Economic policy is aimed at socially sustainable growth, yet scientific evidence suggests our economy has physical limits. Our atmosphere and energy supplies are almost certain constraints on future output. The limits on physical resources might need to be taken into account by macroeconomics to create a more accurate understanding of sustainability. What is the importance of energy availability for growth, and do planetary boundaries need to be taken more seriously?
Views vary on the outlook for energy availability. But if we do enter a world where the supply of energy decreases, as many predict, how would this affect us? The conventional economic view is that energy prices would spike in the short-term as it would be difficult to substitute to alternative means of energy production. In the long-term, these higher prices would encourage alternative methods of energy production.
Although, one argument is that the reduction in energy in the short-term might make it impossible to substitute to alternative forms of energy, as the discovery process itself requires energy. We might get to a point where we do not have enough energy from the currently used methods to switch to an alternative. This is because if energy is a critical enabler of key technologies then technology is only possible because of energy. This also questions the rate of technological progress: falling energy availability could reduce technological progress and damage long-term growth.
There is evidence that the mainstream “growth” model may be environmentally unsustainable as we approach biological boundaries that scientists warn us from crossing. Climate change is one such boundary. Rising sea levels, air and water pollutants, biodiversity loss, rates of extinction are all examples of how economic activity is infringing on the environment. These consequences could be wipe-out economic activity in certain areas, such as in flooded cities. Macroeconomic models do not take into account the possibility of irreversible catastrophes like this.
How can we sufficiently factor in planetary boundaries into macroeconomic models and methodologies? To what extent do economic models – with or without explicit roles for environmental factors – need to take account of feedback loops, thresholds/tipping points, fat-tailed distributions and non-equilibrium system dynamics? Do we need new models beyond DSGE such as agent based modelling? And do we think it will be these planetary boundaries, rather than material or energy constraints, that will limit economic growth? How quickly and effectively do we think we might transform current consumption and production trends, substitute for natural resource use and protect ecosystem functions? Ultimately, will we need to stop growing altogether, or is “green growth” possible in the long-term?
Hub Co-Leader: Prof Michael Grubb
Prof Michael Grubb is Professor of Energy and Climate Change at University College London (Institute of Sustainable Resources & Energy Institute). From 2011-2016, alongside academic roles, he worked half-time at the UK Office of Gas and Electricity Markets (the energy regulator, Ofgem) as Senior Advisor, initially on Sustainable Energy Policy, and subsequently Improving Regulation; from Autumn 2016 he moved to Chair the UK government’s Panel of Technical Experts on Electricity Market Reform.
Grubb has combined research and applied roles for many years, bringing research insights into policymaking, and bringing practical experience to bear upon academic studies. Before joining UCL he was part-time Senior Research Associate in Economics at Cambridge University, combined with (prior to joining Ofgem) Chief Economist at the Carbon Trust Carbon Trust, and Chair of the international research network/interface organisation Climate Strategies.
Hub Co-Leader: Dr Tiago Cavalcanti
Dr Tiago Cavalcanti is a senior lecturer in the Faculty of Economics and a fellow of Trinity College. He gained his PhD in economics from the University of Illinois at Urbana-Champaign and taught first at Universidade Nova de Lisboa in Spain from 2001 to 2003 followed by Universidade Federal de Pernambuco in Brazil from 2003 to 2007. He then moved to the United States and became a visiting assistant professor at Purdue University from 2005 to 2006. His teaching and research focuses on macroeconomics, growth economic development, and inequality. He is also the editor of the B.E. Journal of Macroeconomics.
Hub Co-Leader: Dr Kamiar Mohaddes
Kamiar Mohaddes is an economist at the Cambridge Judge Business School at the University of Cambridge. He is an Economic Research Forum (ERF) Research Fellow, and serves as its Thematic Co-Leader for the macroeconomics theme. He is also an Associate Researcher at the Energy Policy Research Group (EPRG) at the University of Cambridge, an Associate Fellow of the USC Dornsife Institute for New Economic Thinking, a Research Associate at the Globalization and Monetary Policy Institute at the Federal Reserve Bank of Dallas, and a Research Associate at the Centre for Applied Macroeconomic Analysis at ANU in Australia.
He is currently a Departmental Special Advisor at the Bank of Canada, a consultant at the United Nations ESCWA, and has been a regular visiting scholar at the International Monetary Fund. He has worked closely with colleagues at these institutions to, for instance, develop tools to help examine and disentangle the size and speed of the transmission of different global, regional, and national macroeconomic shocks.