I’ve not done a ‘roundup of the year’ before, but 2024 proved exceptional across a range of research, political and some other developments – so here, a brief overview.
EEIST. The year started with culmination of the (first phase of) the international EEIST programme on Economics of Energy Innovation and Systems Transition. This was the brainchild of Simon Sharpe, who after many years in UK government concluded that the diplomatic challenges of climate change were insurmountable as long decarbonisation is cast primarily as problem of ‘burden sharing’. Alongside the country reports of Brazilian, Indian and Chinese research colleagues, the final Synthesis report (Feb 24) highlighted insights from the overall programme including policy lessons from successes; it also underlined the extent to which different analytic and modelling approaches, as well as different country contexts, yield varied insights into the costs and opportunities of low carbon transition.
On a more personal note, this coincided with a most memorable birthday celebration (?) at the end of February. Despite the best efforts of the British railway system, many friends were able to attend the party and join a doctored rendition of the Beatles’ famous song, “Now I’m 64 …”.
World Development Report. Meanwhile, with UCL colleagues we completed two invited background papers for the World Bank’s World Development Report, “Escaping the Middle-Income Trap”. When finally published in the summer, the WDR itself reflected a new emphasis on the role of institutional, social and technological innovation in economic development. As indices, alongside capital value-added and social mobility, it added reducing emissions intensity – effectively, a proxy for displacing fossil fuels through infusion and innovation in energy efficient and low carbon technologies – as a key ingredient for enhancing economic development. Our background papers (see Commentary) contributed reviews of energy technologies, and innovation-related dynamics.
That same summer, two long-running research efforts were finally published in economic journals…
Energy Cost Share constancy. For a decade I’ve been intrigued at the claim of the Russian energy efficiency expert Igor Bashmakov, that the share of energy costs in GDP was approximately constant, irrespective of energy prices. His original inspirate was the observation of how economies very low, highly subsidised energy prices, ended up with profoundly inefficient and wasteful energy systems; my own interest was also at the opposite end, the response to oil price shocks. Working with Igor and colleagues, our paper on Energy Cost Constancy expanded analysis to a far wider set of updated data, advanced theoretical reasons for this observation, and discussed policy implications; as summarised in my Commentary, these are much more subtle than just “remove energy subsidies and tax carbon”.
Dynamic Determinants. In the Autumn came publication at last of a modelling study, that my wife had come to dub “the infinite paper.” With important contributions from several former Cambridge colleagues and others, our analysis injects a new dimension to critiques of the economically-iconic DICE model, focused on the way in which including inertia and induced innovation can substantially amplify the benefits of earlier & stronger emissions abatement efforts whilst reducing long-run costs. Given the ubiquity of DICE as a reference point for most economic classes on climate change, reviewers insisted that we demonstrate how our model compares with DICE itself. Our appendix, duly added to pinpoint this, demonstrates that most of the apparent sophistication of DICE seems irrelevant compared to its lack of mitigation dynamics. The resulting paper Dynamic Determinants of Optimal Global Climate Policy is summarised in an INET commentary they deftly titled, “Time to stop rolling the DICE..”.
Infinite no more, but of course, the paper still raises a host of issues meriting further study and the model is very simplified – primarily, a stylised provocation for economics to take mitigation dynamics far more seriously. I was tangentially involved in two other papers appearing in 2024 which speak to the real complexity of these issues, namely Modelling induced innovation for the low-carbon energy transition: a menu of options, led by our EEIST colleague Roberto Pasqualino, and The use of decision making under deep uncertainty in the IPCC, led by IPCC stalwart Robert Lempert.
The wider literature on energy transition has of course exploded over recent years. I’d intended this review as just a brief summary of works I was personally involved in, but I find myself impelled to mention two other, very different, contributions.
First, and so far inadequately recognised, 2024 saw publication at last of a remarkable contribution to economic theory, in Carl Christian von Weizsäcker’s concise book, Freedom and Adaptive Preferences. Built on decades of work, he accepts the reality that human preferences adapt, something which seems an indigestible challenge to most economists given that fixed preferences (“the Utility function”) are typically a foundational assumption of classical economics. Instead, von Weizsäcker develops a whole new theoretical and mathematical framework for analysing the implications of preferences which adapt in the light of experience. To my mind, this is the kind of contribution that truly deserved a Nobel Prize. Amongst many other observations, he concurred that it likely provides a theoretical foundation for understanding the evolution of human altruism, and it potentially adds an important micro-economic perspective to the growing literature on ‘social macroeconomics’
Not on the same scale, but equally significant in terms of applied climate policy, a final pointer to a great paper on international spillovers by Michael Mehling. Climate policy is a global problem in which a coordinated global response is politically impossible. A lot of economic analysis and political discourse has focused on negative dimensions – “free-riding” and the cost of unilateral actions exacerbated by risk of carbon leakage, i.e. “negative spillovers”. But factoring in technological, institutional and social innovations implies large potential from positive spillovers, from actions in one region to others. Mehling’s paper on “Good spillover, Bad spillover … ” is to my mind the first to thoroughly articulate this, and to sketch potential implications for policy.
2024 was widely heralded as the “year of elections.” Given some of the outcomes, such broadened thinking on ways to make progress in a fractured world is sorely needed.