1 Introduction

The Financial Crisis 2009, the Refugee Crisis 2015, the Covid-19 Crisis 2020, and the Crisis in Ukraine 2022—a whole generation of younger citizens grew up in a mode of constant crisis. Hovering above them all are multiple environmental crises. First among them is the climate crisis which threatens the health and wealth of citizens all around the globe. But environmental problems also threaten market liberal democracies: (Younger) citizens increasingly mistrust the liberal institutional mix of democracy and markets to address environmental challenges, environmentalist scholarship in leading social science journals revitalizes the ideas of eco-authoritarianism, and public intellectuals glance longingly towards authoritarian regimes which are supposed to be better equipped to bring about swift environmental betterment. While many environmentalists certainly do not share an authoritarian sentiment, the increasing mistrust of the public in market liberal democracies and the intellectual interest in radical solutions still poses a serious flirtation with eco-authoritarianism.

In my paper I ask whether market liberal democracies are up to the challenge of climate change. To successfully provide solutions to environmental problems in the real world an institutional order must be robust. Such a Robust Political Economy perspective analyses whether an institutional order performs well even if individual agents are neither omniscient nor completely altruistic: a liberal or authoritarian institutional order can only perform well environmentally when it manages to generate the necessary knowledge and incentives for citizens to act for the environmental public good. I will concentrate on the institutional robustness of ordoliberalism as an important variety of liberalism to tackle the problem of climate change. I test whether the distinct perspective of green ordoliberalism on (1) markets and (2) universalizable political rules can be a robust liberal alternative.

I will argue along three steps. First, I will shed light on environmentalism’s flirtation with eco-authoritarianism. We can observe an interest in eco-authoritarian ideas within green scholarship, and a growing mistrust– especially among younger citizens—in the problem-solving capacities of market liberal democracies. After that I will, secondly, introduce ordoliberalism as a variety of liberalism. Thirdly, I will turn to the analytical framework of robust political economy which I will use to subject ordoliberalism to a robustness check and demonstrate that its distinct focus on markets and universalizable political rules can solve the knowledge and incentive problem of successful and robust ecological collective action. While real-world political solutions to climate change favoured by ordoliberals, more specifically a system of Ccap-and-Trade, exhibits severe shortcomings, ordoliberalism demonstrates to be a liberal and robust alternative to the environmentalists’ flirtation with eco-authoritarian ideas.

2 Environmentalism—authoritarian ideas on a fertile ground?

How should a political system look like that successfully fights climate change and its potentially dire consequences? Answers to that questions have sparked debate and different responses that often stand in stark contrast to each other: they can range from radically democratic (Dryzek, 2022), to epistocratic (Jeffrey, 2017), to radically free-market (Anderson & Leal, 2015). The more notorious responses suggest that the Western mix of liberal democracy and free markets are a crucial reason for environmental degradation. Only a rejection of democracy and free markets and a fundamental change to a more authoritarian government, these authors argue, can lead the way to solving climate change (Shahar, 2015, 345).

Authoritarian Ideas …

Eco-authoritarianism responds to three intuitions: (1) individuals left unchecked will cause environmental crises in a world of ecological limits; (2) liberal and democratic societies will fail to limit the autonomy of individuals leading into the impending ecological crises; (3) it is more efficient to let those who understand what needs to be done to take control of fighting the ecological crises without a need to get approval from the rest of the democratic sphere (Shahar, 2015, 348). Shahar (2015) identified two distinct waves of eco-authoritarianism. A first wave in the 1970s emerged most notably through the writings of Robert Heilbroner (1974) and William Ophuls (1973) who argued that “governments capable of rallying obedience far more effectively than would be possible in a democratic setting” are necessary to address environmental problems (Heilbroner, 1974, 110). To rephrase it in the words of Ophuls (1973) well-known essay title: Will it be “Leviathan or Oblivion?”. Based on the three intuitions, the early eco-authoritarians drew on Garrett Hardin’s famous Tragedy of the Commons where the environmental “ruin of all” occurs when citizens throughout the world act in their self-interest and contribute to environmental ills (Hardin, 1968, 1244). Early eco-authoritarians doubted that citizens in democracy would self-impose effective constraints to address environmental problems. Citizens were “too incompetent, myopic, and downright recalcitrant” to act for the ecological collective good (Shahar, 2015, 349). Further, they were sceptical that democracy could handle the political conflicts that would follow hefty environmental reforms. Therefore, they argued that “the best way forward would be to put the power of unilateral decision-making into the hands of expert public officials” (350) that had unlimited control over the citizenry to combat ecological crises.

The early eco-authoritarian view, however, was quickly challenged. Their greatest weakness posed that they did not consider whether authoritarian central planning and environmental solutions would actually lead to greener results: environmental disasters in authoritarian regimes like the Soviet Union, the German Democratic Republic (Buck, 1996), the People’s Republic of China and the overwhelming academic critique of authoritarian planning led eco-authoritarian thinkers to change course and admit to a “failure to appreciate fully the difficulties of running a centrally planned economy” (Heilbroner, 1991, 112). Even though other forms of collectivization and state planning were employed after the fall of the Iron Curtain, the original eco-authoritarian position of society-wide comprehensive central planning was largely rejected.

The last two to three decades, however, saw eco-authoritarian ideas rise again because of the increased awareness of the purportedly overwhelming threat of climate change. Shahar (2015) observes a shift away from comprehensive central planning to a second wave of 21st-century authoritarianism that takes the Chinese approach of “rapid, large-scale solutions heavily subsidized by gargantuan government funding” as an example (Ma, 2010, 40). More recently, scholars used the pandemic situation of COVID-19 as pretext to argue for proposals concentrating on top-down governmental action to mitigate climate change and eco-authoritarian proposals. Perkins et al. (2020) describe that the COVID-19 pandemic response teaches us the necessity to limit “rugged individualism” to prevent climate change. A worldview that understands “the world through the efforts, abilities, and decisions of the individual” (5) needs to be replaced by “radical collective thinking” and “collective effort” (6). They also emphasize another lesson learned from the pandemic: people’s fears are relevant. The authors argue that large scale, top-down public health efforts through government means were possible only because individuals feared the health consequences of COVID-19 (6). Similarly, central government action on climate change will be more successful if more fear of the consequences of climate change is instilled in the population—for example through “engaging people in episodic future thinking” (7). Mittiga (2022) views authoritarian solutions as legitimate as long they are interpreted as providing safety in emergencies. He argues that climate change is similar to the “COVID-19 pandemic, during which severe limitations on free movement and association have become legitimate techniques of government. Climate change poses an even greater threat to public safety” (998). Therefore, authoritarian means can be legitimate to combat climate change. Similarly, Tännsjö (2021) argues that it is necessary to go to great lengths to save human civilization from climate change “even if this means that, for a while, we must endure all sorts of hardships such as global enlightened despotism, or worse—a situation of life boat ethics” (2021, 1). Other examples where the COVID-19 pandemic serves as pretext to centralized political action can be found in Bellamy (2020) or in statements published by the United Nations (United Nations, no date given).

