New economic thinking maps route to low-carbon future

A switch to “dynamic” economic thinking could drive a more cost-effective transition to a low-carbon economy, and help tackle the climate emergency, according to a new report.

Climate action is often framed in terms of the economic costs of cutting emissions – but the report instead calls for a focus on risks and opportunities.

It argues for an “intellectual transition” – switching focus from the static costs of decarbonisation to the dynamic economics of accelerating investment in zero-carbon systems.

The report is the conclusion of the Economics of Energy Innovation and System Transition (EEIST) project, led by the University of Exeter and University College London in collaboration with research partners in China, India and Brazil, and funded by the UK Government’s Department for Energy Security and Net Zero and the Children’s Investment Fund Foundation (CIFF).

“The last decade has shown how wrong traditional economic advice can be when it doesn’t take account of the potential to drive low-carbon innovation,” said Professor Michael Grubb, of University College London.

“The EEIST synthesis report brings together a huge body of evidence to illustrate the potential for economic benefits, including from low-carbon transition strategies in key countries central to meeting the global challenge.”

EEIST reviewed the most outstanding successes achieved so far in low-carbon technology transitions in China, India, Brazil and Europe.

“The critical policies were those that targeted investment in emerging technologies – whether through subsidies, cheap finance, or bulk public procurement,” said Professor Tim Lenton, from Exeter’s Global Systems Institute.

“Traditional cost-benefit analysis tended not to support these successful policies, because the new technologies were expensive at first, and there were cheaper ways to cut a tonne of emissions.

“This analysis was misleading, because the cheapest way to marginally reduce emissions at a moment in time was not the same as the cheapest way to launch a systemic transformation.”

The report highlights the difference between “green futures” – based on upfront investments driving innovation – or “fossil-fuel futures” where low investment leaves societies running on increasingly expensive and environmentally damaging fuels.

Simon Sharpe, Director of Economics for the Climate Champions Team and Policy Impact Lead of the EEIST project, added: “Efforts to advance economic analysis and modelling might seem abstract, but in fact this may be a high point of leverage over global emissions.

“Effective policies make the difference between political will, financial capital, and industrial enterprise being deployed successfully or dissipated wastefully.

“Just as a change in policy can influence many investments, a change in economic understanding can influence many policies.”

The full report is available at https://eeist.co.uk/eeist-reports/