ACT NOW?

The air-conditioning conundrum is a particularly heart-wrenching illustration of the trade-off India feels it is facing, between the present and the future. More generally, until the Paris Agreement in 2015, India had simply refused to contemplate limits on its own emissions, arguing that it could not afford to hinder its own economic growth and rich countries should bear the brunt of the adjustment.

The key question is whether the trade-off is as stark as the Indians (or the Americans, for that matter) seem to believe it is. Do we really have to give up something today? Perhaps we can have our cake and eat it too, if we develop and switch to better technologies that will allow us to curb warming without giving up much by way of our lifestyles. After all, just a few years ago energy experts were sternly telling us that renewable energy sources (solar and wind) were simply too expensive, and it was foolish to invest in them as an alternative to fossil fuel. They are considerably cheaper today, notably due to technological progress in those sectors.

Yet despite the historical pattern and the business as usual projections, the world does not need to choose between averting climate change and promoting growth and development. Changes in energy technologies and the structure of economies have reduced the responsiveness of emissions to income growth, particularly in some of the richest countries. With strong, deliberate policy choices, it is possible to “decarbonize” both developed and developing economies on the scale required for climate stabilization, while maintaining economic growth in both.

Amen to this. Still, it would not quite be free. The Stern report concludes that, assuming a rate of technological progress in the “green sector” based on extrapolating from recent history, it would cost about 1 percent of world GDP annually to stabilize emissions at the level necessary to stave off global warming. But that seems a modest cost to avoid endangering the future of the world as we know it.

One hope is that research and development efforts might respond to incentives.¹⁷ R&D expenditures are strongly influenced by the size of the market for the new innovations they are seeking to finance.¹⁸ So a temporary inducement to research clean alternatives to dirty technologies (in the form of a carbon tax that would make it more expensive to use the old technologies and/or direct subsidies to research clean technologies) could have a snowball effect by creating a demand. The clean technology would become cheaper and therefore more attractive, which would increase the demand for it and hence the returns to research. Eventually, the clean sector would be attractive enough to root out the dirty sector and we would be home free. Our little economic engine could be back on its balanced path with the same growth as before, fueled by wind, water, and the sun. We could even stop all taxes and subsidies to encourage clean energy after a while.

It is easy to see how it could work. It is also frighteningly easy to see how it could not work. After all, the dirty technology would still be there. If fewer people used coal and oil, the prices of these inputs would plummet. This would make it very tempting to go back to using them. It is true that because coal and oil are not renewable means their prices will tend to go up over time (as the supplies run down), but there is probably enough coal and oil under the ground to take us to Armageddon. It is hard to be entirely sanguine.