.
For the major economies, the portfolio problem has at least four dimensions.
First, there is the balance between pricing and investment. The initial textbook model of climate governance placed great weight on economy wide carbon pricing. Political experience, from Canadian provincial politics to French fuel protests, has forced a rethink. In practice, most successful climate portfolios rely on a mix of moderate pricing and sizable public investment in infrastructure, clean technology deployment, and research and development. Carbon prices provide direction and signals; public spending builds the physical and institutional capacity to respond.
Second, portfolios must balance sectoral ambition. Emissions stem from power generation, transport, industry, buildings, and agriculture. In many democracies, the political temptation is to concentrate effort on the electricity sector, where new renewables are now cost competitive, while leaving more sensitive sectors such as agriculture or freight transport relatively untouched. This pattern may help near term political stability, yet it creates structural risk. Once the easier sectors are decarbonized, governments face a block of resistant constituencies in harder sectors. The ecological footprint literature reminds us that transport and broad energy use remain central drivers of pressure on ecosystems; transport tax design is not a peripheral technical issue but a core political choice.
Third, there is a temporal dimension. Large parts of the climate policy portfolio only pay off beyond a single electoral cycle. Investments in grid reinforcement, urban form, or public transport yield emissions reductions over decades. Yet the fiscal cost and construction disruption are front loaded. Governments that think of climate policy in four year fragments tend to favor consumer subsidies that can be started and stopped, such as purchase incentives for electric vehicles, rather than slower, less visible systemic investments.
Fourth, portfolios need built in shock absorbers. The last decade has seen multiple overlapping shocks: a global pandemic, energy price spikes after Russia’s invasion of Ukraine, and now a sequence of record breaking heat years that strain infrastructure and budgets. The complexity literature suggests that systems that lack redundancy and adaptive capacity are more likely to fail catastrophically. Translated into climate policy, this implies that governments should design multiple, partially overlapping instruments so that if one fails or is rolled back under pressure, others continue to function.
Seen from this angle, the real divide among advanced economies is less between ambitious and laggard states than between those that approach climate policy as an exercise in portfolio management and those that treat it as a string of disconnected announcements.
Multilevel Governance and the Missing Municipal State
Climate politics is not confined to national capitals. Subnational governments control key levers, from land use planning and building codes to local transport systems and waste management. Yet their fiscal and legal position is often misaligned with their responsibilities.
OECD data indicate that subnational climate related spending has remained relatively stable over recent decades, hovering around a small share of national GDP, even as expectations about local climate action have grown. Municipal budgets are usually dominated by current expenditures and mandated services. Financing long lived climate infrastructure such as mass transit or resilient water systems often requires support from national treasuries or development banks. The result is that cities and regions frequently operate as implementers of national climate programs rather than as autonomous portfolio managers.
This matters for two reasons. First, many of the most effective policy combinations identified in complexity research involve joint action across levels of government, for instance when national transport taxes are combined with local investments in public transit, cycling infrastructure, and zoning reform. If one level under invests, the overall configuration weakens. Second, the political legitimacy of climate measures is frequently negotiated at the local level, where protests over low emission zones, wind farms, or congestion charges materialize. National targets agreed in international venues lose credibility if local governments lack resources or political space to implement the decisions.
A serious climate strategy therefore requires a rebalancing of fiscal federalism. National governments that are willing to sign ambitious targets in global forums need to allocate stable, predictable resources for subnational climate portfolios and give cities greater control over revenue instruments such as congestion pricing or local fuel taxes, accompanied by visible social compensation for affected communities.
Climate Policy as Foreign Policy tool?
The complexity of domestic portfolios does not stay inside borders. It shapes foreign policy in direct ways. As the gap between climate goals and actual trajectories widens, the politics of burden sharing is becoming more confrontational.
The United Nations Environment Programme’s Emissions Gap reports now frame the central problem as a mismatch between the pledges and policies embedded in national contributions and the reductions required for any plausible chance of keeping warming well below two degrees. While the Paris framework remains intact, the diplomatic conversation has shifted from a focus on aggregate ambition to repeated arguments over implementation, finance, and trade.
The emergence of instruments such as the European Union’s Carbon Border Adjustment Mechanism illustrates how domestic portfolios spill outward. CBAM is designed to equalize carbon costs for selected imports into the European market and is being phased in through a transitional reporting period from 2023 ahead of full implementation in the second half of the decade. It is also a tool of leverage. Trading partners that wish to preserve market access now have incentives to tighten their own climate policies or at least to measure and disclose the carbon content of exports.
For developing and emerging economies, these moves look ambiguous. On the one hand, border measures and green industrial subsidies in the G7 can accelerate global decarbonization by driving down the cost of clean technologies. On the other hand, they can reinforce structural asymmetries by locking in technological and financial advantages in the rich world while exposing poorer exporters to new compliance costs. The ecological footprint and environmental policy stringency data show that G7 countries have begun to reduce environmental pressure with more stringent portfolios, at least relative to their past trajectories, but global emissions are still dominated by a mixture of advanced and emerging economies whose interests diverge in climate negotiations.
