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China has announced its commitment to achieving carbon neutrality by 2060, and for this challenging goal to be reached within just four decades, there is a real urgency of shaping the low-carbon agenda in its 14 th Five-Year Plan and to ratchet up ambition on climate policy in the near term to peak emissions early. This paper argues that China will have to change the way of development by take a sustainable pathway to growth. And this new approach does not mean sacrificing economic growth; quite the opposite, it can boost growth by providing great opportunities in terms of jobs, efficiency, demand, and many other aspects, while reducing carbon emissions and enabling great benefits with regards to pollution, ecological restoration, biodiversity and well-beings. The COVID-19 pandemic has provided a window of opportunity for China and other countries to cooperate to link the post-pandemic economic recovery with the fight against climate change.

Contrary to much of the conventional wisdom, taking stronger actions on climate change may enhance economic growth, even as conventionally measured, but even more so, in terms of societal well-being. We identify the flaws in the models and analyses which contend that there must be a trade-off and explain the mechanisms and dynamic forces which have the potential to enhance growth. Critically, there are numerous market failures that result in suboptimal economic performance. We explain how addressing climate change reduces the bite of these failures and enhances the incentives and political will to address them. We identify packages of policies that alleviate market failures, enhance growth, and reduce carbon emissions. Finally, we argue that the green transition is coming at a time when, both because of persistent deficiencies of aggregate demand and advances in technology, including artificial intelligence and robotization, the macroeconomic opportunity costs of strong climate actions may be especially low and the benefits particularly high.

Designing policy for climate change requires analyses which integrate the interrelationship between the economy and the environment. We argue that, despite their dominance in the economics literature and influence in public discussion and policymaking, the methodology employed by Integrated Assessment Models (IAMs) rests on flawed foundations, which become particularly relevant in relation to the realities of the immense risks and challenges of climate change, and the radical changes in our economies that a sound and effective response require. We identify a set of critical methodological problems with the IAMs which limit their usefulness and discuss the analytic foundations of an alternative approach that is more capable of providing insights into how best to manage the transition to net-zero emissions.

Climate change is a major threat to the sustainability and inclusiveness of our societies. A just transition to a low-carbon economy is the only viable way forward. This chapter reviews the science of climate change and the socio-economic damages that it causes and could cause in the remainder of this century. It then outlines key policies for a successful transition: pricing carbon, aligning the financial system with climate objectives, boosting public spending on sustainable infrastructure, deploying low-carbon industrial and innovation policy, building resilience and adapting to the climatic changes that are coming, better measurement of well-being and sustainability, and crucially, making the transition fair by ensuring socially just outcomes.

We are at a critical moment in history, facing growing crises in climate change, biodiversity, and environmental degradation—as well as covid-19. But we also have an enormous opportunity to transform the global economy and usher in an era of greater wellbeing and prosperity, write Nick Stern and Bob Ward

China's 14th Five-Year Plan, for the period 2021–25, presents a real opportunity for China to link its long-term climate goals with its short-to medium-term social and economic development plans. China's recent commitment to achieving carbon neutrality by 2060 has set a clear direction for its economy, but requires ratcheting up ambition on its near-term climate policy. Against this background, this paper discusses major action areas for China's 14th Five-Year Plan after COVID-19, especially focusing on three aspects: the energy transition, a new type of sustainable urban development, and investment priorities. China's role in the world is now of a magnitude that makes its actions in the immediate future critical to how the world goes forward. This decade, 2021–2030, is of fundamental importance to human history. If society locks in dirty and high-carbon capital, it raises profound risks of irreversible damage to the world's climate. It is crucial for China to peak its emissions in the 14th Five-Year Plan (by 2025), making the transition earlier and cheaper, enhancing its international competitiveness in growing new markets and setting a strong example for the world. The benefits for China and the world as a whole could be immense.

Designing policy for climate change requires analyses which integrate the interrelationship between the economy and environment, including: the immense risks and impacts on distribution across and within generations; the many failures, limitations or absences of key markets; and the limitations on government, both in offsetting these failures and distributional impacts. Much of the standard economic modelling, including Integrated Assessment Models, does not embody key aspects of these essentials. We identify fundamental flaws in both the descriptive and normative methodologies commonly used to assess climate policy, showing systematic biases, with costs of climate action overestimated and benefits underestimated. We provide an alternative methodology by which the social cost of carbon may be calculated, one which embraces the essential elements we have identified.

