National Institute Economic Review

India in the Coming ‘Climate G2’?

China and the United States are the two largest emitters of greenhouse gases, making them pivotal players in global climate negotiations. Within the coming decade, however, India is set to become the most important counterpart to the United States, as it overtakes China as the country with the most at stake depending on the type of global burden-sharing agreements reached, thus becoming a member of the ‘Climate G2’. We create a hypothetical global carbon market based on modelling emissions reduction commitments across countries and regions relative to their marginal abatement costs.

Introduction: The Economic Implications of Climate Change Mitigaton Policies

The articles in this issue of the Review highlight some of the economic issues involved in acting to cut greenhouse gas emissions to a level consistent with the ambition to limit global temperature increases. Together they help explain why progress in tackling this “urgent problem”is likely to be slow even though “we know how to do it”.


World overview: Forecast summary

  • Global economic growth slowed again last year as increases in tariffs and uncertainty about future tariff impositions and their implications for production activity continued to have negative effects on industrial production, especially in the advanced economies, and global trade.
  • With a weaker global economic outlook and continued low inflation, several central banks loosened monetary policy last year and these actions should provide some tailwinds to support global growth this year and into next.

Prospects for the UK economy: Forecast Summary

  • The decisive result of the general election has reduced political uncertainty, but elevated economic uncertainty is likely to persist until the details of the UK’s future trade relationship with the EU are settled.
  • The March Budget is expected to be focused on ‘levelling up’ income levels across the United Kingdom. But additional public investment of up to around £20 billion per year is unlikely to have more than a modest impact on productivity and is not expected to offset the negative effect of Brexit.

The economic impact of Prime Minister Johnson's New Brexit Deal

On 17 October 2019, the UK government and its EU counterparts concluded a renegotiation of the previous withdrawal agreement and political declaration which sets out the framework for their future relationship. The government hoped that this would enable the UK to leave the EU on 31 October 2019 and then, after a transition period lasting to the end of 2020, trade with the EU under a free trade agreement (FTA) while negotiating new trading arrangements with other countries.


Improving governance

Government post-Brexit will face sustained and difficult challenges as the UK adjusts to its new situation. Yet these challenges risk being exacerbated by fundamental changes in UK political debate that are affecting the perceived legitimacy and effectiveness of the system and structures of government.

Effective devolution

Brexit creates deep challenges for the UK’s structure of governance; not least concerning the degree and manner in which powers are devolved within one of the most centralised countries in the world. Departing from the EU is likely to exacerbate regional inequalities and possibly social divide, while at the same time leading to further centralisation of powers, at least in the short term. Most Brexit analysis looks at the reorientation of the UK’s external relationships, but the most significant impact may be on its internal constitutional affairs.

Reducing inequalities

A backlash against numerous inequalities – and in particular against perceived unfairness in society – is a significant driver of the UK’s current political malaise. Addressing inequalities between income groups, regions and generations will thus be key to re-establishing faith in government and avoiding further decline or even the threat of social unrest.  

Redesigning housing policy

Discussion of the UK’s housing crisis is of long date, and tends to focus on a simple story about a mismatch in housing supply and demand and the consequent need to build more homes. Yet the reality is more complex with multiple sub-plots including social housing, stress in the private rented sector, benefits, subsidies and ultimately taxation of home ownership.