Climate change and growth

Abstract

Contrary to much of the conventional wisdom, taking stronger actions on climate change may enhance economic growth, even as conventionally measured, but even more so, in terms of societal well-being. We identify the flaws in the models and analyses which contend that there must be a trade-off and explain the mechanisms and dynamic forces which have the potential to enhance growth. Critically, there are numerous market failures that result in suboptimal economic performance. We explain how addressing climate change reduces the bite of these failures and enhances the incentives and political will to address them. We identify packages of policies that alleviate market failures, enhance growth, and reduce carbon emissions. Finally, we argue that the green transition is coming at a time when, both because of persistent deficiencies of aggregate demand and advances in technology, including artificial intelligence and robotization, the macroeconomic opportunity costs of strong climate actions may be especially low and the benefits particularly high.

10. In Search of Lost Time

“…For further details, see Figure 4.6 in the IPCC's synthesis report (2023). 10 For similar estimates referring to high-income countries see Stern and Stiglitz (2023). They find that adaptation and resilience spending must increase from $52bn in 2019 to a target of $327bn in 2030 in order to be consistent with a pathway to net-zero emissions by 2050.…”

The impact of climate change on economic growth: A study of ASEAN countries

“…Stern and Stiglitz argued that stronger action on climate change could enhance economic growth and social welfare by reducing market failures and enhancing growth incentives (Benhamed et al, 2023). Salooja and Butler emphasized the risks to economic growth in resource-dependent countries due to climate change and the need for sustainable natural resource management policies (Stern & Stiglitz, 2023). The economic impact of carbon dioxide emissions on population growth, food production, economic growth, and energy consumption in Pakistan has been studied, revealing production associations (Rehman et al, 2021).…”

The Relationship between Climate Action and Poverty Reduction

“…However, the world is characterized by multiple market failures and inefficiencies of direct and major relevance to the implications of climate action for poverty. Beyond the externality of GHG emissions, these include underinvestment in knowledge (including research and development (R&D)) as a public good, imperfect information, problems in coordinating networks, failures in capital markets, and failure of markets to value other benefits (such as nature or health) (Stern and Stiglitz 2023 ).…”

“…On the other hand, Stern and Stiglitz (2023) identify several drivers of growth implied by climate action. These include resource efficiency; increasing returns to scale in key new technologies; stronger productivity of systems such as energy, transport, cities; rapid innovation from shared social priorities with direction and urgency; higher investment; reinforcing effects of international coordination; improved health (labor productivity and lower costs of care); and behavior change.…”