… on Fertile Ground?

The fear of parts of the environmentalist literature that people do not worry enough about climate change is surprising. Instead, it appears that the authoritarian bend of parts of the literature falls on the fertile ground of a citizenry increasingly fearful of the consequences of climate change. In the United States 64 percent of the population claim that they are somewhat, and 30 percent say they are very worried about global warming. More than one in ten Americans (13 percent) takes climate change so seriously that they have considered moving to avoid the impacts of climate change (Leiserowitz et al., 2022). International data gives even more cause to worry. In a landmark study Hickman et al. (2021) demonstrate the increased worries of children and young adults worldwide. They show that more than half of children and young adults are afraid of the climate crisis (Hickman et al., 2021). So much even that half of the respondents attest that climate change affects their daily life negatively. 59 percent of them are very or extremely worried. “More than 50 percent reported each of the following emotions: sad, anxious, angry powerless, helpless, and guilty” (863). 75 percent respond that “they think the future is frightening and 83 percent said that they think people have failed to take care of the planet” (863). More than half of the young respondents are convinced that “Humanity is doomed” (868).

Data from Europe reveals how the increased worry of environmental problems might lead younger citizens to increasingly distrust market liberal democracies. Figure 1 shows that more than half of young Europeans believe that authoritarian states are better equipped to handle the challenge of climate change. While about 10 percent strongly agree with the statement that “authoritarian states are better equipped than democracies to tackle the climate crisis”, only about 15 percent strongly disagree with the statement—reflecting the lack of trust in market liberal democracies to solve the looming environmental challenge of climate change.

Fig. 1
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Eupinions survey, 2020

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3 Robust political economy

To successfully address the fears and worries of environmental challenges an institutional order needs to be robust. The idea of robustness “finds itself in nearly every science and is employed to indicate a system’s ability to perform well when subjected to high degrees of stress” (Leeson & Subrick, 2006, 107). In the social sciences—and in political economy in particular—it refers to institutional orders that perform well “in the face of less than ideal conditions” (107).Footnote 1 Less than ideal conditions include all kinds of imperfections of human agents that create problems for an institutional order. The research program of Robust Political Economy (RPE) examines two human imperfections in particular: the epistemic and the motivational limits of human agents.

The epistemic limits of human agents are often referred to as the “Knowledge Problem”. It arises from the fact that human agents are neither omniscient nor highly rational. Instead, they are limited in their cognitive abilities. Even highly intellectual individuals are oftentimes “relatively ignorant of the society in which they are situated” (Pennington, 2011, 3). Considering the epistemic limits of individuals, the consequences of any action within an institutional order will be highly uncertain. Therefore, robust institutional orders and theories must help individuals to adapt to changing circumstances—which they might not even be aware of—and help boundedly omniscient individuals to “learn from mistakes and to improve the quality of their decisions over time” (3).

The motivational limits of human agents are often referred to as the “Incentive Problem”. Robust institutional orders and theories must account for the fact that individuals often are self-interested (Ostrom, 2007). While people may act out of altruistic motivations to contribute to a ‘common good’ or the ‘public interest’, empirical reality demonstrates that individuals oftentimes follow their own goals – material or non-material—disregarding a common cause. Consequently, robust institutional orders and theories “must be judged on their capacity to channel potentially self-interested motivations in a way that generates beneficial outcomes at the societal level” (Pennington, 2001, 3).

Taken together, robust political economy assesses institutional orders and theories based on the 2 × 2 matrix in Table 1. Assuming perfection in humans' epistemic and motivational capacities is often referred to as Ideal Theory and can be a worthwhile undertaking on its own (Cohen, 2010; Brennan, 2014). Nevertheless, it does not offer an insight into the empirical reality of human action. The tradition of Austrian Economics is notable in relaxing the epistemic condition and thereby acknowledging the Knowledge Problem in institutional analysis while assuming motivational benevolence on part of individuals. The Public Choice tradition in economics and political science, on the other hand, introduced highly rational and well-informed Homo Oeconomicus while relaxing the public-spiritedness assumption, modelling Homo Oeconomicus as self-interested. Robust Political Economy relaxes both assumptions and asks: How well do institutional orders perform under epistemically and motivationally imperfect human agents?

Table 1 Own illustration
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Robustness is a lively concept and has attracted increasing attention in the social sciences (Boettke & Leeson, 2004; Leeson & Subrick, 2006; Voigt, 2006, Gustafson et al., 2016; Salter, 2016; Cowen, 2017; Candela & Geloso, 2021). Regarding environmental policy, however, it is only Pennington (2011) who offers a treatment on distinct robustness grounds. He assesses environmental problems from three different perspectives—neoclassical economic theory, communitarianism, and egalitarianism—and asks whether any of the solutions proposed by economists, communitarians or egalitarians offer a robust institutional alternative to protect the environment under less than ideal conditions. He denies and argues that “a classical liberal framework may be best placed to meet the challenges represented by the demands of environmental problems” (Pennington, 2011, 226). While not explicitly employing a robustness analysis, Novak (2019) refers to Pennington’s work when she, too, argues for “a liberal response to climate change” (336) since a liberal approach accounts for the complexity of climate change as a problem of “entangled political economy”. Geloso (2022) does not reference robustness concerns but works in the tradition by emphasizing the possibility that not only markets but governments, too, are an important reason for climate change.

Following, I will concentrate on the robustness of a special variety of liberalism to address the problem of climate change—ordoliberalism.

