Modelling shows that twenty-first-century climate change could significantly affect the market value of global financial assets, and suggests that limiting warming to no more than 2 °C would make financial sense to many investors.
Economics at Nature Research
Research in the economic sciences lies at the heart of addressing global societal challenges and achieving progress towards the UN Sustainable Development Goals. The Nature Research journals welcome the submission of research across the spectrum of economic sciences and allied disciplines. This Collection highlights economics research from a range of Nature Research journals that feature economics as a priority area in their scope.
Environmental, energy & climate economics
A decrease in the cost of renewable energy is often attributed to technological learning. This study uses 18 years of data from 133 renewable energy projects in Germany, alongside practitioner interviews, to find that changing financing costs, not just technology, are responsible for a significant cost decrease.
A newly developed modelling approach reveals how future global climate change might severely dampen economic growth in poorer countries, while increasing the variability of growth in both poorer and richer countries.
Renewable energy costs have declined in the past but things could change with increasing interest rates. This study shows that in Germany, if interest rates increased to pre-financial crisis levels in 5 years, the levelized cost of solar photovoltaics and onshore wind could rise by 11 and 25%, respectively.
Direct Air Carbon Capture and Storage (DACCS) is not considered in Integrated Assessment Models. Here the authors make comparisons using multi-model regarding the role of DACCS in 1.5 and 2 degree scenarios and find that DACCS allows to postpone mitigation and reduce the climate policy costs.
Achieving the Paris Agreement goals may require complementary institutions such as climate clubs. Enhanced technological diffusion and the provision of low-cost climate finance are shown to support the creation of climate coalitions.
Fossil fuel market response to future climate policies could result in divestment in anticipation, or accelerated extraction—the green paradox. This study projects reduced emissions due to anticipation effects prior to policy implementation.
Results from four integrated assessment models show countries’ efforts to cut emissions fall towards the lower end of the social cost of carbon distribution, suggesting insufficient levels of ambition to meet the Paris Agreement goals.
Global warming could trigger irreversible regime shifts—‘tipping points’—in the climate system. This study analyses climate policy in the presence of a potential domino effect resulting from the interaction of such tipping points.
Effect of global warming on willingness to pay for uninterrupted electricity supply in European nations
Electricity grids are susceptible to damage from climate-related incidents, which can cause power outages. This study shows that the value of uninterrupted electricity supply across 19 EU nations is related to local temperature, with summer power outages becoming more costly with global warming.
Better understanding of the determinants of residential water demand is important for Tropical Asian countries. Here the author studied how Singapore household electricity use from appliances modify weather-induced water demand and found that residential water and electricity demand respond differently to heat across different income groups.
Substitution across fuels is hard to study because traditional transport technologies are typically single-fuel. Using Swedish data, this study shows that fuel demand elasticities differ across fuels, and drivers exhibit high preference for fossil fuels, hindering the take-up of alternative fuels.
Temperature, and therefore climate change, can affect a country's economic productivity, but it has not been clear if rich and poor countries, or different aspects of economic productivity, show similar relationships. These authors use economic data from 166 countries for the years 1960 to 2010 to uncover a universal nonlinear relationship that reconciles earlier results. Economic productivity peaks at an annual average temperature of 13 °C, and the authors explore the likelihood of global economic contraction under future warming scenarios.
If the world can meet the target of limiting global warming to 1.5 °C, economic damage will probably be greatly reduced, especially in poorer countries.
Many governments use subsidies for fossil fuels to reduce the cost of energy for domestic consumption. This has led to the frequent argument that removing subsidies could play an important part in mitigating climate change. Now, Jessica Jewel and colleagues show that subsidy removal would indeed substantially lower emissions in fossil-fuel-exporting countries, but would reduce global carbon dioxide emissions by only a few per cent by 2030. This small reduction would largely be due to offsetting effects from international trade and fuel substitution. The authors also find that subsidy removal would not dramatically increase the use of renewable energy, adding to the suggestion that extensive revisions of subsidy policies would not produce a major benefit for climate mitigation.
A shift away from fossil fuel subsidies to carbon pricing could generate revenues to finance progress towards the Sustainable Development Goals. This Perspective shows that in many low-income countries, as private sources of finance are limited, revenues from carbon taxes could be a particularly attractive policy option for financing the SDGs.
Transgressing planetary boundaries has generated global, ongoing and interconnected problems that represent a real challenge to policy makers. This Perspective sheds light on the complexities of designing policies that can keep human life within the biophysical limits of planet Earth.
A global study of fishing near Exclusive Economic Zone boundaries shows that these property rights indeed deter unauthorized fishing.
This Review assesses climate change damage functions, which relate climate variables to economic losses, and how integrated information from impacts, adaptation and vulnerability research could be used to improve estimates of economic risk.
The growing prevalence of drought conditions across the world means that mitigation and adaptation will require accounting for feedback loops between water availability and interventions. The Willamette River Valley in Oregon serves as a case study for how to use coupled human–natural systems to mitigate drought.
