Economics

🌍 We Can’t Afford to Get Climate Policy Wrong—A Look at the Data Behind What Really Works 🌍 In the race against time to combat climate change, bold promises are everywhere. But here’s the critical question: Are the policies being implemented actually reducing emissions at the scale we need? A groundbreaking study published in Science, cuts through the noise and delivers the insights we desperately need. Evaluating 1,500 climate policies from around the world, the research identifies the 63 most effective ones—policies that have delivered tangible, significant reductions in emissions. What’s striking is that the most successful strategies often involve combinations of policies, rather than single initiatives. Think of it as the ultimate teamwork: when policies like carbon pricing, renewable energy mandates, and efficiency standards are combined thoughtfully, the impact is far greater than any one policy could achieve on its own. It’s a powerful reminder that for climate solutions the whole is indeed greater than the sum of its parts. Moreover, the study’s use of counterfactual emissions pathways is a game changer. By showing what would have happened without these policies, it provides a clear, quantifiable measure of their effectiveness. This is exactly the kind of rigorous evaluation we need to ensure that every policy counts, especially when we’re working against the clock. If we’re serious about meeting the Paris Agreement’s targets, we need to focus on what works—and this research offers a clear roadmap. Let’s champion policies that have proven to make a difference, because we don’t have time to waste on anything less. 🔗 Full study in the comments #ClimateAction #Sustainability #PolicyEffectiveness #ParisAgreement #NetZero #ClimateScience

There’s a bit of confusion on whether renewables will bring down energy prices from where they are today. People talk about the UK electricity price being set by international gas prices and therefore point to renewables giving us price reductions. However, the truth is a bit more nuanced. Wholesale electricity prices in the UK may well be set by international gas prices, but the wholesale price does NOT set the price that the majority of consumers pay in the UK. Why is that? It’s because of the contract for difference (CFD) that renewable energy producers get. There’s a great video attached which explains how the CFD works. Essentially, no matter the wholesale price, renewable producers with a CFD get the “CFD strike price”. So I thought it may be useful to look at the comparison of current wholesale energy market prices (set by international gas prices) and the (CFD) prices that consumers actually pay: Current wholesale prices: -Last 24 hours £68.61 -Last 7 days £77.09 -Last year £82.11 Most recent CFD strike prices in 2012 prices: -Solar £50.07 -Onshore wind £50.90 -Fixed offshore wind £54.23-£58.87 -Floating offshore wind £139.93 -Tidal stream £172.00 Now you may look at those strike prices and think they look attractive-and they do. But unfortunately, these are prices expressed as they would have been in 2012. And as they’re index linked (or inflation proof), they need to be restated to today’s prices. Restating them to 2024 prices (when the last CFDs were granted) gives you the following: Most recent CFD strike prices in 2024 prices: -Solar £69.87 -Onshore wind £71.03 -Fixed offshore wind £75.68-£82.16 -Floating offshore wind £195.28 -Tidal stream £240.03 So you can see that the build out of renewables will NOT materially reduce UK electricity prices from current levels. They may give price stability, and avoid future price spikes based on the international gas market, but they will definitely not reduce the price. So the next time you hear someone say the build out of renewables will reduce UK electricity prices, ask them to explain how. Because we need to get the facts out there so we can make the right decisions-we need to stop having a polarised debate populated with unsubstantiated, but convenient, sound bites. I fully support the move to a cleaner energy system. I am simply very frustrated that people peddle misinformation at best, and disinformation at worst. For example, I was talking to someone in a major UK energy retailer recently and asked why they kept telling people that more renewables would reduce energy prices when I didn’t think it would based on my analysis. What they said was quite surprising-they told me they were always careful to say that more renewables would reduce the WHOLESALE energy price, not the RETAIL energy price. Whilst that statement is factually accurate, I think it could mislead consumers. As the CEO of a major UK energy retailer, I am far more interested in what consumers pay. We should all be.

