The effects of the climate crisis are increasingly evident with the ferociousness of Hurricanes Helene and Milton being two recent examples. And, of course, we are only receiving a gentle preview of what is coming as greenhouse gases continue to accumulate in the atmosphere. At the same time, families around the world aspire for a better life and inexpensive energy is key to the growth that unlocks it. The near obsession with US gasoline prices underscores their importance, but the stakes are even higher in places like Bihar, India where annual per capita electricity consumption is 200 kWh for its 130 million people, compared to 13,000 kWh in the United States.
The inconvenient truth that can put the goals of managing climate change and growth in conflict is that in many places and settings the fossil fuels that cause climate change are cheaper than the alternatives. And, the impacts of fossil fuel’s greenhouse gas emissions on climate change are the same regardless of whether they are emitted in Mumbai, Memphis, or Moscow.
Today, the University of Chicago is launching the Institute for Climate and Sustainable Growth that I am leading. The Institute’s aim is not to find ways to minimize climate change in isolation or to ramp up growth in isolation. Its mission is to find ways to balance these two goals, recognizing that both are critical to our well-being.
We’ll do this at the new Institute in several ways.
First, the Institute will follow the University of Chicago’s tradition of using Economics to help solve key social problems. In practice, this means producing research that helps characterize the climate and growth challenge, including that the trade-offs and priorities are likely different in the United States than in Bihar. Perhaps even more importantly, these efforts will identify policies and market structures that make it easier to balance the urgent climate and growth goals.
As a recent example of economics can help ease the balance, University of Chicago researchers worked with the Gujarat, India state government to develop and pilot the world’s first pollution trading or cap-and-trade market. The results were striking: pollution emissions declined by roughly 25% and industry’s compliance costs decreased by about 11%. The results have led Gujarat to expand the use of pollution markets, with other states now following suit…