4 Ordoliberalism and environmental thought

The premier descriptive goal of ordoliberalism is the analysis of the societal, judicial, and political framework for a functioning economic order. The concept of economic order is the hallmark of ordoliberal thinking. An economic order is contrasted with political interventionism and emphasizes the creation and enforcement of general “rules of the game” and rejects the intervention in the game while it is being played. As Eucken (1951, 95) put it: ‘‘the state should influence the forms of economy, but not itself direct the economic process. […] State planning of forms—Yes; state planning and control of the economic process—No!” (Goldschmidt & Wohlgemuth, , 268). The most important task of an economic order is, therefore, the protection of an open and competitive economy in which economic agents can go about their private plans. Within the economic game, ordoliberalism understands “competition as a discovery procedure” (Hayek, 1978) and emphasizes general political rules  to allow for an open-ended discovery process for solutions to social problems. In contrast to a night-watchman or minimal state, ordoliberalism focusses on the creation of political rules that make the competition in markets work for the benefit of the consumer. A good economic order in the eyes of the ordoliberals serves consumers and limits positions of power in the economy and politics. This includes limiting private positions of power through competition in the marketplace and political anti-trust legislation. It also includes limiting special interest groups who attempt to secure privileges and power through government-created rents. The focus on economic, political, social and judicial questions makes ordoliberalism an interdisciplinary research program which regards economic questions as part of life in a society embedded in the respective institutional and cultural conditions (Goldschmidt & Wohlgemuth, 2008a, 2008b, 13–14).

This general outline of ordoliberalism is specified when we break down ordoliberalism in three distinct aspects (Horn, 2022). First, there is ordoliberalism as a research program (“Ordnungsökonomik” in German) which “develops around the question what a good societal and economic order looks like, how it can be implemented and what types of institutions and rules work better than others” (Horn, 2022). It is best translated as constitutional economics with features of new institutional economics, public choice, property rights theory, and law and economics. Second, it is practical policy advice focussing on the rules of the game (“Ordnungspolitik” in German). Third, it is a normative standpoint of how institutional orders should work. Recently, Ordoliberal scholars emphasized the origin of ordoliberalism as an intellectual reaction to multiple crises haunting the liberal institutional order in the twentieth century and drew a comparison to the crises that haunt liberal democracies today (Kolev, 2021). The heightened fear of climate change, the mistrust in the liberal institutional order and the flirt with authoritarian green ideas might very well pose a new worrying threat to market liberal democracies.

Environmental questions, however, were not the focus of the ordoliberal research agenda in the past. Among the early Ordoliberals it is Walter Eucken who most decidedly accounts for environmental problems. He established principles that systematize what governments should and should not do (Eucken, 1952, 254–303). The konstituierende Prinzipien (constitutive principles) must be followed to preserve a competitive economic order.Footnote 2 Well aware of market imperfections Eucken amended the constitutive with a set of regulatory principles which allow for more discretionary policymaking as long as the constitutive principles that safeguard the competitive order are not violated. This includes the internalization of external effects like environmental harm caused by private economic agents (Eucken, 1952, 291–304). Other early ordoliberals like Alexander Rüstow and Walter Röpke did not elaborate on environmental politics specifically but harboured environmental worries like, for example, the depletion of natural resources and the deterioration of soil (Röpke, 1963; Rüstow, 1980).

In later years, one is hard pressed to find further engagement with environmental questions. In the 1980s we find some scattered treatment of environmental concerns by Wegehenkel (1980) who thought and wrote about the application of the Coase-Theorem in environmental questions.

The most notable contribution of ordoliberal scholarship, however, can be found in Wegner’s (1994) contribution. In Market-Conforming Environmental Politics Between Decisionism and Self-Regulation (“Marktkonforme Umweltpolitik zwischen Dezisionismus und Selbststeuerung”), Wegner shows that orthodox environmental economics and green ordoliberalism share one conviction: the problem of ecological collective action. Environmental economics describes individuals in environmental markets as Hominis Oeconomici who will act according to their individual cost–benefit calculations. They will often ignore environmental concerns because the costs of their actions are borne by someone else: The private marginal costs of individual environmental pollution are lower than the social marginal costs. But at this point environmental economics and green ordoliberalism part ways. While they identify the same problem, Wegner contrasts their solutions. The orthodox environmental economist usually decides between two options: Pigouvian Taxes or Coasean property rights allocation. Both mechanisms are meant to internalize the social costs of environmental pollution and realize a Pareto-optimum. Wegner criticises this “decisionism” of environmental policymaking inspired by environmental economics. Environmental economists overestimate their role in the political decision-making process: While both ideal solutions—market-friendly Pigouvian taxes or Coasean property rights allocations—look good on the “blackboard” (Coase, 1990), it is the collective decision-making process in a democracy which will set the “right” height of a carbon tax or the “right” number of emission certificates—and not the environmental economist. Wegner demonstrates how the “decisionist approach” is likely to end up in a dangerous intervention spiral which will in turn hurt the innovative power of free markets under general political rules—the hallmark of a green ordoliberalism. In contrast to orthodox environmental economics and its search for allocative efficiency, he emphasises the Hayekian and Kirznerian notion of “competition as a discovery procedure” (Hayek, 1978; Kirzner, 1978). Echoing the market optimism of economists like Julian Simon, Wegner emphasizes the importance of technological innovation within a framework of generalizable rules that allow the self-regulating and creative process of market processes. For Wegner, the question ordoliberalism answers is: “How is an ecological correction of market processes possible without endangering innovative competition?” (Wegner, 1994, 36).

While not as distinctly ordoliberal as Wegner, other contributions in the German literature have addressed environmental questions. Schwerd (2008) uses institutional evolutionary economics to demonstrate that successful mitigation of climate change is possible through tradable emission certificates, commonly referred to as Cap-and Trade. It was favourably reviewed by Hermann-Pillath (2009) in the ordoliberal journal ORDO. The same journal featured a few more contributions: Schöler (2013) criticizes climate change mitigation efforts all together and argues that an ex-post adaptation to climate change would be more cost-efficient. Bardt (2018) emphasizes the role of politically created market mechanisms through Cap-and-Trade in environmental politics. He worries that other political instruments are more likely to lead to damaging distributive consequences and rent-seeking. Recently, Wolf and Goldschmidt (2020) argue for Cap-and-Trade but introduce the caveat that a comprehensive “Personal Carbon Trading System” is hard to implement. They propose a carbon tax that is slowly replaced by a “technically and legally more demanding consumer-based emissions trading system” (126).

