TO REVERSE CLIMATE CHANGE, the world
first must understand both the economic forces that drive it—and those that
could lead to potential solutions. This
idea has long underpinned the research
of the 2018 recipients of the Sveriges
Riksbank Prize in Economic Sciences
in Memory of Alfred Nobel. In October,
the Royal Swedish Academy of Sciences
announced that Paul Romer, on leave at
New York University’s Stern School of
Business in New York City, and William
Nordhaus, the Sterling Professor of Economics at the Yale School of Management in New Haven, Connecticut, would
share the prize.
Paul Romer (Photo by Sapina Parikh/NYU)
Romer joined NYU Stern in 2010.
In 2011, he founded the NYU Stern
Urbanization Project, which is dedicated to studying how policymakers in the
developing world can channel urban
growth to create economic opportunity
and pursue social reform. Romer also
has directed NYU’s Marron Institute of
Urban Management, which works with
civic innovators to make cities safer,
healthier, more mobile, and more inclusive. He is known for his contributions
to endogenous growth theory, which
holds that economic growth is driven
by internal forces—such as population
growth and human innovation—rather than external factors.
William Nordhaus (Photo by Mara Lavitt)
On Yale’s faculty since 1967, Nordhaus has studied issues ranging from the
political business cycle to the effect of resource constraints on economic growth—
but some of his most prominent work
has involved studying efficient economic
models for coping with the effects of climate change. In addition to his post at the
Yale School of Management, he serves as
a professor in the university’s School of
Forestry and Environmental Studies.
Nordhaus is well-known for his 1996
study tracing the economic history of
lighting, from the oil lamps of Babylonian times to the LED light bulbs of today; in the study, Nordhaus tracked how
advancements in illumination have led
to innovation and long-term economic
growth. Currently, he directs the G-Econ
Project, an ongoing effort to provide
comprehensive measures of economic
activity in regions around the world,
based on their geography. (Learn more.)
The application of economics
principles could be the only way to
solve large-scale problems like climate
change, Nordhaus said at Yale’s press
conference announcing his win. When
asked whether the world should look
to the markets for solutions to climate change, Nordhaus was unequivocal.
“There basically is no alternative to a
market solution,” he said. “There are
billions of individuals, millions of firms,
thousands of governments, and hundreds of nations [in the world], and for
them to take action, they’re going to have
to have incentives. … We have to raise
the prices of goods and services that are
carbon intensive and lower the ones that
are less carbon intensive.”
Romer, however, believes the best
solutions will come from smart urban
planning, not necessarily from business
and economic applications. Urbanization
“operates on a scale which is beyond a
scale that almost anybody who’s getting
an MBA” will engage with, Romer said.
“Even the biggest firms are not even close
to what cities are like.” If the world is to
respond effectively to alarming trends
such as climate change and human
population growth, it will need “very big
plans,” he added. He referred to the 1811
plan for New York City as an example—a
plan municipal leaders used to expand
the city’s footprint and create the grid it
still has today. Such large-scale plans, he
argued, work best when they are not micromanaged. “You’ve got to rely on people
to fill in a lot of the details, and that’s really not indicative of the kind of problems
that most people in businesses face.”
When Nordhaus was asked whether
he was optimistic that the world could
reverse climate change, he said that he
viewed the current hostility in the United
States toward climate change science
and environmental policy as “anomalous”—a phase that soon would pass.
“Outside the United States, there’s
pretty widespread acceptance of the
science and even the economics behind
climate change views,” Nordhaus said. “I
think we just need to get through what is
a difficult period. But I’m extremely confident that will happen. We’re not going
to stop climate change—there’s a lot of
momentum there, and like a super tanker, it will take a long time to slow it down.
But I think it’s something we can do.”