Technology is a cause of climate change. Record IT investment has underpinned the longest economic expansion since records began in 1854. And as data from the EIA shows, this has indirectly helped drive carbon emissions higher.
But technology may also offer a range of possible solutions that avert, in the long run, the need for carbon taxes/tariffs. The latter course of action, if disparate countries could even agree, would be hugely deflationary for a world economy that is already struggling with how to deal with the “Zero Lower Bound”.
The upward tilt to inflation from higher (carbon) taxes or tariffs would be countered by negative ramifications for consumption. Indeed, the adverse impact on economic activity would oblige central banks to keep interest rates at ultra-low levels in many countries.
Governments will be forced to contemplate higher fiscal spending to counter rising temperatures. This is already on the radar screen of some countries: ECB president Christine Lagarde is making the case and, politically, Germany may be poised for a significant shift that will support more green investment.
But the potential upward pressure on bond yields from higher borrowing and rising sovereign debt would be offset by the disinflationary impact of green technology: renewables are already cheaper than fossil fuels, and the differential will widen dramatically in the coming years. The economies of scale in wind and solar are huge. Battery technology will, with the help of 5G and the IoT, evolve quickly, bringing down storage costs across the grid.
