The Revolutionary Socialist Network, Workers
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- William Nordhaus was the first to sketch an integrated model of the climate and the economy
- Nordhaus’s model set the tone for an economic conversation that, since then, has focused squarely on the cost side of the equation
- . In a more sophisticated model—one that allows for, say, a zero-carbon innovative sector to emerge and assumes that extra tax revenues generated by carbon pricing will be fully used for some
- , Green Deal packages would at best have muted impacts on GDP and employment. Estimates of such impacts edge only slightly above or slightly below zero
- On employment, estimates generally tend to be slightly more benign, mostly for two reasons. First, greenhouse gas intensity in an economy is quite concentrated in a small number
- Green Deals will push early-adopting countries toward developing comparative advantages in advanced green technologies
- GDP boost for green early adopters would likely be magnified.15
| Terzi 5/24 [Alessio Terzi; Writer for Harvard University Press, Economist at the European Commission's Directorate-General for Economic and Financial Affairs, Affiliate Fellow at the think tank Bruegel and a Fulbright Scholar at the Harvard Kennedy School, PhD from the Hertie School with a thesis on economic growth, MPA in economic policy from the London School of Economics, and a BSc in international economics from Bocconi University; 5-24-2022; Growth for Good; De Gruyter; https://www-degruyter-com.proxy.lib.umich.edu/document/doi/10.4159/9780674276338/html; SK]
As our intellectual journey approaches its end, it is worth looking back at the long way we have come. We started off by identifying the origins of the current disenchantment with capitalism and, by extension, with the benefits of economic growth. Over several chapters, we saw how the concept of growth is tightly intertwined with progress, well-being, liberal democracy, science and innovation, human cultural evolution, relations among groups in society, and relations among countries. In Chapter 8, we explored how the pressing need to decarbonize society, dictated by climate science, can be made compatible with the meta-institutional holy trinity of Western societies: capitalism, democracy, and national sovereignty. In the process, we have seen that the required green structural transformation will lead to an upheaval in production, consumption, transportation, energy generation, food choices, trade patterns, and geopolitics. Inevitably, this innovation wave will generate winners and losers. Some products and sectors will experience exponential growth, such as renewable energies, electric vehicles, battery manufacturers, and exports of critical raw materials. At the same time, if some other employment categories and regions (such as coal-mining country) are not supported, there are real risks of economic depression and heightened resentment among affected workers toward the rest of society. One fundamental question remains unanswered: What will a green transition imply for jobs, and the economy more broadly, over the coming decade? Could it be that a policy agenda designed to make capitalism green would inadvertently precipitate the end of economic growth? To conclude this book, we will look to the future of growth in a world of climate change, mitigation, and adaptation. Growing green In the early 1990s, around the same time of the UN’s first Earth Summit in Rio de Janeiro, William Nordhaus was the first to sketch an integrated model of the climate and the economy: economic activity produces greenhouse gases, these cause climate change, and the damage from that change exerts a drag on economic activity, closing the circle. Nordhaus’s Dynamic Integrated Climate-Economy Model quickly became the workhorse model for many policymakers, including the UN’s Intergovernmental Panel on Climate Change and, in the United States, the Obama administration. Work with the original version of the model suggested that climate mitigation would damage the economy in the short term, while the costs of climate change would materialize only in the long term and be somewhat contained. This led to the conclusion that an efficient climate policy should tolerate global warming of up to 3.5 degrees Celsius.1 This early, overly optimistic analysis would later be significantly revised, but its ramifications were far-reaching. Nordhaus’s model set the tone for an economic conversation that, since then, has focused squarely on the cost side of the equation. Because the overall costs of climate change would reveal themselves only in the very long term, scores of macroeconomists then zoomed in on the short term, analyzing in isolation the impacts of specific climate mitigation policies on, for example, gross domestic product or employment. What would the introduction of carbon pricing do to GDP? Crudely, in a basic economic model, carbon pricing is a tax on production and therefore likely to be recessionary, especially in the short run, just like a hike in value-added tax. In a more sophisticated model—one that allows for, say, a zero-carbon innovative sector to emerge and assumes that extra tax revenues generated by carbon pricing will be fully used for some growth-enhancing purpose like lowering income taxes—the impact is more nuanced. Integrating these various policy measures in their large-scale, macro models, several international organizations have concluded that, if appropriately crafted, Green Deal packages would at best have muted impacts on GDP and employment. Estimates of such impacts edge only slightly above or slightly below zero.2 The main variable that differs between the marginally positive and marginally negative scenarios has been the assumption of what other countries would do—in particular, whether or not they would also simultaneously implement carbon pricing. If the assumption is that they wouldn’t, climate mitigation policies are projected to yield worse economic outcomes, because those companies that were environmentally regulated would lose international competitiveness. As carbon pricing started to be implemented in certain jurisdictions, skillful econometricians worked to tease out the effect of these policies and concluded that the impact on GDP and employment was generally muted and occasionally marginally positive.3 On employment, estimates generally tend to be slightly more benign, mostly for two reasons. First, greenhouse gas intensity in an economy is quite concentrated in a small number of industries. For instance, the ten most carbon-intensive