Module 10: Carbon Economics


Japanese economist Yoichi Kaya famously expressed CO2 emissions as the product of four socioeconomic factors: population, per-capita income, the energy intensity of the production, and the carbon intensity of energy. Understanding the implications of the Kaya Identity requires an appreciation for the extreme tension between economic development and the climate imperative of deep decarbonization and also its unprecedented opportunity for historical transformation. Billions of people are climbing out of abject poverty at the same time that fossil fuels are being rapidly eliminated. Success means maturation and sustainability of human civilization. Failure means catastrophic collapse.

World population growth is plummeting as hundreds of countries undergo a demographic transition that matches declines in child mortality with 2-child families. The fraction of people living in extreme poverty has fallen 10-fold in 200 years, 50% since 1990, and could realistically fall to zero in a generation. Economic growth in the richest 10% is limited by technological innovation at about 1% above inflation, but middle- and low-income countries grow much faster due to “catch-up” growth. This economic convergence is the key to stabilizing world population and provides the opportunity for sustainable prosperity.

Economic convergence moves societies toward much lower energy intensity — as economies develop, less energy is used per unit of income. The energy intensity of middle- and high-income countries has improved by about a factor of two over my lifetime and there is scope for further improvement. 

Every factor in the Kaya identity has been improving except for the carbon intensity of energy, which has barely budged in 30 years. Spectacular improvements in Population, converging income, and energy intensity have paved the way to a sustainable future but it is now imperative to decarbonize energy systems.

Global carbon emissions dropped about 7% in 2020 due to the COVID-19 pandemic, showing that even severely restricted activity  can’t achieve the deep reductions necessary to stabilize climate. 

Learning Objectives

Upon completion of this module you should be able to: 

  1. Explain basic socioeconomic drivers of CO2 emissions.
  2. Describe how the demographic transition limits population growth.
  3. Explain the roles of economic convergence and the elimination of extreme poverty in sustainable development.
  4. Describe how economic convergence can reduce the energy intensity of income.
  5. Explain the role of carbon intensity of energy in increasing CO2 emissions.
  6. Enumerate the trends in carbon emissions across major emitters.

Readings about the Economics of Carbon Emissions

Review Questions

  1. Use the Kaya Identity to explain the economics of CO2 emissions, and to strategize about deep and rapid decarbonization of the world economy.
  2. What is the “demographic transition” and how is it related to strategies for solving the climate problem?
  3. What is meant by “economic convergence?” Explain how this concept is related to the twin challenges of climate change and social justice.
  4. What is energy intensity of income and in what units is it expressed? How is this quantity related to the trajectory of economic development? How has the global energy intensity of income changed over the past 50 years?
  5. Describe changes in income, energy intensity, and CO2 emissions (both total and per capita) in the US, Europe, China, and India over the past 50 years.
  6. Globally, about what percentage of CO2 emissions are caused by fossil fuel combustion? About what percentage is caused by agriculture, deforestation, and other land use?
  7. Explain the relative CO2 emissions intensity of coal, gas, and nuclear power.
  8. Since 2010, how has the contribution of low-carbon energy to the global total changed? What percentage of global energy production now comes from fossil fuels vs low-carbon sources?
  9. Explain the difference between territorial and consumption-based accounting for greenhouse gas emissions. By about how much do these two methods change estimates of emissions from the United States? From China?
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