If we venture away from German ordoliberalism we can find the Bloomington School of Political Economy around Nobel Prize laureate Elinor Ostrom and her husband Vincent as close relatives of ordoliberalism (Kolev et al., 2018, 646–657). In decades of empirical research, they showed how the successful provision of environmental common-pool resources is possible when citizens have the legal legroom to experiment with possible solutions and devise their own delicate sets of rules. Analogous to German ordoliberalism the Bloomington School emphasizes the role of different hierarchies and the relevance of formal but also informal rules within an overarching economic order to protect the environment successfully (Ostrom, 1990).

5 A robustness check for ordoliberalism

To pass the robustness check, ordoliberalism needs to answer two questions in the affirmative:

  1. 1.

    Do the policy implications of an ordoliberal institutional framework still hold if we assume less than benevolent decision-makers?

  2. 2.

    Do the policy implications of an ordoliberal institutional framework still hold if knowledge of the necessary agents is limited?

Since eco-authoritarian critiques of market liberal democracies comprehensively reject its economic and political institutional order I will subject green ordoliberal markets and green ordoliberal political rules to the robustness check.

5.1 Robust ordoliberal markets

Ordoliberalism emphasizes the desirability of an open and competitive market economy where the government’s role is limited to the creation and enforcement of general “rules of the game”. Hence, the ordoliberal perspective on environmental markets is different from other more heterodox approaches to environmental questions who do not regard markets as a realm of successful ecological collective action. Eco-authoritarians demand an interventionist involvement because individuals will exploit the environmental commons to maximize their private gain with no regard for the collectively held environmental commons. Ordoliberalism shares the conviction with the eco-authoritarians that environmental destruction like climate change can often be traced back to a market failure. But they also share a commitment to the liberal principle that Mikayla Novak articulates in her essay on liberalism and climate change: “The capacity of individuals and groups (on an economic, social or political basis) to both adapt, and work, to mitigate climate change effects crucially hinges upon the freedom to reorient economic practices, social norms and other relevant matters in efforts to slow, if not eventually halt, the GHG [greenhouse gas] disseminations that influence climate change” (Novak, 2019, 326). Therefore, and in contrast to the eco-authoritarians, ordoliberalism continues to emphasize relatively open and competitive markets. This in turn raises the question of whether open and competitive environmental markets are a robust institutional liberal alternative to the eco-authoritarian challenge. To test the robustness of ordoliberal environmental markets I will focus on three features that in the eyes of ordoliberal proponents lead to beneficial results and drive robust environmental outcomes:

  1. (1)

    Markets as technology drivers Green technological solutions emerge on markets through “competition as a discovery process”.

  2. (2)

    Markets as coordination drivers The use of scarce environmental resources is successfully coordinated through the price mechanism.

  3. (3)

    Markets as community drivers Local communities' problem-solving capacity is enhanced through a market-based approach.

5.2 Markets as technology drivers

Ordoliberalism emphasizes the environmentally beneficial role of markets as Technology Drivers. Open and competitive markets are supposed to generate the necessary knowledge and incentives to create technological solutions for environmental problems. Ordoliberals, especially Walter Eucken, regularly refer to the Socialist Calculation Debate which took place between the Austrian School of Economics and proponents of neoclassical and Marxian economics in the early 1920s to make this point (Eucken, 1925; Vanberg, 2020).Footnote 3 The Austrians, represented by Ludwig von Mises and Friedrich August von Hayek emphasized that it is impossible to tell apart technologically possible and economically viable solutions to economic problems when markets are absent: All the many different inputs in the production process can be used for various outputs, and many different outputs can be made from many different inputs. Since economic agents are not omniscient, societies need an institutional order in which individuals can find ways to assemble inputs to produce outputs in an efficient way. Without private property rights, there is no exchange and with no exchange there is no spontaneously generated price which tells the relative scarcity of goods and services and, therefore, which inputs should be used to produce outputs (Von Mises, 1920; Hayek, 1945). Market prices work as “aids to the mind” helping to navigate the countless options for using inputs to produce outputs. This navigation process is driven by experimentation with different inputs and tests of said experiments carried out by offering them on the market. Other economic agents compete by performing and testing other experiments at the same time. This competition between different experiments in a free market is a “procedure for the discovery of such facts as, without resort to it, would not be known to anyone, or at least would not be utilized” (Hayek, 1978, 179). This thinking is a hallmark not only in Austrian but also in ordoliberal scholarship (Eucken, 1952; Kolev, 2015). Later publications in the ordoliberal tradition showed that environmental policy is also subject to the knowledge problem (Wegner, 1994).

To illustrate the ordoliberal perspective of markets as technology driver consider the problem of carbon–neutral transport. It is still not clear which engines will drive the automotive industry into a carbon-free, sustainable future. The debate ranges between several alternatives—among them are electric and hydrogen powered vehicles. While the battery power of electric vehicles is surely the frontrunner, hydrogen vehicles are seriously considered as well. The car manufacturer BMW for example just launched the iX5 model as a hydrogen powered alternative. Certain heavy-duty vehicles like tractor trailers or public transport buses already run on hydrogen because they allow to travel longer distances compared to simple batteries (Office of Energy Efficiency & Renewable Energy, 2022). Both technologies are technologically viable. The ordoliberal perspective emphasizes that it is impossible to say a priori which of them will be the economically reasonable option because of the many variables success depends on. Among these are the advantages of hydrogen-powered vehicles like range, abundancy as a natural resource, and the possibility to generate hydrogen locally but also its disadvantages like its complicated extraction, the high up-front investment and its complicated storage. Electric vehicles benefit from a denser structure of refuelling stations, lesser costs, and the greater familiarity of the public with electric engines. But they also suffer from shortcomings like less range, longer refuelling time and its dependence on critical minerals in the batteries. All this might very well change with further technological development and many such facts about the economic viability of electric or hydrogen vehicles will “not be known to anyone, or at least would not be utilized” without an economic order of open and competitive environmental markets, where entrepreneurs and firms are incentivized and informed through prices in their experiments with different engines to find the economically most efficient of the technologically possible solutions (Hayek, 1978, 179).