This study spatially maps the economic value of some major ecosystem services provided by the Brazilian Amazon. It also estimates changes in these values under scenarios of degradation and low-impact logging.
Integrated assessment models estimate the impact of climate change on current economic output, but not on its rate of growth. This study modifies a standard integrated assessment model to allow climate change to directly affect gross GDP growth rates. Results show that climate change significantly slows down GDP growth in poor regions but not in rich countries, with implications for the level of near-term mitigation.
The effect of oil and gas price and price volatility on rig activity in tight formations and OPEC strategy
Tight oil and gas extraction is costly and low prices lead to reduction in investments and eventually production. Here, studying the effects of price volatility on active rigs, researchers find the break-even price and show that firms use future and not spot prices to plan exploration and development investment.
It is important to examine the economic viability of battery storage investments. Here the authors introduced the Levelized Cost of Energy Storage metric to estimate the breakeven cost for energy storage and found that behind-the-meter storage installations will be financially advantageous in both Germany and California.
Political interests play a key role in the passage of climate policy. This study quantifies that political lobbying reduced the probability of enacting the Waxman–Markey bill in the United States by 13 percentage points, representing US$60 billion in expected climate damages.
Ten pathways for the utilization of carbon dioxide are reviewed, considering their potential scale, economics and barriers to implementation.
Agricultural & natural resource economics
For a developed nation to move to a sustainable society requires simultaneous rebalancing of economics, energy, agriculture and behaviour. Steve Hatfield-Dodds et al. use a multimodel framework to assess the ability to achieve this within a single nation-continent, Australia. Looking at climate, water, food, energy and biodiversity, they show that economic improvement is possible without ecological deterioration, but that specific political and economic choices need to be made to achieve this.
An international arrangement of transferable fishing rights and biomass-based allocation can incentivize establishing Marine Protected Areas while promoting the economy.
The decades-long movement for sustainable seafood is centred on a ‘theory of change’ that emphasizes third-party initiatives for certification and consumer signalling. The evolution of that theory, and its potential futures, shows the challenges of management and co-ordination with multiple actors.
A Low Carbon Fuel Standard seeks to regulate indirect land use change by including its related carbon emissions in the carbon intensity of biofuels. Khannaet al. show the economic cost of abatement achieved by including this factor is much larger than the social cost of carbon.
Microeconomics & behavioural economics
To understand and address sustainability problems, a complex model of human behaviour is proposed, one that co-evolves with their context, as opposed to simpler models.
Zusai and Wu show that a modelling framework that treats subpopulations as the basic unit of analysis and uses a potential game approach provides a tractable way to study the evolutionary dynamics of behaviours and migration in connected populations.
How do the arguments and insights of neoclassical and behavioural economics relate to one another? Aumann offers a synthesis of the two approaches based on the concept of rule-rationality.
Popular opinion has it that unethical business practices are prevalent in the culture of the financial sector. Ernst Fehr and colleagues sought scientific evidence to support this claim. They find that in a laboratory game designed to reveal dishonest behaviour, employees of a large international bank behaved by-and-large as honestly as the rest of us. But in tests designed to mimic the competitive nature of their profession, many of the bankers began to act dishonestly. Those from other industries and student volunteers did not show this effect. The authors conclude that if financial institutions are to regain our trust, they need to encourage honest behaviour by changing the norms associated with their workers' professional identity.
Muthukrishna et al. experimentally model the cost, causes and cures for corruption, showing that anti-corruption strategies can occasionally backfire.
Why are people so often overconfident? Schwardmann and van der Weele show that people self-deceive into higher confidence if they have the opportunity to persuade others for profit and that higher confidence aides persuasion.
The decoy effect refers to the fact that the presence of a third option can shift people’s preferences between two other options even though the third option is inferior to both. Here, the authors show how the decoy effect can enhance cooperation in a social dilemma, the repeated prisoner’s dilemma.
The zero-determinant (ZD) strategies discovered by Press and Dyson overturned several decades of consensus about the iterated prisoner's dilemma. Here, the authors provide the first empirical evidence in support of Press and Dyson’s theory, by showing that knowledge of the opponent and the length of the interaction can facilitate the Generous and Extortionate ZD strategies as predicted.
In contrast to a previous study in which only bankers showed increased dishonesty when reminded of their profession, this study found that such reminders induced some dishonesty in bankers, although the effect was not significant, and that this effect was not unique to bankers.
Honesty is an important character trait in all human societies. Good institutions that limit cheating and rule violations are crucial for prosperity and development, yet deception is common in nature and humans are no exception. Using a behavioural test of honesty with young people (in 23 countries) in which lying is undetectable at the individual level but can be inferred at the population level, Simon Gächter and Jonathan Schulz find that high national scores on an index of rule-breaking are linked with reduced personal honesty.
Fehr and Schurtenberger show that the prevailing evidence supports the view that social norms are causal drivers of human cooperation and explain major cooperation-related regularities. Norms also guide peer punishment and people have strong preferences for institutions that support norm formation.
