The challenges and opportunities for climate change policies at a time of global slowdown
Dr. Alex Bowen, London School of Economics and Political Science, UK
Abstract: The current global slowdown is very unusual, both in its intensity and in respect to its causes. The macroeconomic crisis has triggered strong monetary and fiscal policy responses. There is a danger that environmental policies in general and climate-change mitigation in particular will slip down the list of governmental priorities. However, the downturn warrants a substantial, if temporary, increases in deficit-financed public spending. These increases should be assessed against a range of criteria, not just their potential to raise GDP and increase jobs in the short run. That provides an opportunity to build the foundations for an enduring set of climate-change policies and more generally promote more sustainable growth. But at the same time, it is important to deal with the market failures that contribute to environmental problems. In the context of climate change, that means introducing pervasive and permanent carbon pricing to counter the externality associated with greenhouse gas emissions. There is a case for allowing the carbon price to respond to business cycles, but not for holding off its introduction. Tackling other market failures standing in the way of halting man-made climate change can help to cushion the short-run costs imposed by carbon pricing.