The robustness of environmental markets as Technology Drivers emerges when compared to the discretionary action of politics favoured by eco-authoritarians. Environmental politics with the authoritarian discretion to decide which technology to abandon and which technology to advance, which industry to let fail and which industry to let succeed faces knowledge “but also […] incentive problems that come from inviting rent-seeking by special-interest groups” (Vanberg, 2017, 15). Discretionary environmental politics has the tendency to lead re-election-seeking politicians to seek the support of interest groups by offering these groups special privileges. The probability for this to happen increases when the costs of discretionary politics are widely dispersed among the taxpayer and the benefits are highly concentrated on certain groups. The problem of rent-seeking has been at the forefront of the ordoliberal analysis of the state and has been identified as one of the main reasons for the increasing institutional fragility of market liberal democracies. In the words of the ordoliberal scholar Franz Böhm: “the state should on no account be allowed to confer privileges” because the state does not become stronger with more power but weaker (Böhm, 1989, 57). A state draws its strength from its independence from private interests. The more it regulates, however, the stronger the incentive for private interests becomes to capture the state and weaken it (Eucken, 1952). Decades of theoretical and empirical research illustrate the ordoliberal notion that environmental market failures do not necessitate government action because of the high likelihood of government failure: Jankovic (2008, 941) shows that “oil firms are behaving as agents paying protection money to politicians”, Helm (2010) demonstrates a variety of possible government failures in the design of climate change policy, and a recent Nature publication demonstrates how worldwide government investment in fossil fuels crowds out environmentally beneficial innovations (Timperley, 2021). The same applies to rent-seeking in “green” energy technology. Renewable and nuclear energy firms profit from a “legally restricted energy market” (Jankovic, 2008, 941; Espinosa et al., 2021).

The robustness of ordoliberal environmental markets does not stem from a romantic belief in the perfection of a free-market economy. Instead, it stems from markets capability to align knowledge and incentives in a way that make them more robust Technology Drivers.

5.3 Markets as coordination drivers

Robust institutional orders need to be capable to produce economically viable, path breaking and disruptive new innovations, but they must also provide for smooth and responsible governance of scarce resources. One of the greatest environmental fears of (young) citizens worldwide is that the world is running out of resources to use; that we will soon leave a world of abundance and enter a world of scarcity. Radical government-led interventions are supposed to be in order to save the planet from total resource extraction (Dixson-Decleve et al., 2022). Ordoliberalism, in contrast, argues that it is exactly the scarcity of resources that make markets necessary: Markets serve as robust Coordination Drivers of scarce resources. Leading ordoliberals like Röpke (1959, 130–155) and Eucken share the worry for the environment and resource depletion but at the same time acknowledge the deep knowledge problem of coordinating “an economy based on the division of labour where millions of individuals and households need to coordinate plans” (Eucken, 1951, 367). They doubt that centrally organized economic planning as envisioned by eco-authoritarians can successfully adapt to the relative scarcities in the economy.

Even though early Ordoliberals are aware of resource depletion and economic coordination, it is challenging to apply their reasoning. Much of their scholarship occurred years before first worries of intensive resource consumption emerged. Economists thinking about economic orders, however, have carried the idea of environmentally beneficial coordination through the market economy further. Julian Simon is an eminent economist whose famous bet in the 1990s illustrates the importance of markets as coordination drivers.Footnote 4 Simon challenged the ecologist Paul R. Ehrlich—who predicted an apocalyptic future caused by a lack of resources—that none of five resources chosen by Ehrlich would raise in price between 1980 and 1990. Simon reasons that resources will not become more scarce but more abundant and cheaper over time. In contrast, to the environmentalist’s intuition, Simon was right. Even though the world population grew as it never did before—by 800 million people—all the resources Ehrlich chose fell in price. But what has that to do with the robustness check of green ordoliberalism?

The ordoliberal focus on open and competitive markets serves as a device to solve the knowledge and incentive problem of allocating scarce environmental resources. Market prices can be compared to “signals, wrapped up in incentives” (Cowen & Tabarrok, 2015). The rising price of resources signals the growing scarcity of resources and incentivizes users to reduce the use of said resources. On the supply-side it incentivizes individuals and firms to come up with new input resources. Both, the demand- and the supply-side of this competitive process is heavily dependent on the institutional order that might restrain the exploratory behaviour of individuals and firms (Simon, 1981). Under less than ideal conditions a robust order “must enable them [individuals] to learn from mistakes and to improve the quality of their decisions over time” (Pennington, 2011, 3). In an open and competitive economic order, prices, property and profit-and-loss serve as a device for individuals to learn which resources are scarce and which are abundant and help them to adapt accordingly. Pennington (2001, 175)—using Gadamer’s terminology—points out that a relatively unregulated market allows market actors to interpret prices according to their subjective preferences and “to fuse their horizons with those of others, so as to discover which goods to produce”. Anderson and Leal (2001, 2015) have considered numerous examples where private, environmental markets have helped epistemically constrained, highly subjective individuals to communicate and coordinate scarce environmental resources: from wildlife conservation, forest management, the protection of scenic views to climate change.

But individuals do not just coordinate through the price system. Elinor Ostrom and with her the scholars of the Bloomington School demonstrate how the decentralized character of markets allows individuals to come up with solutions to collective action problems through deliberate local coordination and discussion.

5.4 Markets as community drivers

Solutions to environmental problems do not have to be global. Instead, environmental problems are often solved successfully locally (Brunner & Lynch, 2010). The ordoliberal framework, too, is no stranger to the benefits of bottom-up, local solutions. Röpke (1959, 43) argued that “only such tasks [should] fall to the larger units as have proved too universal for the smaller”. This “regional-communal self-administration” (99) is not only argued to be beneficial to the social and economic but also to the ecological whole of a society. The Bloomington School as close relatives of ordoliberalism has detailed in painstaking empirical work how local communities create and enforce property rights, monitor environmental rules and provide ecological public goods all over the world in the absence of governmental intervention. Nobel Prize laureate Elinor Ostrom, her husband Vincent, and their followers helped “to develop better intellectual tools to understand the capabilities and limitations of self-governing institutions” (Ostrom, 1990, 2). They showed that ecological collective goods from irrigation in Spain, fisheries in Turkey, open pastures in Switzerland and many more were successfully provided through neither a strict private property regime nor governmental control. Instead, it was the private action of individuals in communities who found the best way to provide ecological public goods in an experimental and knowledge-generating manner. Even when global problems were concerned, the Ostroms did not resort to globally centralized solutions. Regarding climate change, E. Ostrom argued against “single policies adopted only at a global scale” because they “are unlikely to generate sufficient trust among citizens and firms so that collective action can take place in a comprehensive and transparent manner that will effectively reduce global warming” (Ostrom, 2009, Abstract). While she does not reject global solutions altogether, Ostrom convincingly demonstrates how reliance on a polycentric system which incorporates different decision centres like individuals, households, firms, communities, and single states can have a sizeable impact on climate change mitigation.

