It is in this context, the always incisive Paul Krugman, suggests that the government make firm and specific, short to medium-term commitments on emission reductions, that would incentivize businesses to make investments energy efficient businesses. He writes,
"But if you really believe in the magic of the marketplace, you should also believe that the economy can handle emission limits just fine... Right now, the biggest problem facing our economy is plunging business investment ... since they’re awash in excess capacity... But suppose that Congress were to mandate gradually tightening emission limits, starting two or three years from now. This would ... create major incentives for new investment — investment in low-emission power plants, in energy-efficient factories and more.
To put it another way, a commitment to greenhouse gas reduction would, in the short-to-medium run,... give businesses a reason to invest in new equipment and facilities even in the face of excess capacity. And given the current state of the economy, that’s just what the doctor ordered."
If adequate attention were paid to ensuring that the policies are designed to not be market distorting, then a gradual move towards a stronger regulatory regime will be in the interests of everyone. It would open up investments in smart infrastructure, smart electricity grids, exploitation of renewable energy sources, clean technology alternatives, environment friendly practices,