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Economic Sciences Nobel Prize 2018: Integrating innovation and climate with economic growth

Economists awarded for integrating economic growth with climate change through simulation models to achieve long-term economic growth and tackle environmental challenges.

Delivered right on the heels of the United Nation's most recent – and mortifying – report on climate change, this year's Economic Sciences Nobel Prize announcement could not have come at a better time. The prize, jointly awarded to economists William Nordhaus and Paul Romer, showcased their success in integrating innovation and climate with economic growth and offered humanity more tools to tackle economic growth and climate change-related challenges society confronts today.

Long-term economic growth and environmental management are issues of wide public concern, particularly as we face global warming and climate change. The increasing demand for research on the relationship between the environment and the global economy is a clear testimony of this fact. Pioneering ideas such as those awarded in this edition of the Nobel Prize and others like the IUCN Red List of Ecosystems (RLE) aim to support sustainable resource use and management decisions to achieve an effective economic planning outcome.

“This year's Laureates William Nordhaus and Paul Romer have significantly broadened the scope of economic analysis by constructing models that explain how the market economy interacts with nature and knowledge”, Royal Swedish Academy of Sciences press statement.

Why did they win?

Prof. Romer's work focuses on modeling methods for long-term economic growth and for how economic decisions and market conditions can fuel the creation of ideas and technological innovation.

   
  • Romer is one of the pioneers of the endogenous growth theory, which emphasizes that the creation and spread of ideas are necessary for growth, but not sufficient for it. In other words, countries can improve their underlying performance by investing in research and development of laws governing the ownership of intellectual property that reward innovation.
  • Romer’s “endogenous growth models” have been hailed as a critical step towards understanding patterns of economic growth across the globe.

 

Dr. Nordhaus' work focuses on persuading governments to address climate change, preferably through a global carbon tax. 

   
  • He was the first person to design quantitative models that describe the global economic-climate system, which allows for simulations on how the (eco)nomy and the climate will co-evolve in the future.
  • Nordhaus' models integrate alternative assumptions about the workings of nature and the market economy, including relevant policies.
  • Nordhaus' tools, in particular his Dynamic Integrated Climate-Economy model (DICE), are widely used to assess the costs of climate change, including crop failures and flooding.

 

Global recognition comes, therefore, as merit to both men for having accomplished taking impossibly complex problems (which their field could either not understand or could not afford to understand) and making them significantly more approachable. Their findings have brought us considerably closer to answering the question of how we can achieve sustained and sustainable global economic growth.

An optimistic take on things

Though this year's Laureates did not deliver definitive answers to current global economic growth and climate change issues, they did succeed in providing methodological tools to begin finding the answers – dynamic simulation models. In other words, not only did they improve the way the world thinks about the operation of frustratingly complex, crucially important systems, but also came up with a way of sharing knowledge that, propelled by globalization, allows billions of people to work together by seeking the answers in parallel.

Nordhaus' research on climate change and Romer's work on new ideas and technology highlight how investment in innovation can have a compounding benefit for environmental, macroeconomic and government policies. International efforts like these and IUCN RLE's work are meant to interweave further and collaborate in better understanding both the contributions of the environment to the economy and the impact of the economy on the environment, more interactions should be encouraged.

 

 

Written by: Clara Gómez and Lila García

Style and format: Lila García and Clara Gómez

Provita Oct 26, 2018

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