In an interview with the Times, Nicholas Stern recently said that;
“The US will increasingly see the risks of being left behind, and 10 years from now they would have to start worrying about being shut out of markets because their production is dirty”
This is an interesting perspective to analyze and it would be exciting to try and quantify the comparative disadvantage for a country with a carbon intensive production under certain assumptions future scenarios. There are several reasons why a country that doesn’t adopt policies to rid themselves from carbon-intensive production might suffer:
1. Other parts of the world might adopt policies that require imported products to account for their embedded emissions
2. Fossil fuels (and other natural resource inputs) will likely become relatively expensive as the world’s middle class is growing exponentially, stocks are dwindling, demand increasing and world population growing
3. Consumer tastes and preferences is changing and might change permanently. Will environmentally harmful lifestyles and products be considered uncool and be increasingly shunned by consumers in the future? I think so
4. Innovation will happen disproportionately much in low-carbon segments of the economy and support creative-destruction in favor of these industries. This will happen if global talent, tastes and trends favor low-carbon – “conscious” – products and workplaces over fossil-intensive ones
5. Relative goods prices will change as natural resource efficient and renewable resource intense products gain in advantage when one or several of points 1-4 occur, where low-carbon alternatives to carbon-intensive products gain advantage
It might very well be so that countries failing to take action on emission today, will soon see themselves producing relatively expensive and unpopular goods with a capital stock and an infrastructure unfit for the demands and tastes of the global consumer class.