Designing policy for climate change requires analyses which integrate the interrelationship between the economy and environment, including: the immense risks and impacts on distribution across and within generations; the many failures, limitations or absences of key markets; and the limitations on government, both in offsetting these failures and distributional impacts. Much of the standard economic modelling, including Integrated Assessment Models, does not embody key aspects of these essentials. We identify fundamental flaws in both the descriptive and normative methodologies commonly used to assess climate policy, showing systematic biases, with costs of climate action overestimated and benefits underestimated. We provide an alternative methodology by which the social cost of carbon may be calculated, one which embraces the essential elements we have identified. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

In this paper, we suggest an approach to analysing policies relating to the COVID‐19 pandemic. We discuss the formulation of policy and sketch how the approach can be applied to different specific challenges as policymakers try to make difficult choices for managing the pandemic and protecting the economy and society.

The COVID-19 crisis is likely to have dramatic consequences for progress on climate change. Imminent fiscal recovery packages could entrench or partly displace the current fossil-fuel-intensive economic system. Here, we survey 231 central bank officials, finance ministry officials, and other economic experts from G20 countries on the relative performance of 25 major fiscal recovery archetypes across four dimensions: speed of implementation, economic multiplier, climate impact potential, and overall desirability. We identify five policies with high potential on both economic multiplier and climate impact metrics: clean physical infrastructure, building efficiency retrofits, investment in education and training, natural capital investment, and clean R&D. In lower- and middle-income countries (LMICs) rural support spending is of particular value while clean R&D is less important. These recommendations are contextualized through analysis of the short-run impacts of COVID-19 on greenhouse gas curtailment and plausible medium-run shifts in the habits and behaviours of humans and institutions.

There are substantial differences in carbon footprints across households. This study applied an environmentally extended multiregional input–output approach to estimate household carbon footprints for 12 different income groups of China’s 30 regions. Subsequently, carbon footprint Gini coefficients were calculated to measure carbon inequality for households across provinces. We found that the top 5% of income earners were responsible for 17% of the national household carbon footprint in 2012, while the bottom half of income earners caused only 25%. Carbon inequality declined with economic growth in China across space and time in two ways: first, carbon footprints showed greater convergence in the wealthier coastal regions than in the poorer inland regions; second, China’s national carbon footprint Gini coefficients declined from 0.44 in 2007 to 0.37 in 2012. We argue that economic growth not only increases income levels but also contributes to an overall reduction in carbon inequality in China.

The gap between actual carbon prices and those required to achieve ambitious climate change mitigation could be closed by enhancing the public acceptability of carbon pricing through appropriate use of the revenues raised. In this Perspective, we synthesize findings regarding the optimal use of carbon revenues from both traditional economic analyses and studies in behavioural and political science that are focused on public acceptability. We then compare real-world carbon pricing regimes with theoretical insights on distributional fairness, revenue salience, political trust and policy stability. We argue that traditional economic lessons on efficiency and equity are subsidiary to the primary challenge of garnering greater political acceptability and make recommendations for enhancing political support through appropriate revenue uses in different economic and political circumstances. Ambitious carbon pricing reform is needed to meet climate targets. This Perspective argues that effective revenue recycling schemes should prioritize behavioural considerations that are aimed at achieving greater political acceptance.

We are very sad to report that Professor Sir Tony Atkinson died on the first of January, 2017, at the age of 72. Tony Atkinson was an extraordinarily distinguished academic whose works changed our understanding of poverty, inequality, mobility, public policy, and economic growth. His publications, from his first book in 1969 to his last in 2015, showed how he approached his work throughout his career: define the issues, examine the facts, analyze what forces shaped the outcomes, and ask what we can or should do in the way of policy. His longtime friend, Professor Lord Nicholas Stern, interviewed Sir Tony about his life and work on August 17, 2016, in Oxford.