#Solar is beating all expectations ☀️ Since the first commercially viable silicon solar cell was invented in 1954, it took 68 years for the world to surpass the first terawatt. It then took just two years to achieve the second terawatt. The amount of solar in the world has been roughly doubling every three years, but because it's coming off a low base, the effects aren't so obvious yet. Solar currently provides 6% of the world's electricity. At current rates, that would reach 12% in three years, 24% in six years and 48% in less than a decade. That is, assuming manufacturing and the grid can keep up. No other energy-producing technology has grown this quickly. Individual solar cells are becoming more and more efficient, and also more economical to produce at scale. The cost of a solar system nowadays is about 1/820th what it was in 1975. Prices have consistently fallen faster than predictions, passing several thresholds that were once thought impossible. Since 2000, the price of solar modules has already fallen from $20/W to $0.20/W. How long will it be before the world is installing 1 TW of solar a year? It's probably time to start scaling that recycling industry.. #energy #sustainability #renewables #energytransition

👉 Are we using the wrong tools to assess climate risk? A new expert-led assessment, drawing on the judgment of 60+ climate scientists, says that #climatechange introduces forms of risk that exceed the design assumptions of existing economic and financial frameworks. Here’s what that means in practice ⬇️ 🔹 Climate damages are structural, they reshape economies: where people live, what can be produced, how infrastructure functions, and which regions remain viable. 🔹 Extremes drive real-world risk: what actually destabilises societies and markets are heatwaves, floods, droughts, grid failures, food shocks. It’s the tails of the distribution that matter. 🔹 GDP misses mortality, inequality, displacement, ecosystem loss, and can even rise after disasters due to reconstruction. This creates a dangerous illusion of resilience. 🔹 Repeated shocks erode recovery capacity and propagate across supply chains, finance, migration, and geopolitics. 🔹 Beyond ~2°C, uncertainty widens sharply. Confidence in precise damage estimates falls even as consequences grow. 🔹 Tipping points expose the limits of economic modelling: At higher warming levels, model outputs can appear precise while resting on assumptions that no longer hold. At the same time, many models also underestimate positive tipping points in clean energy and innovation. The goal is to build resilience under deep uncertainty. For treasuries, central banks, regulators, and long-horizon investors, this means recalibrating governance toward: ➡️ precaution ➡️ robustness ➡️ transparency Because avoiding irreversible outcomes is always cheaper than trying to price them after the fact. read the report "Recalibrating Climate Risk" here 👇 https://lnkd.in/dx8wmRZ4 Green Futures Solutions (University of Exeter) Carbon Tracker @aurora trust

Use this simple approach to master the Bond Market. Nominal bond yields can be thought of as the interaction between: 1️⃣ Growth expectations 2️⃣ Inflation expectations 3️⃣ Term premium 1. Growth expectations When it comes to economic growth we must consider two angles: structural and cyclical growth. Structural economic growth can be generated through more people joining the labor force (good demographics) and/or through a more productive use of labor and capital (strong productivity trends). The ability of an economy to generate structural growth is an important driver behind long-dated bond yields (strong structural growth = structurally higher long-dated yields and vice versa). Short-term economic cycles also matter for bond yields and particularly at the short-end. Cyclical growth trends are driven by the credit cycle, the fiscal stance, earnings growth, labor market trends and more - the healthier they are, the higher short-end bond yields can be pushed also as a result of a likely tightening from Central Banks that might grow worried about economic over-heating and inflationary pressures in such an environment. 2. Inflation expectations The second component driving nominal bond yields is inflation: but NOT TODAY'S inflation - instead we are referring to long-term inflation expectations. Central Banks might temporarily react to concentrated bursts of inflationary pressures by raising short-term interest rates but when it comes to long-dated bond yields investors will always pay close attention to inflation expectations. That's because consumers and borrowers will tend to make important decisions based on these rather than on volatile short-term trends in inflation. 3. Term premium An investor looking to get fixed income exposure can do that via buying 3-month T-Bills and rolling them each time they mature for the next 10 years. Alternatively, it can decide to purchase 10-year Treasuries today. What's the difference? Interest rate risk! Buying a 10-year bond today rather than rolling T-Bills for the next 10 years exposes investors to risks – term premium compensates for this risk. The lower the uncertainty about growth and inflation down the road, the lower the term premium and vice versa. 💡 The Main Takeaway 💡 If you want to make sense of bond yields, a useful approach to use is to think of them as the result of growth expectations, inflation expectations and term premium. P.S. If you liked this post you'll love my macro research. I share my macro analysis every day with the biggest institutional investors and hedge funds in the world. Get your FREE trial here👇🏼 https://lnkd.in/dyFFJp-z

