THE ECONOMICS OF CLIMATE CHANGE

Swedish teenager Greta Thunberg explained that things can change quickly, despite the scale of the challenge on climate change. "The first day I sat all alone," she said, speaking of her decision to go on strike from school and sit outside the Swedish parliament to highlight the climate crisis. "But on the second day, people started joining me... I wouldn't have imagined in my wildest dreams that this would have happened so fast." "Change is coming whether you like it or not."

THE ECONOMICS OF CLIMATE

CHANGE

HAMZA S. “In the long run we are all dead”. A quote by John Maynard Keynes. A rather bold statement, which holds true. But the relevance of this statement to our generation is greater than ever. Let me

expand upon this.

Possibly the biggest issue our generation is likely to face is the consequence of a rapidly changing climate. What’s that got to do with economics you may ask?

Every government aims to maximise economic growth and a standard GCSE textbook, will state that this results in pollution. Putting that into reality, China experienced a growth rate of 7.8% in 2013 which is strong but also accounted for a mind-blowing 28% of global greenhouse emissions. In 2018, India experienced a strong growth rate of 6.8%, similar to China but also 15% of all deaths in India are pollution-linked. That’s 8.3 million people. The population of London. Clearly, there is a general pattern here but what’s being done to solve this? How can economic growth be achieved in a

sustainable way? Well, the Paris climate change agreement in 2015 was a step forward. It encouraged

countries across the world to limit their carbon emissions and meet different targets. It was certainly a step in the right direction but is it really so effective? The US dropped out. And after all it’s an agreement; agreements can be broken. Fundamentally, most economic systems across the world are mixed economies; a free market which involves government intervention in some respects. How is economic growth achieved? It’s when firms and workers in an economy produce more goods and services in an economy, right? In a free market, their strongest incentive is profit and income and this is the case for most economies as they are freemarket based. A firm in a market wants to maximise profit. A worker in a company wants a competitive salary. Simple economics.

Now link this to renewable energy technology and any technology used in order to reduce carbon emissions. The costs of these technologies, although they have reduced, is still higher than standard ways of energy production. This is contrary to firms which prefer having the lowest cost of production in order to maximise profit. And if renewable energy is to be used widely in order to combat climate change, you require firms to be incentivised. Cheaper renewable energy will no doubt increase the profit motive for firms and encourage greater production. An example of that is the US who have given almost $6.6 billion in subsidies to the industry in the last 10 years. And as mentioned above, economic growth happens when there is a rise in the productive capacity of an economy. It’s only one possible solution with an array of issues and is much more complex than I have made it out to be. The economics of climate change is not simple. Nor is the solution.