Niklas Elmehed
William Nordhaus and Paul Romer, who integrated climate change and technological innovation into macroeconomic analysis, have won the 2018 Sveriges Riksbank prize in economic sciences in memory of Alfred Nobel.
Nordhaus at Yale University created the first model describing the interplay between the economy and the climate in the 1990s. His work is now used to study the consequences of climate policies, such as carbon taxes.
Nordhaus’s work has been hugely influential in guiding thought about how the world should tackle climate change. His key recommendation is that governments, corporations and households should have to pay a price on carbon emissions.
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“Today it is virtually zero. If the price were higher, people would have other choices, like renewable energies,” he said after winning the BBVA Foundation Frontiers of Knowledge Award earlier this year.
Romer at New York University demonstrated how economic forces influence the willingness of firms to produce new ideas and innovations, and how knowledge can drive economic growth.
In 1990, while mainstream economists were expecting growth to taper off, Romer overturned this idea by emphasising humanity’s limitless capacity for invention. Ideas would not suffer from scarcity and diminishing returns like material goods, he asserted, and would keep producing new opportunities for profit.
His arguments made a compelling case for governments and companies to invest in research and innovation.
Speaking by phone at the press conference announcing the prize, Romer said he was optimistic about our ability to tackle climate change. “One problem today is that people think protecting the environment will be so costly and so hard that they want to ignore the problem and pretend it doesn’t exist. Humans are capable of amazing accomplishments if we set our minds to it,” he said.
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