Over the past three months, alongside the regular coverage of the Clark Center’s polls and other news, On Global Markets has been reporting on the discussions held at the Clark Center Economic Experts Conference 9/10 October. Most of those sessions were held under the Chatham House Rule.
The final session of the Clark Center’s Economic Experts Conference dealt with what is likely to be one of the biggest macroeconomic stories of the century: climate change and the energy transition. That session opened with a broad overview of the economics of climate, energy and growth, pointing to recent empirical developments and running through the views of the Clark Center’s various Expert Panels before moving into a wider range debate and discussion of how these factors interact with financial markets. Today’s column will cover the overview.
One way to think about climate, energy and growth is to adopt a favorite idea of many schools of economics and think about a trilemma. In this case, the three things which policymakers are striving – or not – to balance are reducing carbon emissions, ensuring that energy is affordable, and maintaining energy security. These things – as in any good trilemma – can often run in conflict. It might, for example, be possible to ensure energy security and low costs, but at the price of rising emissions.
The popular versions of the questions implicit in this trilemma, as one participant put it, are things like ‘do carbon policies reduce economic growth?’ and ‘does carbon pricing kill jobs?’.
Sitting behind the theoretical debate is an increasing real-world divide. Over the course of the twenty-first century so far, and in particular since 2010, the energy markets of the United States and Europe have diverged sharply. From 2010 onwards, as the shale gas and fracking revolutions played out, US oil imports fell sharply. Since the early 2020s, the United States has been a net energy exporter. But in contrast, European oil imports have drifted only very slowly down, and the continent remains a major energy importer.
Perhaps that divergence explains some of the differences between the US and European Expert Panels on the costs of getting emissions down to net zero by 2050? Asked whether a target of net zero emissions by 2050 would be a major drag on economic growth in 2020, more than half of European respondents (weighted by confidence) either disagreed or strongly disagreed, with another 39% uncertain. By contrast, when the US Panel was asked a similar question the year after, a plurality of 45% expressed uncertainty. And while 40% either disagreed or strongly disagreed, the results were far less conclusive than the European panel.
The panels returned to this question in February last year, when the new US administration withdrew from the Paris climate goals. As the session was reminded, the Paris 2015 climate goals are voluntary in any case and so, it is perhaps no surprise that neither panel believed withdrawal would deliver a measurable boost to US growth over the following four years.
At the same time, the US Panel was deeply unconvinced that “eliminating the ‘social cost of carbon’ calculation from any Federal permitting or regulatory decision would substantially improve the international competitiveness of the US economy”, with more than 80% of respondents either disagreeing or disagreeing strongly.
Some of the more interesting recent polling on climate has been in the area of innovation. The pace of technological change, when it comes to renewables, has been exceptionally quick. The price, for example, of solar panels fell by more than 80% in the fifteen years to 2024. The cost of generating electricity from wind power has also fallen sharply.
Economists have long recognized that there is a potential externality associated with innovation and research and development, and the US government, in particular, has a long and productive history of supporting energy innovation via programmes such as national labs, Department of Energy Grants, and funding for basic research.
The US Panel was asked in October last year whether “For reducing global greenhouse gas emissions, subsidies for R&D on low-carbon technologies are justified in addition to carbon pricing mechanisms like carbon taxes and cap-and-trade systems”. More than 90% of respondents, weighted by confidence, either agreed or strongly agreed – just about as close to unanimity as the Expert Polls ever come.
Perhaps even more interesting was the response to a related question: “Higher subsidies for R&D on low-carbon energy sources are justified by the fact that their successful deployment would not only reduce emissions but also induce developing countries to substitute away from fossil fuels”. This time around, agreement was almost as strong.
Several conference participants were keen to mention the astonishing progress recently made by China in solar panel manufacturing and the wider impact that could have on both decarbonizing the emerging economies and supporting China’s exports.
The big takeaways from this overview were that pursuing climate policies does not necessarily mean reducing economic growth, that the US withdrawal from global deals is unlikely to boost growth, and that there is strong support amongst experts for state backing for innovation and R&D in energy and new energy technologies.
It might be tempting to think that ever cheaper renewable energies offer a way out of the energy trilemma identified at the beginning. This, though, seems unlikely in the near term. There are still issues regarding reliability and pricing volatility when it comes to renewables that raise questions around energy security. But the view of the experts, in the main, was that the best way to think about climate and energy policy was in terms of efficiency and effectiveness. As one participant put it, “just get on with it”.
