MACROECONOMICS AND CLIMATE CHANGE

Abstract

Climate change and its consequences are the most important issues affecting the UK economy over the coming century and will present a critical challenge for the UK government moving forward. In particular, the challenge of getting to net zero by 2050 is going to have major ramifications for the macroeconomy. In this commentary, I lay out some of the work that has been done on the implications of climate change and the transition to net zero for the macroeconomy. Economic activity as currently structured involves using fossil fuels as part of the production process. But this releases carbon dioxide into the atmosphere and leads to higher temperatures. I take this as given, simply noting that if this rise in temperature and the change in weather patterns associated with it are going to be stopped, if not reversed, at some point in the future, then we have to move to a ‘net zero’ (or even ‘net negative’) economy in which output is produced using only those inputs which do not produce greenhouse gases.