The politics of loss and damage adds a further layer. As it becomes clear that overshooting one and a half degrees is inevitable and that even the two degree guardrail is under threat, vulnerable states are intensifying demands for compensation and support for adaptation. Here too, domestic policy portfolios matter. Governments that are unwilling to reform fossil fuel subsidies, beef up environmental protection spending, or introduce even modest transport taxation at home risk losing legitimacy when they resist calls for higher climate finance abroad. Conversely, governments that can point to coherent, stringent climate portfolios have more leverage in arguing for shared responsibility and for matching efforts from others.
Diplomacy in this environment resembles portfolio coordination more than treaty negotiation. States seek assurance not only about nominal targets but about the composition and credibility of each other’s climate policy bundles. Club approaches, in which a subset of countries coordinate standards, border adjustments, and subsidies, will likely proliferate around sectors such as steel, hydrogen, or shipping. Whether these clubs reinforce global cooperation or fragment it into rival blocs will depend on how inclusive they are of emerging economies and how flexible they are in accommodating different domestic policy configurations.
Designing Minimum Credible Climate Portfolios
If complexity is taken seriously, calls for a single optimal policy model make little sense. Yet it is still possible to outline the contours of a minimum credible climate portfolio for advanced economies, one that would meaningfully alter emissions trajectories while remaining politically defensible.
Such a portfolio would start with honest accounting. Governments would treat ecological footprints and emissions as core macro indicators, alongside growth, inflation, and debt. Policy stringency indices would be embedded in regular budget documents, making explicit how changes in tax and spending plans affect the overall environmental stance.
On the fiscal side, the portfolio would combine three shifts. First, it would increase expenditure on environmental protection and climate relevant infrastructure in a way that is stable over time rather than dependent on one off stimulus packages. The empirical work on G7 countries indicates that higher, sustained spending on environmental protection is a central ingredient in configurations associated with lower ecological footprints. Second, it would rebalance tax systems away from implicit subsidies for fossil fuel use and toward transparent, gradually rising carbon and transport taxes, with revenues recycled to households through lump sum transfers or targeted support for low income groups. Third, it would use green budgeting frameworks to subject all significant public investment decisions to climate impact screens, reducing the risk that new infrastructure locks in high carbon patterns.
On the regulatory side, a credible portfolio would tighten standards in power, buildings, and vehicles in predictable steps that are aligned with realistic technology pathways. Here the main challenge is not identifying the direction of travel but smoothing the distributional impact. Stronger efficiency and performance standards in buildings, for example, will only be politically viable if accompanied by support for low income homeowners and tenants so that costs do not fall disproportionately on those with the least capacity to invest.
Industrial policy will remain central. The burst of green industrial strategies, from the United States’ Inflation Reduction Act to Europe’s Net Zero Industry Act and various Asian initiatives, reflects a recognition that decarbonization is inseparable from competition over future manufacturing and supply chains. The risk is that subsidy races and defensive trade measures consume fiscal space without yielding durable emissions reductions. A complexity lens suggests concentrating industrial support on shared infrastructure and enabling technologies, such as grids, storage, and process innovation, rather than on permanent subsidies to specific firms or projects.
Crucially, any minimum portfolio must build social cushioning into its design. Support for communities dependent on fossil fuel industries, investment in public services in regions hit by higher energy prices, and mechanisms for participation in local climate decisions all help to prevent climate policy from becoming a symbol of class or regional conflict. The Yellow Vests episode showed what happens when governments layer climate rationales onto fiscal measures that are perceived as unfair. Foreign policy elites who worry about the credibility of Western climate diplomacy should pay close attention to these domestic political underpinnings.
Living With Overshoot
The emerging scientific consensus that the world will overshoot one and a half degrees and perhaps come close to or exceed two degrees by the end of the century sets a new backdrop for climate politics. Adaptation, loss and damage, and eventually carbon removal strategies will move from the margins of policy debates to their center. Complexity theory again offers a useful caution. Large scale technological interventions, from engineered carbon removal to climate modification, would introduce new feedbacks and interactions into already stressed social and ecological systems. Their governance will be even more politically contentious than the governance of mitigation.
For now, the central task remains to bend emissions trajectories downward fast enough to keep two degrees within reach and to limit the duration and intensity of overshoot. That requires a shift in how political leaders, finance ministries, and foreign policy establishments think about climate action.
They cannot treat climate measures as a dispensable layer that can be peeled off when growth slows or when other crises erupt. Nor can they rely on international summits to substitute for domestic portfolio design. In an era of complex states and hotter climates, the countries that will retain strategic agency are those that can assemble and sustain coherent climate policy bundles under stress.
That is a demanding standard. It calls for technocratic competence, fiscal realism, and political imagination at the same time. It also demands a different style of diplomacy, one that is less focused on ceremonial targets and more on the gritty details of policy combinations. The window for avoiding catastrophic climate disruption is narrowing, but the space for smarter, more politically grounded governance is still open. Whether governments make use of it will determine not only the environmental future of the planet but the stability of the international order that sits on top of it.
