This op-ed was originally published by Project Syndicate.
Climate change is probably the biggest threat facing humanity today. According to the United Nations Intergovernmental Panel on Climate Change, the world must cut its carbon dioxide emissions to net zero by 2050 in order to prevent global warming of 1.5°C, or likely more, above pre-industrial levels in this century. The challenge calls for drastic immediate action, because the infrastructure investments the world makes today will determine the carbon intensity of its growth path for decades.
Nonresident Distinguished Fellow - Global Economy and Development
Former Project Manager and Senior Research Analyst - Global Economy and Development Program
Yet despite widespread recognition of the size and urgency of the climate challenge, emissions continue to increase, land is “under growing human pressure,” and the Amazon has never been more threatened.
Much of the early climate debate revolved around whether the world should take drastic immediate action to mitigate global warming, or adopt a more gradual approach. The gradualists argued with some success that drastic immediate measures would impose heavy short-term economic costs.
But three recent developments have altered the course of the debate. First, the various feedback loops triggered by global warming now threaten to cause greater and more imminent damage than previously thought.
Second, the cost of clean energy has declined much faster than previously assumed. According to the International Renewable Energy Agency, renewable-energy sources are already the cheapest power option in much of the world, with solar and wind technologies leading the way. Moreover, the cost of “greening” could fall even faster in the future through learning-by-doing. This is also likely to be the case in urban design, transportation, agriculture, and forest protection, all of which need to undergo a green transition.
Finally, the immediate negative externalities of the world’s current high-carbon growth model, such as air pollution, are now better recognized as adding to the short-term cost of climate change. Reducing them would therefore partially offset the up-front cost of mitigation.
These shifts greatly strengthen the case for pursuing much faster and bolder forms of mitigation. As the 2014 New Climate Economy Report concluded, there need not be a trade-off between growth and forceful climate action, even in the short term.
So, why is more not being done? For starters, although the green transition may have a small net aggregate cost, it is certain to generate losers (as well as winners). And as is often the case with such transitions (for example with trade liberalization), the gains will be spread across large parts of the population, while the losses will be more concentrated on specific groups, making them more visible and politically disruptive.
When advocating policies that result in aggregate welfare gains, economists often fail to give enough consideration to their likely distributional impact. Instead, they often implicitly assume that the winners will compensate the losers. But if such compensation does not actually occur, the losers are left worse off and can often block change, as the “yellow vest” protesters (gilets jaunes) have done since 2018, when the French government proposed a new climate-friendly fuel tax.
The de facto coalition that is currently resisting climate action consists of the vested interests that own carbon-intensive assets (such as oil companies) and the mostly lower-income groups that would be short-term losers in a rapid transition. Compensating the latter and isolating the former is politically essential.
Unfortunately, it is not clear whether, say, the young German urbanites who voted for the Greens in the European Parliament elections this year would happily compensate the older auto workers—let alone Polish coal miners—who would suffer in a rapid transition. And complicating matters further, the groups at risk of short-term losses from green policies are often bearing the brunt of digitization and globalization, too.
Another hurdle to bold action is that climate protection constitutes an “additive” global public good, because there is only one atmosphere and the emissions of any one country add to global greenhouse-gas concentrations as much as those of any other country. This causes the free-rider problem of “carbon leakage.” Europe may well reduce its emissions in line with (or even beyond) the aims of the 2015 Paris climate agreement, but if India and China’s emissions keep increasing—or if Brazil allows the Amazon to collapse—those efforts will have been futile.
Clearly, the whole world would benefit from a cooperative solution. But without a binding international agreement or a supranational authority that can impose global green policies, few countries have an incentive to engage in sufficient mitigation efforts—leaving everyone worse off.
One possible measure to deter free riding is a carbon border tax, as recently proposed by the incoming president of the European Commission, Ursula von der Leyen. Governments that tax carbon could levy a border tax equal to the implicit subsidy given to their “dirty” exports by governments who do not have such a tax. This would effectively impose a kind of shadow carbon price on free riders, prompting them to produce fewer carbon-intensive goods.
Provided that it is nondiscriminatory, such border pricing would enhance global welfare and be compatible with World Trade Organization rules. But calculating the appropriate tax would be very difficult in practice. It would, for example, necessitate calculating the tax equivalent of regulatory ceilings. The measure may also invite countries like the United States to retaliate with distortive measures, making it somewhat perilous. Moreover, the tax would likely have regressive distributional consequences, hurting poor countries the most. A better strategy, then, is to increase green investment in developing countries substantially, with multilateral development banks catalyzing private financing in addition to their own funds.
Distributional issues—not aggregate costs—are the real obstacle to the ambitious policies needed to avert possibly catastrophic climate change. Similar challenges, at both the national and international levels, also affect the transitions entailed by the so-called Fourth Industrial Revolution.
Neo-nationalist populists are already feeding on the fears created by disruptive change. Ambitious decarbonization could further fan these flames if it is not accompanied by social policies that effectively ease the process. Progressives everywhere must therefore unite in support not only of a rapid green transition, but of one that is politically feasible and desirable for the vast majority of citizens—even in the short run.