Two Americans win economics Nobel for work on climate and growth

Two Americans have won the Nobel Prize in economics, one for studying the economics of climate change and the other for showing how to help foster the innovation needed to solve such a problem.

William Nordhaus of Yale University and Paul Romer of New York University will share the nine million krona (£773,000) award, the Royal Swedish Academy of Sciences said.

Mr Nordhaus has called for the world to combat climate change by imposing a universal tax on carbon. The tax would make polluters pay for the costs their emissions impose on society.

By using a tax rather than government edicts to slash emissions, the policy encourages companies to find innovative ways to reduce pollution.

Mr Romer has studied the way innovation drives prosperity and has looked at ways to encourage it. He told a news conference that his research had given him hope that people can solve even a problem as difficult as a warming planet.

“Many people think that dealing with protecting the environment will be so costly and so hard that they just want to ignore the problem, they want to deny it exists, they can’t deal with it,” Mr Romer said.

“I hope the prize today could help everyone see that humans are capable of amazing accomplishments when we set about trying to do something.”

While the two academics worked separately, their research dovetails on an issue that has become increasingly pressing.

The question of climate change remains politically sensitive, especially in big oil-producing countries like the United States, which President Donald Trump has pulled out of the Paris accord to fight climate change.

“It’s an ingenious pairing,” said David Warsh, author of the 2007 book Knowledge and the Wealth of Nations about Mr Romer.

“Mr Nordhaus has been concerned all along with repairing the damage” to the global environment. “Mr Romer has been writing about the means at your disposal” to attack such a technological challenge.

Per Stromberg, head of the Nobel economics prize committee, said the award is “about the long-run future of the world economy”.

Mr Nordhaus has argued that climate change should be considered a “global public good”, like public health and international trade, and regulated accordingly, but not through a command-and-control approach.

Instead, by agreeing on a global price for burning carbon that reflects its whole cost, this primary cause of rising temperatures could be traded and taxed, putting market forces to work on the problem.

Many economists have since endorsed the concept of taxing carbon and using this financial lever to influence societal behaviour.

But adopting the regulatory frameworks on a global scale has been a complex challenge, and the world’s political leaders are failing to meet it, the head of the United Nations said last month.

While many developed economies have adopted a carbon tax, the United States has not.

Mr Romer’s work suggests that to achieve the innovation needed to meet the climate change goals, regulation is needed.

His research found that unregulated economies will produce technological change, but insufficiently provide research and development; this can be addressed by government interventions such and R&D subsidies.

The economics prize is the last of the Nobels to be announced this year. Last year’s prize went to American Richard Thaler for studying how human irrationality affects economic theory.

The peace prize was awarded on Friday to Denis Mukwege of Congo and Iraqi Nadia Murad for their work to draw attention to how sexual violence is used as a weapon of war.