Implications of addressing climate change

Jean Pisany-Ferry, a senior fellow Bruegel and at the Peterson Institute for International Economics, writes this article calling to political leaders to be clear about the economic transformation required to addressing the climate change as people will need to change their lifestyles and the transition costs will be substantial.

The highlights of the article would be the following:

• Capitalism has begun to turn green, and companies want to be part of a cleaner future. This would explain why Tesla is now valued seven times higher than General Motors, despite having sold 14 times fewer cars in 2020. In this regard, the article states that “today’s defining battle is not between climate activists and capitalism, but rather between two strands of capitalism”.
• People will need to change their lifestyles and the transition costs will be substantial. Even if capitalism becomes totally green and technology comes to the consumer society’s rescue, people will need to change their lifestyles and will suffer economic losses through exposure to stranded assets (those unlikely to pass the carbon-neutrality test) and job losses in traditional carbon-intensive sectors. In summary, consumer welfare will take a hit, decreasing in the short term and improving in the long term.
• The article calls to the political leaders to be clear about the economic transformation required to addressing the climate change. It is right to speak about the potential opportunities and economic growth that will bring the new carbon neutral economy, however “the best way to convince people to embrace decarbonization efforts is not by minimizing the challenges ahead, but by describing them accurately and explaining how they will be addressed”.