Release: The Role of the Economy in Combating Climate Change

New Roosevelt Institute report outlines an economic policy framework to address climate change while promoting growth and ensuring equitable economic outcomes

NEW YORK, NY – The United States needs a new approach to climate change—one that rapidly reduces carbon emissions while offering economic security and higher living standards for working people. The Roosevelt Institute’s new report, Decarbonizing the US Economy: Pathways Toward a Green New Deal, makes the economic case for such an approach. If the public sector takes the lead, it is possible to drastically reduce carbon emissions while creating jobs and raising incomes for the great majority of Americans.

The report, written by Roosevelt Institute Fellows Mark Paul and J.W. Mason and Anders Fremstad of Colorado State University, argues that there is no conflict between addressing climate change and meeting other urgent material needs. Rapidly decarbonizing the economy can create good jobs, reduce inequality, and boost economic growth, while tackling the existential threat of a warming planet. Though some form of carbon pricing is necessary, market approaches alone are not enough. As in previous crises, Paul, Fremstad, and Mason argue that the government must take a leading role.

The report’s approach is guided by three broad pillars:

  • Large-scale public investment is needed both to decarbonize the economy and bring it to true full employment;
  • Comprehensive environmental regulations are needed to promote decarbonization across all sectors of the economy; and
  • A carbon cap-and-dividend program can ensure that the US meets its emissions targets without the high costs for lower-income families that other forms of carbon pricing require.
Insights from the author:

“Our policy framework for decarbonizing the US economy starts from the premise that we need a more active government to address climate change,” said Paul. “While market-centric policies will be part of the broader climate solution, we also need strict regulations and direct public investment. This is the only way to ensure that climate targets are met, carbon-neutral public goods and services are expanded, and the economy is brought to full employment.”

“The big question everyone is asking is ‘How will we pay for it?’ but the truth is, there is plenty of space for the US government to borrow more—and to tax more as well. It makes no sense to worry about runaway debt when interest rates are so low,” said Mason. “The US today has substantial capacity to increase both public debt and taxation; it should be possible to finance a decarbonization program of at least 5 percent of GDP a year, sustained over a decade or more, without significant economic costs. In fact, with our economy operating below potential in recent years, the real resources required by major proposals to combat climate change should be seen as a benefit, not a cost.”

“For 50 years, we’ve been led by flawed economic assumptions that disrupting markets through environmental regulation or carbon taxes would cost too much in terms of economic growth,” said Fremstad. “The reality is that markets are bad at solving large-scale problems where economic activity across a wide range of areas must make expansive shifts in a coordinated way. Markets don’t work quickly, and we don’t have time to waste. The rapid transition to a net carbon-neutral economy is a sizable undertaking that will require a sizable, centralized actor: government.”

The report’s framework builds on the Roosevelt Institute’s latest economic report, New Rules for the 21st Century: Corporate Power, Public Power, and the Future of the American Economy, which outlines ways of achieving a more dynamic and equitable economy.

The climate crisis is a far-reaching problem that requires a far-reaching solution: a fundamental reorganizing of the economy. This is not only achievable, but it is needed for the sake of the economy itself. The 21st century macroeconomic environment of weak growth, low inflation, near-zero interest rates, and long “jobless recoveries,” calls for an increase in public spending. In an economy that suffers from chronic demand shortfalls, and in which labor’s share of income is steadily falling, there is a strong case for programs that increase public spending and encourage private investment. The climate crisis is an existential threat that more than merits the increased public spending that—an increasing number of economists agree—strong growth and full employment require.

About the Roosevelt Institute

The Roosevelt Institute, a New York-based think tank, promotes bold policy reforms that would redefine the American economy and our democracy. With a focus on curbing corporate power and reclaiming public power, Roosevelt is helping people understand that the economy is shaped by choices—via institutions and the rules that structure markets—while also exploring the economics of race and gender and the changing 21st-century economy. Roosevelt is armed with a transformative vision for the future, working to move the country toward a new economic and political system: one built by many for the good of all.

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