The Bloomington perspective on polycentricity is related to what the ordoliberal Franz Böhm conceived as a “private law society”. In a private law society citizens come together to organize in civil organizations, governed by private law, to further their common interest and constrain individual interests through binding rules in the short-term to realize mutual beneficial gains from trade in the long term (Böhm, 1989; Vanberg, 2007, 11). Böhm places trust in a society of “equally free people with equal rights” connected through an economic order—a concept that is closely related to the polycentric Bloomington perspective which trusts the decisions of individuals and communities to solve environmental problems autonomously (1989, 56). The ordoliberal perspective is sceptical towards the more technocratic and global solutions of orthodox environmental economics who oftentimes favour formal blackboard-models, and central bureaucratic authority over the bottom-up solutions of local citizenry (Vanberg, 2007, 1; Brunner, 2005, vii-viii). But the ordoliberals and with them their partners of the Bloomington School do not necessarily reject global market solutions for local community solutions. Instead, they view local community solutions as one variety of successful collective action in an open economic order where a constrained state enforces certain “rules of the game” and allows private law and contracts to help local communities to re-arrange property rights and solve the wicked problem of local ecological collective action.

I argue that this way of thinking about local environmental protection passes the robustness check because it deliberately addresses knowledge and incentive problems. Ostrom (2009) provides several examples that illustrate how the knowledge and incentive generating power of environmental polycentricity can help to address climate change concerns: Among them are local initiatives kicked off by actors within civil society, mayors of large cities cooperating or state level responses in the United States. More recently international environmental movements like Fridays for Future have organized from the bottom-up—mainly online—to organize school strikes in more than one hundred countries throughout the world to raise awareness of global warming. Another example where the knowledge and incentive advantages of environmental polycentrism becomes apparent is migration caused by climate change. Climate change literature repeatedly points towards migration as one available means for individuals to adapt to climate change, especially for people living in the Global South (Adger & Adams, 2013). But the regions mostly affected by people leaving and people arriving due to increasing environmental pressures will vary across the world: Western, Central and Eastern Africa, South America, and Southeast Asia are likely to suffer the most under increasing temperatures while countries in the Global North, particularly the United States and the European Union are likely to suffer less under increased temperatures but will receive most immigrants (Xu et al., 2020, 11352). The spatial, cultural, and economic differences entail varying knowledge problems of how to deal with additional migration and integration. As the refugee challenge in Europe in 2015 demonstrated migration also entails incentive problems since some governments will be more willing to take on migrants than others. The global issue of climate change migration, therefore, calls for a whole diversity of different solutions to address climate change migration. As Goodman and Enninga (2023) argue, it calls for a mix of different responses that rely on civil society, markets and local government and communities.

The ordoliberal perspective on open markets as community drivers shows that citizens not only compete but cooperate beyond borders and come up with workable solutions to ecological collective action problems.

5.5 Robust green ordoliberal rules

Green ordoliberalism is not part of a radical free-market-environmentalism that largely rejects political solutions and mainly  focusses on “property rights, prices, and markets” (Anderson & Leal, 2015, xi). Instead, it emphasises a stronger role for the state because the global nature of environmental problems like climate change makes governmental action necessary. But do green ordoliberal, political rules pass the robustness check?

The robust political economy framework helps us to consider environmental market failure and environmental government failure on par. To be called robust, green ordoliberal political rules need to minimize the probability of environmental government failure. They need to account for government officials who are neither completely altruistic nor omniscient. I argue that the universalizability of ordoliberal rules is an “important tool towards a robust [green] political economy” (Voigt, 2006, 205).

The ordoliberal conception of political rules goes back to Hayek (1960, 1973) who argues that good and robust political rules must have three characteristics. They must be (1) general, i.e. they can be applied to a multitude of different cases, applying to a multitude of different individuals, (2) abstract, i.e. they do not prescribe certain actions but simply prohibit a certain number of actions, and (3) certain, i.e. individuals can know whether an action is legal or not. While Hayek did not use the wording of robustness, his research especially in the Constitution of Liberty (1960) and Law Legislation and Liberty (1973) deals with the question of how epistemically and motivationally constrained government representatives “can best be dealt with by setting up meta-rules that force them to rely primarily on universalizable rules as a government instrument” (Voigt, 2006, 205). Vanberg, one of the preeminent ordoliberals of the second half of the twentieth and twenty-first century, differs between the choice of meta-rules as “choices among rules” and the choice of (universalizable) rules as “choices within rules”. The meta-rules or “choices among rules” are what we call a constitution and ensure that new rules abide by the universalizability criterion. “Choices within rules” which must be universalizable are agreed upon in the post-constitutional stage (Vanberg, 1994). Both are defined by their universalizable form, not their substance or content: “thanks to the generality characteristic all legislators will be subject to the rules they pass” and thereby incentivize themselves sufficiently to refrain from passing laws that run counter to the interest of large parts of the population (Voigt, 2006, 205). Voigt (2006) demonstrates that the robustness of universalizable, ordoliberal rules is crucial to address the knowledge and the incentive problem in the case of antitrust. I argue that they are crucial in environmental politics, too. But how would universalizable political rules allow for robust environmental governance? Following Voigt, ordoliberal rules solve knowledge and incentive problems in three distinct ways:

  1. (1)

    Transparency As long as the constitution, the “choices among rules”, forces less-than perfectly benevolent legislators to pass universalizable rules, laws will be more transparent and special treatment for certain groups through loopholes etc. will be excluded. This increases the transparency of environmental legislation passed and results in “a higher degree of knowledge” accessible to the citizenry which will result in greater accountability.

  2. (2)

    Prevention of rent-seeking The likelihood of rent-seeking will decrease. Universalizable rules make it less attractive for special interest groups to gain special treatment by the state at the expense of the population.

