The Really Important Reason Why Cutting Carbon Emissions Might Improve Britain’s Economy

Staying on course to meet its climate goals will leave Britain with a slightly bigger economy and more jobs, according to an analysis released Wednesday.

But what’s particularly striking about the paper is it found those improvements would come from the first-order changes the economy would have to make to decarbonize.  Plenty of other studies have found that cutting greenhouse gas (GHG) emissions will leave economies better off.  But usually it’s because of second-order effects — avoided damage from climate change, or health benefits from reduced air pollution — that offset economic drag caused by the first-order changes.  The assumption that cutting carbon itself will damage the economy is widely held in both economics and politics, and contributes to a lot of hesitation to aggressively confront climate change.

Some background:  Britain has legally committed itself to cutting its GHG emissions 80 percent below their 1990 levels by 2050.  To that end, the government established a set of four interim emission-cutting goals, the last of which would end in 2027.  So Cambridge Econometrics decided to model how the British economy would change by 2030 if all four targets were met, versus a scenario in which the latter three targets were missed.

Wednesday’s paper The Economics of Climate Change Policy was the result. It found that:

• While cutting emissions would drive production down in some industries (like refining and gas production), it would ramp up in other sectors (like manufacturing and service jobs).  That would leave the British economy in 2030 1.1 percent larger on net, and with 190,000 extra jobs.
• Electricity bills would go up, as would some product prices in the economy.  But energy demand would also go down thanks to increased efficiency.  Meanwhile, other changes to the economy to get off carbon would drive up wages for certain classes of workers, leaving the average British household £565 richer ($916.22 in American dollars) in 2030.  Moreover, that improvement would not be distributed evenly through the economy, and workers coming out of unemployment or underemployment would see the biggest gains.
• Britain’s demand for oil and natural gas would be cut 30 and 55 percent, respectively, thus reducing its annual imports and reliance on foreign sources for both.

Those net benefits also hold, though they get smaller, if fossil fuels actually remain cheaper longer than the projections Cambridge Econometrics relied on.

The Really Important Reason Why Cutting Carbon Emissions Might Improve Britain’s Economy