Using economics to tackle the world’s biggest challenges

Many countries have committed to achieving the targets of the 2015 Paris Agreement by reaching net zero carbon emissions by 2050 or sooner.

Achieving net zero requires significant changes to the way each segment of the economy operates—both to minimise emissions where possible and fund offsetting where a reduction to zero isn’t feasible.

Governments, firms, and regulators around the world are increasingly seeking answers on closing the gap and transitioning to net zero.

Economics has a central role to play in supporting them to make the transition in a way that preserves livelihoods and ensures that living standards continue to improve.

The two big questions for economists

We’re helping our clients understand the trade-offs required to meet the two big questions on the path to net zero:

• What does a net zero economy look like?
• How do we get there?

The answers include incentives within markets to transition to cleaner energy production, consumer incentives, and conditions that incentivise innovation, such as low barriers to entry to develop and apply green technologies.

But as well as an innovation problem, decarbonisation is an investment issue, requiring accounting for carbon emissions within investment appraisals, public sector impact assessments, and the development of new financial markets to channel funding towards sustainable investments.

Tackling the issue together

A wide range of clients and stakeholders look to Oxera for advice on climate change and sustainability challenges:

• Competition and state aid issues: Competition policy is evolving to reflect the climate change agenda and the quantification of climate-related effects, including ‘out-of-market’ impacts that can be critical in merger and antitrust proceedings. Meanwhile, achieving state aid clearance for climate change-related schemes requires clarity on how their anticipated benefits compare with their potential impact on competition and trade.
• Regulation and market design: Governments and regulatory bodies need assistance when deciding on new policies and regulations to drive the transition to net zero. We help these stakeholders and companies to understand the potential effects of policy and regulatory changes, including how to provide sufficient investment incentives and risk-sharing mechanisms to enable infrastructure companies to meet the investment challenge.
• Sustainable finance: Investors are increasingly focused on environmental, social, and governance (ESG) issues. As they develop their strategies and conduct due diligence, we help them to consider the impact of policy and regulatory changes on the value and risk profile of their investments.
• Infrastructure development: Changes to planning regimes and regulations fundamentally affect the types of infrastructure projects that are developed, how they are assessed, and the business case from them. At its heart is understanding how the appropriate value of carbon can be reflected in investment appraisals.
• Climate change litigation: As the market matures in the EU, lawyers, claimants, and defendants in climate-related litigation will need robust economic evidence on the impact of climate change, alongside robust economic and financial evidence on any contractual issues under dispute.

Oxera’s work on the economics of climate change is underpinned by our deep cross-sectoral expertise, giving you valuable, holistic expertise and insight.