  3. (3)

    Predictability The predictability of state action will increase. The success of environmental policies is dependent on private agents’ willingness to invest heavily in a sustainable future. The more reliable the political framework is, the higher the incentive for private agents to invest in the future.

How can a policy regime look like that fulfils these arguably high standards of robustness through universalizable political rules? Scholars who argue for a liberal response to climate change have often emphasized the role of carbon taxation and made convincing cases for it (Taylor, 2015; Novak, 2019). While ordoliberal scholars do not reject carbon taxes outright, they have repeatedly argued for a system of Cap-and Trade as an alternative (Schwerdt, 2008; Bardt, 2018; Wolf & Goldschmidt, 2020). The goal of Cap-and-Trade is the reduction of harmful emissions like greenhouse gases (GHG) to combat climate change. It is a system where a limit is placed on the right to emit specified pollutants over an area. Individuals and companies can trade emission rights within that area. A governmental agency sets a maximum (cap) on the total number of GHG that can be emitted and auctions or allocates allowances to emit GHG which can be traded after the fact. Every organization covered under the Cap-and-Trade-Regime needs to monitor and report their emissions and purchase enough allowances to cover their emissions. If an organization emits more it needs to purchase more allowances and can sell allowances if it performs well in reducing emissions. The number of allowances allocated and auctioned off is reduced constantly to achieve a reduction in climate change-causing GHG. “Cap and Trade” systems are usually advanced by environmental economists to reach an efficient environmental market optimum. The main reason is the fact that Cap-and-Trade, in contrast to a carbon tax, establishes a fixed upper bound on emissions through a limited number of allocated certificates. This prevents the problem associated with a carbon tax that depending on the elasticity of supply and demand emissions might not be reduced even at a relatively high tax rate. Ordoliberals agree with this advantage of Cap-and-Trade and further emphasize Cap-and-Trade as a universalizable rule that generates knowledge and incentives through increased transparency, a prevention of rent-seeking and predictable environmental politics. Before we turn to the limits of a real-life system of Cap-and Trade in the European Union, let us turn to the theory why ordoliberals argue for Cap-and-Trade to mitigate climate change.

“Cap and Trade” is general, which means it can be applied to a multitude of different organizations and cases, ranging from different organizations like airlines to oil refineries and electricity companies. The system is abstract, which means it does not prescribe a certain action but simply prohibits the emission of more GHG than is being held in allowances. Organizations are free to decide whether they want to reduce GHG emissions by installing filters, reducing output or if they want to purchase more allowances. Lastly, the system is certain, which means that individuals and organizations covered under the system know how much they can legally emit and react if they emit too much. The universalizability characteristic of Cap-and-Trade makes the system robust by limiting the scope of government failure in correcting a market failure and performing well on environmental grounds. It largely takes away the discretionary power of potentially self-interested politicians to change course in environmental policy making. Since the number of allowances, the auction process, the prices for GHG and the reduction of emissions are transparent to every citizen, transparency is increased and government officials are disincentivized to change political course motivated by self-interest.Footnote 5 In contrast, to discretionary environmental politics, the universalizable character of a Cap-and-Trade system limits rent seeking by special interests. Since the auctioning rule and the number of allowances are clearly articulated and the only rule is the constant reduction of allowances for everyone, there is limited room for single organizations or small groups to influence the policy in their favour without their competitors and the citizenry knowing. Lastly, Cap-and-Trade increases knowledge and good incentives through consistency and predictability of environmental policy. Governments announce how much allowances are allocated, and in which steps they will be consistently reduced until the emission goal is reached, helping GHG emitters to anticipate the environmental policy of the upcoming years. This incentivizes GHG-intensive industries to adapt to the Cap-and-Trade system, install new technologies, change production techniques, or vanish from the marketplace. The predictability of Cap-and-Trade is especially important because the acquisition of knowledge on how to produce in a less GHG-intensive way takes time and is the result of an experimental try-and-error process in the GHG-emitting companies. Only if organizations are certain in which direction environmental policy will head in the next years and decades it is likely for them to invest in knowledge and alternatives to their current production techniques.

The European Union Emission Trading System (EU ETS) is a real-life example of a Cap-and-Trade system. While it works reasonably well, the high ordoliberal hopes for a universalizable, robustness-enhancing rule to reduce greenhouse gas emissions might be overblown. After the system was implemented in 2005 the proposed goal of reduction in greenhouse gas emissions by 21 percent in 2020 was reached six years early in 2014. From the first trading period starting in 2005 until today it has been made clear in advance how much allowances would be allocated, helping CO2-emitters to anticipate the environmental policy of the upcoming years. The EU has decreased the number of allowances consistently over the last almost 20 years since 2005. In total, the number of emissions in 2020 fell below 43 percent of the initial number in 2005. Only recently the EU announced that the greenhouse gases from stationary installations in the EU ETS decreased from 1.530 billion tonnes of CO2 and its equivalents to 1.355 billion tons in 2020. The reduction of 11.4 percent represents the largest drop since implementation in 2005 (Umweltbundesamt, 2022, Europäische Kommission, 2021, 49, BMWIK, 2020). Considering these results, ordoliberals might rightly argue that the ordoliberal character of the Cap-and-Trade system implemented helped to solve knowledge and incentive problems by increasing transparency, limiting rent-seeking, and emphasizing the predictability of the regulation. But to paint the picture in full one must also admit that the EU ETS violated all three of the ordoliberal principles of universalizable rules.

The EU ETS is not a general rule because it does not apply to all carbon emissions. Only about 40% of the EU’s greenhouse gases are covered by it. Sizeable industries that emit vast swaths of CO2 are excluded: among them are the transport, building, and agricultural sector, and the emissions of individual households. This does not come as a surprise to public choice economists who point out that the allocation of tradable permits is also subject to rent-seeking activities. The implementation of a Cap-and-Trade system generates rents that those industries benefit from who are excluded from the necessity to buy certificates (Helm, 2010; Rode, 2020). The EU ETS shows that the high ordoliberal hopes for environmentally beneficial and economically efficient incentives through a reduction of rent-seeking activities is overblown because the real-life implementation of such a system still invites exactly these activities. Certainly, there are relevant arguments why parts of the carbon emitting economy are excluded (excessive administrative costs are one example) but the extent of incompleteness of the system sheds doubts on the high ordoliberal hope for a generally applicable rule for all.

