Policymakers Must Back Energy Transition Despite Turmoil – LSE

The London School of Economics (LSE) has published a new paper outlining a “stable and prudent course” for macroeconomic policy during a period of high energy, cost-of-living and geopolitical tensions. One of the key policy recommendations by the school’s Grantham Research Institute on Climate Change and the Environment is to continue expanding investment in renewables, electrification and resource efficiency to address issues slow energy productivity growth. “Greater reliance on cheap and secure domestic sources of energy are key to reducing vulnerability to global supply bottlenecks,” the report said. “The evidence suggests renewable and energy-efficiency investments are likely to yield significant gains to productivity, resilience and capacity in the medium to long term and have the potential to act as powerful disinflationary forces.” It also noted that continued public and private investment in energy-efficient low-carbon sectors “should more than pay for itself” and help to lower public debt relative to GDP. Without intervention, some low-carbon sectors and technologies for sectors that need decarbonisation will be especially vulnerable to higher interest rates that may result from policy action, the paper warned. LSE said: “Conditions are such that 2022 may be a pivotal year for clean investment/finance. The evidence on structural transition shows clearly how policy action now will determine how the world evolves. The task for decision-makers in the current macroeconomic environment of rapidly mounting uncertainty and structural change is to maximise opportunities and minimise risk.”

 

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