Lemoine and Rudik (2017) argue that it is efficient to delay reducing carbon emissions, because there is substantial inertia in the climate system. However, this conclusion rests upon misunderstanding the relevant climate physics: there is no substantial lag between CO2 emissions and warming, which policy could rely upon. Applying a mainstream climate physics model to the economics of Lemoine and Rudik (2017) invalidates the article’s implications for climate policy: the cost-effective carbon price that limits warming to a range of targets including 2 oC starts high and increases at the interest rate.

Development economics is about understanding how and why lives change. How Lives Change: Palanpur, India, and Development Economics studies a single village in a crucially important country to illuminate the drivers of these changes, why some people do better or worse than others, and what influences mobility and inequality. How Lives Change draws on seven decades of detailed data collection by a team of dedicated development economists to describe the evolution of Palanpur's economy, its society, and its politics. The emerging story of integration of the village economy with the outside world is placed against the backdrop of a rapidly transforming India and, in turn, helps to understand the transformation. It puts development economics into practice to assess its performance and potential in a unique and powerful way to show how the development of one village since India's independence can be set in the context of the entire country's story. How Lives Change sets out the role of, and scope for, public policy in shaping the lives of individuals. It describes how changes in Palanpur's economy since the late 1950s were initially driven by the advance of agriculture through land reforms, the expansion of irrigation and the introduction of "green revolution" technologies. Since the mid-1980s, newly emerging off-farm opportunities in nearby towns and outside agriculture became the key driver of growth and change, profoundly influencing poverty, income mobility, and inequality in Palanpur. Village institutions are shown to have evolved in subtle but clear ways over time, both shaping and being shaped by economic change. Individual entrepreneurship and initiative is found to play a critical role in driving and responding to the forces of change; and yet, against a backdrop of real economic growth and structural transformation, this book shows that human development outcomes have shown only weak progress and remain stubbornly resistant to change.

This chapter sets the stage for the detailed discussion of economic development in Palanpur in subsequent chapters by offering a broad, largely but not exclusively quantitative, description of the village and its story of change during the period between 1957/8 and 2015. It draws on previously published materials, newly collected household survey data, secondary data, and qualitative information from notes, annotations, and diaries, to describe how Palanpur has evolved from a very poor, fairly closed, farming community with a rather rigid social structure, to a significantly less poor village with a diversified portfolio of economic activities and extensive links to the outside world. The chapter describes the evolution of income distribution in Palanpur, as well as of human development outcomes. The impact of polices and the role of institutions and politics in governing the changes in the village’s economy and society are examined.

This chapter documents the state and evolution of gender conditions and relations in Palanpur. The village has historically been a deeply patriarchal society where women had a very little role to play in public life. While many manifestations of striking gender inequality remain, some progress has been observed, particularly in recent years. Female education is showing some improvement, age at marriage is increasing, fertility is declining, and access to information, via mobile phones and television, is improving. Despite these encouraging signs, there remain enormous challenges. Domestic violence remains widespread; outcomes and relative strengths within the household are governed by the existence, or absence, of a fall-back position. Women’s employment opportunities in Palanpur remain extraordinarily limited. Further, a woman’s ability to reach her potential is still strongly linked to her social position in terms of class and caste.

This chapter examines theories of economic development and growth and asks how these can help in our understanding of the dynamics of changing individual circumstances in Palanpur. The core ideas of the Palanpur study, namely of non-farm diversification, evolving mobility and inequality, the responsiveness of institutions to change, sluggish progress in human development, and the critical role of entrepreneurship and initiative, are explored through the lens of conventional theories of development. Deficiencies in our conceptual understanding are identified (ways forward are suggested in Chapter 13). The chapter notes, however, that the rapidly growing fields of institutional and behavioural economics are particularly relevant to the Palanpur study and may come to offer important insights.

This chapter examines the expansion of non-farm activities in Palanpur and shows that most non-farm employment growth can be attributed to an increase in casual and self-employment opportunities, as opposed to regular, salaried jobs. The construction sector has been particularly significant in this sense. (Lack of) access to land is an important predictor of involvement in the non-farm sector, but, conversely, growth in this sector has influenced certain households’ access to land, via its impact on tenancy patterns. At the household level, caste affiliation plays an important role in determining access to specific jobs, while education appears, so far, to play only a muted role. The chapter shows that in Palanpur, contrary to many textbook analyses, migration has played only a modest role in governing the shift out of agriculture, but highlights the importance of commuting as a means of accessing non-farm jobs while continuing to reside in the village.

