GAIL Annual Summit 2024


As an economist, I’ve been increasingly considering how economists can contribute to addressing climate change, particularly through litigation. This interest stems from the exceptional legislation and litigation team at the Grantham Research Institute and recent advancements in econometrics enabled by supercomputers.

Framing Climate Change: Misaligned Incentives

Climate change is fundamentally a global public bad, where individual actions often conflict with collective interests. Using basic game theory principles, we can understand how self-interest undermines global sustainability efforts. For instance, when individuals prioritise personal gains over reducing emissions, we collectively face catastrophic climate change.

Policy Instruments for Environmental Protection

In addressing climate change, economists consider three primary policy instruments: regulation, taxes, and nudge strategies. These tools aim to regulate emissions, internalise environmental costs, and nudge sustainable behaviour. For instance, regulating emissions or implementing carbon taxes can incentivise individuals and corporations to reduce their carbon footprint.

Corporate Strategy and Climate Goals

Many corporations prioritise short-term profits over long-term environmental sustainability and have rolled back their climate commitments. For instance, Shell’s decision to increase liquefied natural gas business has been described as a ‘best against the world meeting its climate goals’. Scientists have shown very clearly that if we want to limit emissions to 2 degrees maximum and ideally 1.5 degrees, that requires no new oil and gas investment. So, any country or company that’s deciding to explore new oil and gas are defecting against the public good. So we have a dilemma between shareholder value and doing the collective right thing (not destroying the planet).

Transitioning to a Net Zero World

With the deadline to achieve net-zero emissions in 26 years, by 2050, urgent action is needed. Rich countries need to focus on mitigation, all countries need to adapt, but poor countries have nothing to mitigate and need to find growth pathways that are resilient and compatible with net zero. The imperative is for everyone who cares about climate change is not the science or economics of it. We’re looking for alternative ways to find incentives.

Litigation as a Catalyst for Change

Litigation holds promise in holding polluters accountable for climate damages. By attributing harm to emissions through econometric analyses, legal action can incentivise companies to align their actions with global environmental goals.

Efforts are underway to align fiduciary duties with global environmental goals, encouraging companies to prioritise sustainability. For instance, research demonstrates that big polluters experience share price falls after climate lawsuits, highlighting the potential of legal action to drive change.

Econometric Attribution Studies

Econometric studies aim to attribute adverse outcomes to climate change, laying the groundwork for potential litigation. By analysing factors like temperature anomalies and their impact on health outcomes or economic indicators, researchers can establish causal links between climate change and negative consequences.

E.g. 1: Climate Change Impacts on Labour Supply in the UK

In the UK, research has focussed on attributing worsening economic outcomes to climate change, particularly its effect on labour supply. By analysing temperature anomalies and their impact on labour supply across different regions of the UK, researchers have identified trends indicating a negative impact over time. The study utilises subnational data, overlaying temperature data with population and job distribution data to understand how climate change affects labour-intensive sectors such as construction, agriculture, and mining.

E.g. 2: Climate Change Effects on Health Outcomes in Burkina Faso

In Burkina Faso, research has investigated the correlation between climate change and health outcomes, particularly among vulnerable populations such as children. The study examines various factors, including temperature trends, crop yields, and socioeconomic indicators, to understand the multifaceted impacts of climate change on health. Econometric analyses reveal a significant link between climate variables like droughts and temperature anomalies and adverse health outcomes such as child wasting.

This kind of research aims to provide empirical evidence that could potentially support litigation against major emitters in the appropriate legal jurisdictions.

A Call for Aligned Incentives

Economists are increasingly engaging in litigation and legislation to accelerate the transition to a net-zero world. By aligning incentives and holding polluters accountable, we can catalyse action towards a sustainable future for future generations.