The EU ETS is also not a simple abstract rule as envisioned by ordoliberals. One of the core ideas of Cap-and-Trade for carbon emissions is that it serves as an open system of competition between different ways to save energy and produce it more efficiently tying into the idea of knowledge creation through “competition as a discovery procedure”. It is not supposed to prescribe ways to achieve it. The EU, however, has implemented several regulations recently that counteract this principle. With the European Green Deal, the European Commission approved a set of policy initiatives that introduce discretionary legislation on varied subjects like the circular economy, building renovations, biodiversity, farming and innovations (European Commission, 2019a). It further aims at subsidies for research and innovation on subjects such as transport technologies, including batteries, clean hydrogen, low-carbon steel making, circular bio-based sectors and the built environment (European Commission, 2019b). Only recently, the EU-parliament banned the sale of carbon emitting combustion engines. Further, decisions like the phase out of nuclear power in Germany adds to the varying measures taken by individual countries that counteract the of idea technological-openness inherent in the idea of Cap-and-Trade as envisioned by ordoliberals. The decision on nuclear which worsens the German performance can ultimately be traced back to government failure and fits in well into the framework of statogenic climate change (Geloso, 2022). While it exceeds the scope of the paper to detail the regulations proposed and analyse them in depth, it can be agreed that the discretionary subsidies, taxonomies of sustainable investments and regulations introduced counteract the lofty ordoliberal ambitions of just one abstract rule that does not prescribe environmental action.

Lastly, the EU ETS regularly interferes in the emission market, thwarting the goal of ordoliberal rule certainty. In 2019 for example the EU deemed the market price of €5–10 as too low and created the Market Stability Reserve (MSR) to buy up bulks of unused permits to increase prices creating an additional incentive for firms to decarbonize. Now, after energy prices increased due to the Russian war in Ukraine, the MSR is supposed to sell permits to ease the EU’s transition away from Russian gas. While the MSR “was designed to work on pre-defined rules that would tie the commission’s hand”, it is apparently not safe from the discretionary political actions that the ordoliberals dread (The Economist, 2022). Political fear that the EU ETS appears toothless, led policymaker to ignore certainty criteria and buy up certificates ignoring the CO2 savings that occurred even in a low-price environment caused by the decision of firms to reduce emissions instead of buying certificates (Bayer and Aklin, 2020). The current fear of voter reprisal due to high energy prices leads policy makers to consider reversing the action again to lower the price of certificates, willingly accepting more carbon emissions, and counteracting the criterion of rule certainty.

The EU ETS demonstrates the shortcomings of robust green ordoliberal rules and  describes a general shortcoming of ordoliberal reasoning. The constitutive principles of economic policymaking as outlined by Eucken allow for robust universalizable political rules which are not very vulnerable to the risks of real-life political practice. The regulatory principles—here particularly the one on internalizing external effects—on the other hand give the government a relatively unconstrained pass to regulate discretionary on environmental problems. While, in theory, Cap-and-Trade solutions allow for robust universalizable rules, ordoliberalism tends to underestimate the risks embedded in a real-world implementation of systems like the EU ETS. This, however, is no rejection of Cap-and-Trade in general. The same problem of real-world implementation haunts every political solution to environmental problems, including carbon taxation and even more so eco-authoritarian solutions. It is important not to fall into the Nirvana-Fallacy and compare the quality of a theoretical ideal solution with a solution implemented in the real world. While the ambitions of the ordoliberals with regard to Cap-and-Trade might be overblown, the system generates positive results in an internationally coordinated system. Other solutions favoured by liberals like carbon taxes are only implemented on the national level and, therefore, did not demonstrate their international feasibility, yet. Even less promising are the eco-authoritarian proposals advanced by an increasing number of scholars and citizens worldwide. Real-life implementations of authoritarian’s regimes have not led to environmental successes. In contrast, their rejection of liberal democracies and markets mostly led to more environmental harm. An ordoliberal environmentalism, on the other hand, demonstrates how markets and liberal democracies can provide robust environmental governance. An honest assessment of ordoliberal political rules, however, requires pointing out the shortcomings of systems like Cap-and-Trade in real life. Therefore, ordoliberal scholarship needs to continue to take seriously the public choice problems involved in implementing political solutions in a less-than ideal world. If we consider the fight against climate change as “(at least partly) a function of better coordination amongst institutionally-situated actors within the political domain” (Novak, 2019, 333) where knowledge and incentive problems must be solved, the moderate success of the EU ETS in connection with the ordoliberal focus on free markets still fares comparatively robust.

6 Conclusion

Many of the ideas that I have discussed in my paper cannot claim to be novel. The Bloomington School, Austrian economics, Public Choice and green authoritarianism are alive and well as research agendas. Ordoliberalism, on the other hand, is sometimes described as a “German oddity” (Beck & Kotz, 2017) on its intellectual way out (Hien, 2023). In this paper I beg to disagree.

The rise of eco-authoritarianism in scholarship and citizenry poses a challenge to liberal responses to climate change which emphasize the role of free markets and liberal democracy. Eco-authoritarianism rejects free-markets and liberal democracy and favours varying forms of central planning and the curtailment of democratic norms as the most promising way to solve climate change. I leverage the theoretical framework of robust political economy to test the robustness of ordoliberalism as a specific variety of liberalism to address climate change. Inspired by eco-authoritarian’s rejection of markets and liberal democracy, I subject the ordoliberal perspective on markets and political rules to a robustness check. I find that the ordoliberal perspective on markets as environmental Technology, Coordination and Community Drivers and on universalizable political rules to increase transparency, facilitate predictability and reduce rent-seeking help to solve the knowledge and incentive problems that make institutional orders robust. This, however, does not mean that ordoliberalism’s favoured solutions to climate change are unproblematic. The EU ETS as a real-life implementation of a Cap-and-Trade system, violates all three of the characteristics for universalizable political rules—generality, abstraction, and certainty—even though it has performed reasonably well to reduce carbon emissions. Considering the real-life shortcomings of every political solution in an imperfect world and the relative success of the EU ETS, does not disqualify ordoliberal political rules and the idea of Cap-and-Trade altogether. Instead, ordoliberal scholarship should take it as an inspiration to conduct future research that addresses the challenges of implementations of political rules in an imperfect real world and view “politics without romance”.