How well do our assumptions about the global challenges of energy, environment and economic development fit the facts? That is a question with which Professor Michael Grubb, Chair of Energy and Climate Policy at the Cambridge University Centre for Climate Change Mitigation Research, has been grappling for over 25 years.
Energy prices have varied hugely between countries and over time, yet the share of national income spent on energy has remained surprisingly constant. The foundational theories of economic growth account for only about half the growth observed in practice. Despite escalating warnings for more than two decades about the planetary risks of rising greenhouse gas emissions, most governments have seemed powerless to change course.
Of course, one can’t blame policy makers when we have failed adequately to understand the economic nature of the challenge we face. What is our metric of aggregation? Do we apply simple cost benefit analysis? How does one quantify the hypothetical externalities associated with a rare nuclear disaster like Chernobyl or Fukushima? As Grubb notes, you can’t simply apply a cost benefit analysis to a problem which transcends that and extends to global ethics and global security.
In the interview below, Grubb argues that tackling the energy and environmental problems of the 21st century requires three different domains of decision-making to be recognised and connected. These domains are: saticficing, optimising and transforming. Each domain involves different theoretical foundations, draws on different areas of evidence and implies different policies. For example, the theoretical foundations for each domain include behavioural, neoclassical and evolutionary economics respectively. Each is equally important. From the three domains flow three pillars of policy: standards and engagement, markets and prices, and innovation and infrastructure. These represent three quite distinct kinds of actions that need to be taken, with each resting on fundamentally different insights and principles and focusing upon different time horizons. Given the Institute’s increasing focus on the economics of innovation, Professor Grubb paid particular heed to the third pillar of innovation and infrastructure and set out the evidence for why energy is “different” in terms of the mechanisms and drivers of innovation, the elements of successful innovation strategies, the factors that tend to lock economies in to high-carbon energy systems, and the policies required for changing course.