Picture of the Week: European power prices are now lower than pre-Ukrainian times! The significant reduction in #European wholesale power prices in 2024 compared to 2021, especially in countries like #Spain and #Portugal, can be attributed to several key factors: 1. Expansion of Renewable Energy: Spain and Portugal have made substantial investments in #renewable energy, particularly #solar and #wind power. Since the onset of the Ukrainian crisis, these two countries have added nearly 20 GW of solar and wind capacity, which now represents about 15% of their total installed electricity capacity. This massive build-out of renewables has played a crucial role in reducing reliance on fossil fuels and lowering electricity prices. As a result, Spain has seen a dramatic increase in the share of #electricity generated from #renewables, rising from 51% in 2021 to 65% in 2024. This shift has significantly contributed to reducing wholesale power prices by half compared to 2021 levels. 2. Diversification Away from Russian Gas: The European Union, along with individual countries, has made concerted efforts to reduce dependence on #Russian #naturalgas, which was a major factor driving high energy prices during the 2022/2023 period. These efforts included securing alternative gas supplies, increasing LNG imports, and enhancing gas storage capacities. The shift away from Russian gas, coupled with a mild winter and lower overall demand for gas, has eased pressure on gas prices, which in turn has lowered electricity prices across much of Europe. 3. Energy Efficiency Measures: Governments across Europe have implemented #energyefficiency programs aimed at reducing overall energy consumption. These measures, along with public campaigns promoting energy savings, have contributed to reducing electricity demand, helping to stabilize or lower prices. 4. Government and Industry Cooperation: There has been close cooperation between governments and energy companies to stabilize the energy market.

My latest in Project Syndicate. I argue that relative to the dot.com era, the productivity upside is more muted this time, and the risks greater: 1. As the dot-com bubble burst, IT was already delivering a visible productivity boom; by contrast, today’s firm-level AI adoption is already slipping. 2. The dot-com boom left durable assets like fiber that still carry traffic, whereas AI depends on rapidly obsolescing chips and servers—creating a capex treadmill that needs constant reinvestment. 3. Unlike the surplus era of the late 1990s, today’s AI boom sits on top of large deficits, rising debt, and heavy interest bills, competing with clean energy, defense, and housing for scarce savings. 4. With a large existing debt stock and positive real rates, interest costs rise quickly, crowding out welfare and public services. If AI’s payoff is slow or modest, more resources flow to bondholders instead of Social Security, health care, and core services, especially in a downturn. 5. The dot-com bust mainly hit equity investors; today’s AI build-out is increasingly credit-financed, so if AI revenues disappoint, stress will show up in credit markets and on bank/insurer balance sheets, raising systemic risk.

NEW RESEARCH - WHY THE ENERGY TRANSITION IS DISRUPTIVE & COULD BE MUCH FASTER THAN WE THINK: The clean energy transition isn’t just about swapping out old tech for new—it’s a complex, non-linear process full of feedback loops, tipping points, and unexpected consequences. Our new “Systems Archetypes of the Energy Transition” brief is a must-read for anyone shaping policy, investing, or innovating in this space. Key takeaways: 1) Feedback loops drive change: Reinforcing loops (like learning-by-doing and economies of scale) have made solar, wind, and batteries cheaper and more widespread, often outpacing even the boldest forecasts. 2) Path dependence is real: Early advantages for a technology (think BEVs vs. hydrogen cars) can snowball into market dominance, making policy choices and timing critical. 3) Limits and synergies: As renewables grow, market dynamics like “cannibalisation” can dampen investment—unless we design markets and storage solutions to keep the momentum going. 4) Policy design is everything: Well-intentioned fixes (like price caps or broad subsidies) can backfire, while smart, targeted interventions can unlock positive feedbacks across sectors. 5) Tipping points and decline: The decline of fossil fuels isn’t just a mirror image of clean tech growth—it comes with its own feedbacks, risks, and opportunities for a just transition. The brief also offers practical guidance on using causal loop diagrams and participatory systems mapping—powerful tools for understanding and managing the complexity of the transition. If you’re working on energy, climate, or innovation policy, I highly recommend giving this a read. Let’s move beyond linear thinking and embrace the systems view—because the future will be shaped by those who understand the dynamics beneath the surface. This briefing was led by Simon Sharpe at S-Curve Economics CIC, Max Collett 柯墨, Pete Barbrook-Johnson, me at Environmental Change Institute (ECI), University of Oxford & Oriel College, Oxford & the Regulatory Assistance Project (RAP) and Michael Grubb at UCL Institute for Sustainable Resources.