Knowledge of payoffs has been assumed to be weakly beneficial for the emergence of cooperation between humans. Here the authors provide evidence to the contrary, showing that during interactions in a competitive environment access to information about payoffs leads to less cooperative behaviour.
Punishment by peers can enforce social norms, such as contributing to a public good. Here, Abbink and colleagues show that individuals will enforce norms even when contributions reduce the net benefit of the group, resulting in the maintenance of wasteful contributions.
Over two experiments and a replication, Molleman and colleagues show that, in cooperative interactions, people prefer to sanction their free-riding peers jointly with others rather than individually.
Real-time feedback promotes energy conservation in the absence of volunteer selection bias and monetary incentives
A natural field experiment found that real-time feedback on energy consumption while showering led to an 11.4% reduction in energy use in a random sample of hotel guests, demonstrating the potential for activity-specific feedback as a cost-effective and scalable conservation strategy.
Gächter et al. use experiments and simulations to show that low levels of cooperation (the ‘tragedy of the commons’) are systematically more likely in maintaining a public good than in providing a new one, even under identical incentives.
In cognitive neuroscience, it is common practice to use reaction time data to infer whether decisions are intuitive or deliberate. Here the authors demonstrate that they can replicate, eliminate and reverse previously reported correlations between selfishness and reaction time.
Using experimental behavioural methods, this study shows that time pressure leads to worse decisions over the sustainable management of collectively held natural resources.
Cooperation requires individuals to sacrifice individual rewards for group benefits. Here, Grimalda, Pondorfer and Tracer show in a foraging society of Papua New Guinea that social image building is a more powerful motivator of social cooperation than altruistic punishment.
Public, labour, development & welfare economics
The economic impact of climate change has typically been considered at regional or national levels. This Perspective assesses impacts at household level to determine effects on poverty and the poor. It shows how rapid development could reduce these impacts.
Government support for energy technology is vital, but quantifying its effects downstream is complicated. Towards this end, David Popp analyses scientific publication data resulting from public money, exploring the time lags between funding and new publications and the resulting policy implications.
Distinguishing types of farm workers, an analysis of Fairtrade certification in the cocoa sector of Cote d’Ivoire finds that the standard improves the livelihoods of cooperative workers but makes little difference for wage labourers working on small farms.
The cost of green electricity is unfairly distributed, with consumers paying more while industry actors are subsidized. Here, the authors find that reducing the inequity in cost burden by abolishing exemptions increases consumer acceptance of these costs.
The social science of happiness needs to recognize the importance of social connection and prosocial action for human well-being and become more interdisciplinary with greater collaboration, especially among social scientists and policymakers.
Gomez-Lievano and colleagues develop a new theory of scaling in cities — how the prevalence of phenomena such as education and crime changes with population size — by unifying models of economic complexity and cultural evolution.
Natural field experiments combine randomized control with an absence of observer effects. However, they have only been used to investigate key labour market phenomena such as unemployment since the early 2000s. This paper reviews the literature and summarizes the insights natural field experiments contribute to the field of unemployment.
Wealth inequality and wealth visibility can both potentially affect levels of cooperation in a society and overall levels of economic success. Akihiro Nishi et al. use an online game to test how the two factors interact. Surprisingly, wealth inequality by itself did not damage cooperation or overall wealth as long as players do not know about the wealth of others. But when players' wealth was visible to others, inequality had a detrimental effect.
The interaction between land degradation and the livelihoods of the poor is complex and conditioned by important economic, social and environmental factors. These factors are also in part responsible for the limited success of economic growth policies to reduce poverty.
Ambitious carbon pricing reform is needed to meet climate targets. This Perspective argues that effective revenue recycling schemes should prioritize behavioural considerations that are aimed at achieving greater political acceptance.
Inequality in China ranks as one of the highest in the world. Using household energy consumption data, this study shows that deriving energy from biomass, use of energy for space heating and cooking, and intraregional differences are major contributors to consumption inequality in rural China.
Research has shown that people dislike inequality. However, in a cross-cultural experiment, Zhou and colleagues show that, from a young age, people are unwilling to redistribute resources between individuals if this reverses an existing hierarchy.
Aerosol impacts have not been comprehensively considered in the cost-benefit integrated assessment models that are widely used to analyze climate policy. Here the authors account for these impacts and find that the health co-benefits from improved air quality outweigh the co-harms from increased near-term warming, and that optimal climate policy results in immediate net benefits globally.
Increasingly, financial institutions will be exposed to climate risks that will exacerbate the negative economic impacts of climate change. An agent-based integrated assessment model is used to analyse climate impacts on the global banking system, finding an increase in banking crises and public bailout costs.
Using sales data to assess cooking gas adoption and the impact of India’s Ujjwala programme in rural Karnataka
India’s Pradhan Mantri Ujjwala Yojana is a programme that seeks to transition poor households away from unclean cooking fuels. In this Analysis, the authors use liquefied petroleum gas sales data to assess the adoption of cooking gas and the impact of this programme in a district of rural Karnataka.