Hitting the net-zero targets to which 91% of the world economy is now committed will require many transformations across different sectors of the economy—a vast and expensive project
and the International Energy Association similarly put the necessary incremental investment over the next decade at 0.6-0.9% of cumulative output.
Philippe Aghion, an economist, and his co-authors have found that a 10% increase in fuel prices increases by 10% a firm’s likelihood of investing in green technologies. Households also respond to price signals. America, where petrol taxes have been fixed in cash terms since 1993 and a federal carbon-pricing scheme looks unlikely to pass Congress, has just extended to 2032 its tax credit for.
And it is possible that things will go better still. Technical progress is hard to predict, and economists have shown firms’ green innovation to be “path-dependent”: the more a firm does, the more it is likely to do in future. The history of renewable energy also suggests there is a steep learning curve, meaning that, as more is produced, costs fall rapidly because of economies of scale and learning-by-doing.
If the world is to achieve net-zero emissions without hamstringing the economic prospects of billions of people, the rich world must help developing countries decarbonise as they grow. At the Copenhagen climate summit in 2009, rich countries duly pledged to provide $100bn a year of public and private finance to poorer countries by 2020 to help them mitigate and adapt to climate change. The target is vaguely defined, but is clearly being missed.
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