“Our messaging is not working” Enrique Ortiz, a veteran conservationist and founding member of the Andes Amazon Fund, has spent decades translating the complexities of ecosystems into action. But in his recent commentary for Mongabay, he issues a striking critique—not of science itself, but of how it’s conveyed. “Facts are not the most important part,” Ortiz writes. “The current narrative needs a re-thinking.” That rethinking, he argues, begins not with more data, but with deeper insight into how people process information, make decisions, and respond emotionally to the world around them. Ortiz’s concern is not that people are unaware of climate change. In fact, the majority of the global population acknowledges it. But many remain unmoved, caught in a web of abstract language, ideological filters, and emotional distance. Scientific accuracy, while essential, often falters in the face of cognitive and cultural barriers. Ortiz points to the findings of cognitive scientists and neuroscientists: facts rarely shift belief systems. Instead, people gravitate toward stories, experiences, and social cues. “When facing uncertainty,” he notes, “humans make decisions that are satisfactory, rather than optimal.” This disconnect, Ortiz argues, is especially clear in environmental communication. Words like “rewilding,” “green,” or “ecological” may have once inspired clarity, but have since become muddled through overuse or conflicting interpretations. Worse, they sometimes trigger skepticism or backlash. In this fog of abstraction, the human connection is lost. What’s needed, Ortiz suggests, is a new narrative strategy—one that harnesses the emotional power of stories and speaks to how people actually think and feel. He draws from his own experience as an educator: while his lectures on plant-animal interactions faded from memory, it was the stories that lingered. This phenomenon, known as “narrative transportation,” isn’t mere sentimentality. It’s a neurological reality that helps ideas stick—and decisions shift. Rather than continuing to warn of catastrophe, Ortiz believes we should share stories of adaptation and resilience. From Andean farmers modifying how they grow quinoa and potatoes, to everyday consumers making environmentally conscious choices, these narratives offer agency and hope. They bridge divides and foster shared values. “Our messaging is not working,” Ortiz writes bluntly. “We need a revolution in narratives—and in how we tell them.” That revolution may begin not in the lab or the newsroom, but in the quiet space where empathy meets understanding—and where change can finally take root. 📰 His piece: https://lnkd.in/gmrWBcc5 📸 Hoatzin. My photo.

This has been a difficult winter for European electricity. The rise in wholesale prices has been sharp and widespread—it is not restricted to a few hours, or to one corner of the Continent, or to days when something unusual happens. The weighted average price across the EU exceeded 100 €/MWh in both November and December, returning to levels not seen since early 2023. January 2025 does not look much better so far. The primary driver of European electricity prices on a day-to-day basis is the volatility of wind. But wind exerts this influence because of broader shifts in the system. Nuclear remains far below its peak, and coal has declined sharply. Output from hydro is low, in some places acutely so. Solar delivers very little during the winter, and even less on cloudy and rainy days. In other words, the European system is short. It is very short when the wind does not blow, it is mostly short in the evening no matter what, and it is mildly short during other times (it is rare to see negative or zero prices outside a few key countries). We then use gas to close the gap, triggering a vicious cycle between tight gas markets and tight electricity markets. The result is high electricity prices during most hours and extreme prices during some hours. This is hardly a stable equilibrium. We talk a lot about flexibility—and rightly so. But flexibility is often defined in short intervals—a few hours or maybe a few days, leading us to emphasize solutions like storage or demand response. We rarely test scenarios based on the data in this chart, and we rarely model the interactions among systems that are making decisions quite independently from one another. Extreme prices are distress signals. They are telling us capacity is missing. And they are telling us that whatever governance system we are using to oversee this complex, EU-wide system is not enough. The path to lower prices lies not just with deploying more renewables and more storage, but also in solving this complex governance puzzle. It is the only way to guarantee resource adequacy without resorting to a steady stream of exorbitant prices.