industries in the EU-25, while accounting for only 14 percent of total employment, emit almost 90 percent of the CO2.4 Taking these facts into account, modeling exercises predict that the direct job losses from taxing CO2 emissions will be rather modest for the wider economy. Second, renewable activities are more labor-intensive at the moment than carbon-intensive ones. Studies conducted in the United States, for instance, show that the expansion of clean energy creates three jobs for each job lost in the fossil-fuel sector. For each $1 million shift from fossil fuels to clean energy, five additional jobs are created.5 Bringing findings like these together, the UN’s International Labor Organization concluded in 2018 that, if the goal of the Paris Agreement were fully respected, fighting climate change would create more jobs than it destroyed.6 A circular economy designed for extensive reuse, recycle, and repair of goods could also create many new jobs worldwide. Evidence like this persuades many that the green transition will be broadly economically neutral. As climate-policy expert Simone Tagliapietra likes to say, the green transition should be characterized as a shift from fossil-fuel production to carbon neutrality—no more, no less.7 This might rein in the political tendency on both sides of the Atlantic to present Green Deals as a new growth strategy—a claim that should be recognized as analytically unsound, bound to raise citizens’ expectations only for them to be disappointed. The Green Deal economy All these modeling approaches take too narrow a perspective to answer questions on the future of economic growth. For starters, as hinted earlier, most of the economics literature has concentrated its efforts on carbon pricing, reducing climate mitigation packages to a mere shift in taxation, away from labor income and toward carbon emissions. Chapter 8, one hopes, left you convinced that Green Deal packages are much more encompassing than this single policy element. Measures to accelerate climate mitigation will catalyze forces in the economy across the board to launch a large investment wave, designed to kick-start a total turnaround of economic production.8 At least in the short and medium term, such a policy package can be expected to boost jobs and domestic demand. Green Deal policies are also highly targeted and sectorial, however, which brings us to a main point of contention. Green Deals will push early-adopting countries toward developing comparative advantages in advanced green technologies.9 Mastering technological know-how in the production methods of the future will inevitably have important rebalancing effects on competitiveness across the globe.10 And as climate mitigation agendas radically modify production and the very structure of the economy, standard macroeconomic models will prove to be poor tools for assessing their overall impact.11 As a result of changing production and consumption patterns, Green Deals will redraw the map of trade and investment relations among countries, influence geopolitics, and redefine economic winners and losers. For instance, countries specializing in fossil-fuel exports, like Russia or OPEC members, will likely be on the losing side, unless they manage to diversify their economic models.12 The green transition will recast completely the map of knowhow, as basically every production process must be adapted or reimagined to be climate-neutral and have low environmental impact, in line with a circular economy. Any countries and companies currently basing their growth strategies on cheap production of textiles and fast fashion, for instance, will have to think again; circular economy principles discourage such practices.13 As production and consumption changes, comparative advantages will shift, and the wealth of nations will be defined and contended on a new technological terrain, which includes the green and digital dimension. Another issue with current estimations is that, with few exceptions, macroeconomic and advanced climate models are still not well integrated. Macro models without a climate dimension are fine if we assume that climate change and its catastrophic damage are extremely far off in the future—say, a century away, but more problematic if we are already observing their consequences today. Macroeconomic models operating in a vacuum tend to compare two scenarios: climate mitigation versus a general baseline, meaning a continuation of business as usual. The key, however, is to understand that business as usual is a nonexistent scenario. There are only two scenarios ahead of us: successful climate mitigation, and catastrophic damage from climate change. These are the two scenarios that must be compared. And when that is done, it becomes evident that investment in mitigation, and even more so adaptation, carry huge comparative boosts to future growth. When climate and economic models are appropriately integrated, as they are in the 2020 October World Economic Outlook issued by the International Monetary Fund (IMF), it becomes apparent that the long-term economic growth associated with climate mitigation represents a huge boost over the baseline scenario.14 Looking more specifically at advanced economies, a large investment wave, such as the one envisioned by the Green Deal, could permanently jolt rich countries out of the negative equilibrium of low growth, low inflation, and low interest rates that afflicted them before Covid-19. A green exit from secular stagnation is a possibility that the IMF acknowledges—without, however, accounting for it in its recent macro-climate modeling exercise. Once that is taken into account, the GDP boost for green early adopters would likely be magnified.15 For emerging economies, the path ahead is typically presented as an odious choice between development and greening. This is a false dichotomy built on a wrong premise that there is a feasible development scenario ahead based on polluting production and exports. Moreover, as advanced economies press ahead with the green transition and globalize climate efforts through measures such as carbon border taxes, the window for development based on polluting products will rapidly close. The real choice now is to catch the green development train, or else risk being locked into technologies and products that will soon be outdated. Making large-scale brown investments today would be like pouring more money into horse carriages in the early twentieth century, at the dawn of the automotive era. Download 2.09 Mb. Share with your friends:
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