The coming decarbonization shock

For all the long-term benefits of urgently addressing climate change, economic policymakers must plan for a challenging transition to carbon neutrality. Pretending that the costs will be trivial is dangerous. Transition strategies must be designed now.


  • One way or another, decarbonization will put a price on a resource that used to be free, forcing an economic adjustment that will raise prices and trigger labor reallocation and other adjustments in carbon-intensive economic sectors, including autos, heavy industry, and transport.
  • Years of procrastination now imply a choice between an abrupt transition and catastrophic climate change. But the sudden pricing of carbon entails an adverse supply shock comparable in nature and size to the oil shocks of the 1970s.
  • The building of a carbon-free economy will bring a surge in investment to replace old carbon-based processes, while lowering consumption and putting pressure on public finances. A tradeoff looms between short-term sacrifice and future wellbeing. Macroeconomists must devise strategies that soften the blow of these challenges and make the best of the potential of decarbonization.

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