The Unassuming Economist

New post by Timothy Taylor.

“The Olympic Summer Games were held in Beijing in 2008. Now the Winter Games are being held there in 2022. For the sake of the athletes who will be inhaling and exhaling more frequently and deeply than usual in the next few weeks, how has the air quality changed? Michael Greenstone, Guojun He, and Ken Lee discuss the evidence in “The 2008 Olympics to the 2022 Olympics: China’s Fight to Win its War Against Pollution” (February 2022, Energy Policy Institute at the University of Chicago). They write:

In the years before the 2008 Beijing Summer Olympics, pollution in China had been sharply climbing. The government responded with quick reforms that temporarily reduced pollution during the games. The reforms, however, only managed to slow the climb in the long run. By 2013, pollution in China had reached record levels. The following year, the same year Beijing applied to host the 2022 Olympic Games, Chinese Premier Li Keqiang declared a “war against pollution” and vowed that China would tackle pollution with the same determination it used to tackle poverty. Seven years later, pollution has declined dramatically by about 40 percent. In Beijing, there is half as much pollution compared to both 2008 and 2013 levels. In most areas of China, pollution has fallen to levels not seen in more than two decades.”

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Published on Voxeu.org by Pragyan Deb, Davide Furceri, Jonathan D. Ostry, Nour Tawk on 31 January 2022.

“Lockdowns resulting from the COVID-19 pandemic reduced overall energy demand in 2020. However, electricity generation from renewable sources was surprisingly resilient and, as a result, the share of renewables in electricity demand increased in many regions (International Energy Agency 2020). What remains an open question is whether recessions of themselves tend to spur investments in more efficient, greener, energy sources, or instead to continue investing in old coal-based plants. On one hand, the disruption in financing engendered by the crisis may reduce innovation through lower research and development, which is highly procyclical (De Haas et al. 2021). On the other, lower energy demand and associated plant closures brought about by the recession may provide energy producers with an opportunity to improve their efficiency by replacing older environmentally unfriendly plants with renewable sources of energy when demand recovers. The idea that outdated units are destroyed and replaced by newer technological innovations goes back to Joseph A. Schumpeter’s thesis on ‘creative destruction’ (Schumpeter 1939, 1942), with economic disruptions such as the one brought about by the pandemic acting as a time of cleansing (Caballero and Hammour 1994).”

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In a column for the Center for Economic and Policy Research, a Washington DC-based think tank, economist Dean Baker writes on the opportunity for China to invest in clean energy to resolve its “demographic crisis”. An excerpt from the article is as follows.

“As Paul Krugman wrote in a recent column, China is going to have to make a massive adjustment in its economy in the years ahead. It has been spending an incredible 43 percent of its GDP on capital formation, either investment goods purchased by businesses, or residential housing. By comparison, the figure for Japan is 24 percent and for the United States less than 22 percent.

This massive spending on capital formation made sense when China was seeing rapid growth in its labor force and also a huge shift in its population from rural to urban. But this process is now reaching an endpoint, both with a decline in its working-age population and the rural to urban shift largely completed.

It is also important to note that China is already heavily invested in clean energy. China is by far the world leader in solar energy, with more than twice as much as the United States, the second-largest user of solar power. It is also by far the world leader in wind energy, again with more than twice as much installed wind power as the United States. And, China also has more than twice as many electric cars on the road as any other country. This means that China has a large domestic clean energy sector which can stand to gain by further spending on reducing greenhouse gas emissions.

If China wants a path through its “demographic crisis,” or, in other words, coping with secular stagnation, devoting substantial resources towards greening its economy would be a great path forward. In the process, they can also give a big hand to the rest of the world, both by sharing the technology and showing how it can be done, as well as reducing the damage they are doing to the planet themselves.”

Source: Baker, D. (2021). CEPR. Combatting Global Warming: The Solution to China’s Demographic “Crisis”.

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This week of the year 2021 is of prime significance for the world as leaders from across countries have gathered in Glasgow, Scotland for the CoP26 summit which is touted to be the biggest environment-based conference after the Paris Summit in 2015.

Besides the heads of states, more than a fifth of the major corporations in the world have pledged to reach the net-zero carbon emissions target by 2030. However, what is striking is how the role of women as climate leaders, investors, and influencers is largely missing from the mainstream discussion on emissions reduction. 

This report draws out interesting parallels between seemingly disparate objectives like climate change and diversity, that corporations must address as part of their journey towards a greener planet. It highlights the influence of greater gender equality on an enterprise’s climate outcomes, by having women in leadership positions to act as changemakers, as low-carbon product influencers, and climate-focused business investors.

Click here to read the full report.

From a new IMF working paper by Nooman Rebei and Rashid Sbia:

“This paper documents the determinants of real oil price in the global market based on SVAR model embedding transitory and permanent shocks on oil demand and supply as well as speculative disturbances. We find evidence of significant differences in the propagation mechanisms of transitory versus permanent shocks, pointing to the importance of disentangling their distinct effects. Permanent supply disruptions turn out to be a bigger factor in historical oil price movements during the most recent decades, while speculative shocks became less influential.”