The Green Economy

The recent, blustery movements in oil prices in response to the United States’ war with Iran illustrate the financial market’s agile ability to reprice for a predicted future market. Yet, a decade after 195 nations adopted the Paris Agreement to transition away from fossil fuels, the market has made no changes in response. Part of this may be due to investors’ expectations of a delayed rollout, but the inertia is also due to flawed market design in which laws of fiduciary duty prevent funds from providing investors with vehicles that can make true bets on how soon the world will retire fossil fuels, writes Michael A. Santoro.

The green transition is faltering in both advanced and developing economies. While politics and market risk is stalling private investment in clean energy in advanced economies, an imbalanced global value chain is preventing investment in clean energy in developing countries, write Piergiuseppe Fortunato and Verena Hitner Barros.

Recent border carbon measures have relied on the theory that stricter environmental rules in rich countries push pollution-intensive production toward developing economies with weaker regulations. In new research, Irfan Saleem and Giray Gozgor show that the “pollution haven” mechanism is neither automatic nor uniform across industries. Evidence is mixed, often small in magnitude, and highly sensitive to how we measure regulation, model trade, and account for industry mobility.

In new research, Michele Fioretti, Victor Saint-Jean, and Simon Smith show that NGO activism follows a clear economic logic: when NGOs lack visibility, stakeholders do not view them as credible, forcing them to rely on high-profile campaigns during annual shareholder meetings. However, these actions generate attention but rarely influence decisions. As NGOs gain recognition, they can campaign earlier, when votes are still open, and meaningfully sway shareholders and change corporate behavior.

Matt Lucky reviews Dani Rodrik’s new book, “Shared Prosperity in a Fractured World: A New Economics for the Middle Class, the Global Poor, and Our Climate”

In new research, Pinelopi Goldberg and Michele Ruta analyze how today’s structural, policy, and geopolitical trade conditions are no longer conducive to the trade-led growth miracles many developing countries experienced in the past.

Corporate decarbonization policy has stagnated under ideological divisions. Arguing that anthropogenic emissions are driven by customer preferences and that such preferences can shift with improved information, Karthik Ramanna advocates for a new approach: an economy-wide system of reliable and comparable accounts of the embedded emissions in products to allow customers (and investors) to make more-informed decisions aligned with underlying preferences. In part II of his two-part series (read part I here), Ramanna explores the principles of an accounting methodology to provide better greenhouse gas emissions data to business customers and consumers and the reasons why, based on historical precedent, such a system is readily adoptable and likely to prove effective. 

Corporate decarbonization policy has stagnated under ideological divisions. Arguing that anthropogenic emissions are driven by customer preferences and that such preferences can shift with improved information, Karthik Ramanna advocates for a new approach: an economy-wide system of reliable and comparable accounts of the embedded emissions in products to allow customers (and investors) to make better-informed decisions aligned with underlying preferences. In the first of two articles, Ramanna discusses why top-down regulatory approaches to reduce greenhouse gas emissions have failed to generate decarbonization at meaningful scales and the virtues of a pro-market approach to incentivizing and enabling greener corporate and consumer behavior.

In new research, Jitendra Aswani and Roberto Rigobon find that investments raised on sustainable bond markets force firms to make material changes to corporate...

Karthik Ramanna writes that if the United States adopts a trade policy based on a dynamic emissions accounting method, it can achieve President Donald Trump’s goal of leveling the manufacturing playing field for American companies by penalizing foreign “dirty” producers, while also mitigating inflation and the risk of a trade war.