Market mechanisms alone are failing to balance economic development and environmental protection. Markets fail in internalising environmental costs, coordinating simultaneous investments for systemic change, and providing a long term planning horizon. Governments must therefore intervene to disrupt polluting technological pathways and behaviours and support the uptake of low carbon development. On the supply side, green industrial policy instruments have gained increasing popularity. On the demand side, policy innovations such as informed by behavioural insights aim to improve energy efficiency. However, these instruments need to be adapted to local circumstances, needs and capabilities.

At the same time, many countries are still struggling to lift parts of their population out of poverty. As the pursuits of poverty reduction and economic growth take clear precedence over climate protection, new incentives which reconcile economic, environmental and social aims must be created. DIE’s work under the theme of Green and Inclusive Energy Systems researches the design of such incentives, focussing on greenhouse gas mitigation in the energy sector of developing, emerging and industrialised countries.