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Markets and Economy

How Climate Action Might Drive the Economy

The U.S. has set ambitious environmental targets for the next 30 years—but some businesses have already made significant sustainability moves in the past ten.

Key Points: 

  • U.S. policymakers have pledged to cut carbon dioxide emissions to net-zero by 2050. 
  • Meanwhile, the U.S. economy has made significant energy efficiency gains over the past decade.
  • A combination of economic incentives and technological progress may further reduce emissions.
  • Environmental action does not have to curtail growth.
  • A commitment to decarbonization will require investment in clean energy technologies.  

What’s at stake: The economic case for taking immediate action to reduce emissions is strong. Prudent measures may curb serious consequences from a warming planet.   

  • There is broad scientific agreement that emissions are driving climate change.
  • The costs of a warming planet are not abstract. Climate change is already contributing to devastating storms, heat waves and wildfires.   
  • If these problems grow worse, they may become a persistent drain on the economy.    
  • The costs of acting immediately appear relatively small, compared to the risks of inaction. 

The cost of decarbonization: An efficiency revolution has been unfolding for decades. There is little reason to believe progress will decelerate as it becomes a higher priority for U.S. policymakers.  

Even in the absence of major climate legislation, U.S. businesses cut their carbon intensity by nearly half over the past decade. A decade ago, every dollar of U.S. GDP generated 0.46 kilograms of carbon dioxide emissions. Today they’ve fallen to 0.2675 kilograms per dollar of economic activity1—implying that the economy is organically reducing its dependence on carbon emissions.   

  • Innovation drove many of these energy efficiency gains: 
  • Horizontal drilling made clean-burning natural gas competitive with coal. 
  • Wind and solar power grew steadily cheaper.
  • E-commerce reduced trips to brick-and-mortar retailers.
  • Telecommuting and email cut down on travel and commuting emissions. 
  • Electric and hybrid vehicles expanded their market share, and traditional combustion engines became more efficient.
  • It appears that efficiency and economic growth can coexist.

The difficulty of legislating to net-zero emissions: Regulations and tax incentives may be an inefficient mechanism for bringing emissions down to net-zero. Investments in innovation may hold greater promise. 

  • Some policymakers hope to “solve” climate change by taxing or capping emissions. 
  • Tax incentives can work to an extent—European nations have much higher fuel taxes than the U.S., and their consumers prefer smaller and more efficient vehicles as a result.      
  • However, taxing emissions all the way to zero may be politically impossible. 
  • It’s difficult to set a fair price for carbon, given the uncertain long-term impact of current emissions.
  • Since fuel expenditures make up a larger share of low-income household budgets, carbon taxes could have a proportionally larger impact on the finances of low-income households.            

Focusing on electrification: Carbon neutrality may require converting more transportation and energy infrastructure to electrical power. Investing to expand the grid today may smooth the transition to net-zero—but it will also generate considerable emissions in the process.   

  • Electric vehicles and heat pumps may dramatically lower emissions from transportation and household heating. These technologies are growing more competitive every year. 
  • Wind and solar power are mature technologies, capable of delivering clean energy to power households and the transportation sector. 
  • But the U.S. electrical grid2 is currently not equipped to charge 300 million vehicles and heat 140 million housing units. 
  • The electrical grid’s capacity will need to triple by 20503 to meet new demand as the economy decarbonizes. 
  • The process of expanding the power grid and manufacturing hundreds of millions of electric vehicles will create its own carbon footprint, but long-term benefits will likely outweigh consequences.  

Pushing for innovation: Investments in clean energy technology may be the least disruptive and most effective method for cutting emissions. A focus on cleaner growth looks forward, complementing more challenging efforts to change current behavior.      

  • Digitization has been an unexpected carbon-cutting process. 
  • Expanding broadband internet nationwide could give more Americans access to low-carbon, high-productivity work.
  • Emerging technologies, like hydrogen fuel cells and carbon-capture systems, are not yet commercially viable but hold promise for the future.
  • Investment in basic research could bring emission-reducing technologies to the forefront in the coming decades.
  • Meeting sustainability goals may drive more organizations to partner with businesses offering novel approaches to environmentally friendly products and services.  


What to watch: Emissions per dollar of GDP is a key metric in the fight against climate change. The declining carbon-intensity of economic activity may show our progress on the path to net-zero.


1. CO2 Emissions (Global), 1990-2016, The World Bank.

2. American Community Survey Demographic and Housing Estimates, U.S. Census, 2019.

3. “Net-Zero America,” Oil Markets Weekly, J.P. Morgan Markets, Feb. 3, 2021 (Subscriber only).

Jim Glassman, Head Economist, Commercial Banking

Jim Glassman

Jim Glassman, Head Economist, Commercial Banking

Jim Glassman is the Managing Director and Head Economist for Commercial Banking. From regulations and technology to globalization and consumer habits, Jim's insights are used by companies and industries to help them better understand the changing economy and its impact on their businesses.

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