Global | Economy, environmental sustainability and energy transition

Summary

The transition to a greenhouse-gas-neutral economy is a necessity because of the physical risks involved in maintaining current policies, a challenge because of the rapid and substantial reduction needed, and also an opportunity to achieve long-term sustainable development.

Key points

• Key points:
• The increases in the greenhouse-gas concentration cannot be explained without considering human activity. Without a rapid and substantial reduction in GHG emissions, the Earth's average temperature will exceed thresholds that trigger severe environmental effects and increase economic costs, including potentially catastrophic risks.
• The emission of GHG into the atmosphere creates a negative economic externality, which requires global, coordinated and public policies for its correction.
• The fact that rising temperatures provoke effects with unclear magnitudes adds uncertainty to the mix. However, the catastrophic and irreversible risks that emerge on the most representative scenarios, clearly state that the rational response is avoiding temperature spikes through urgent and decisive policies.
• Among the necessary measures, the economic analysis gives priority to a uniform global carbon tax over more developed emission markets or green subsidies, which are also needed. The distributional impacts of these policies have also to be considered.
• In the long run, innovation will be crucial. Currently, environmental policies are favored by low interest rates and post-pandemic policies.

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