Palanpur offers the rare opportunity to simultaneously examine levels and trends in poverty, inequality, and income mobility over an extended period. This chapter documents the evolution of these distributional outcomes and points to some striking changes over time. It shows that the forces of agricultural change and non-farm diversification have combined to generate rising per capita incomes and falling poverty in Palanpur. Such forces have also, in recent years, fostered social mobility, with some households from the traditionally poorest castes finding remunerative earning opportunities in the non-farm sector. However, income inequality has also risen sharply in Palanpur, and this process is also seen to have been strongly driven by the expansion of the non-farm sector. When a long-term perspective is taken, the chapter shows that intergenerational mobility—considered here in terms of the strength of association between the incomes of fathers and sons—has declined over the entire survey period.

This chapter attempts to draw some broad lessons for policy-makers and for the subject of development economics from the close examination of economic development in Palanpur over seven decades. It considers possible implications for India’s wider development, and argues that the workings of policies in relation to Palanpur can raise questions as to how policies elsewhere might be created, modified, or abandoned. Theories of development should, if they are to have real explanatory power, help in understanding the growth and development of a ‘not particularly unusual’ village. The chapter considers which ideas contribute the most important insights for Palanpur and what are the implications for research priorities. These include the role of informal activities in understanding the growth process, entrepreneurship, sustainability, inequality as an outcome of mobility, and the role of empowerment in public pressure, all of which involve understanding the role and evolution of behaviour and institutions.

This chapter examines the village as a society and polity, showing how relations between different social groups in Palanpur have changed and how the interactions of institutions and politics with economic change can help explain the nature and evolution of society. It also looks at the state of public institutions in Palanpur, documenting a decay in the quality and provision of public services, as well as an absence of any significant collective action to change this. It would be overly simplistic to argue that, because caste relations were historically centred around agricultural production, they are weakening with the declining economic importance of agriculture. Rather, there has been an emergence of caste as a proxy for trust in an increasingly informal and anonymous labour market outside the village. Furthermore, exogenously imposed changes, such as the introduction of panchayat elections, have seen new alliances being built.

This chapter introduces the idea of the village study as a lens through which to examine and learn about economic development. The particular advantages of longitudinal village studies—tracking the village and its inhabitants over time—are described. The specific features of the Palanpur study, which make it unique and particularly valuable amongst longitudinal village studies in India, are highlighted. Amongst these are the long—seven-decade—duration of the study, the universal coverage of the village population, the wealth and quality of the quantitative data that has been collected, as well as the complementary availability of detailed qualitative information. The chapter reviews lessons for the general practice of household survey data collection and survey methods from the specific experience of the Palanpur study, highlighting the value of credibility and building a relationship of trust between field investigators and survey respondents.

This chapter examines in detail the process of agricultural development in Palanpur over seven decades. It identifies the factors that have played a significant role in shaping this process. The chapter shows that the evolution of agriculture in Palanpur involved, and was shaped by, the interactions amongst multiple factors, including demographic change, expansion of irrigation, intensification of cultivation, changing cropping patterns, farm mechanization, growing non-farm employment, marketization of factors of production, and improvements in formal credit supply. The importance of interactions between agriculture and non-agriculture, as well as within agriculture, is highlighted with respect to changing cropping patterns and intensification of mechanization and irrigation. It is also seen in institutional dynamism such as, for example, the emergence of new forms of tenancy. In providing a structured description of the changing contours of agriculture, important insights are obtained into how lives and livelihoods have changed in Palanpur.

This chapter documents that in Palanpur advances in human development have been slower than might have been expected on the basis of observed growth in incomes. Although there have been some improvements in human development indicators, particularly since the mid-1980s, the rate of improvement has been slower than in the rest of Uttar Pradesh and the rest of India. Improvements in literacy rates lag behind achievements recorded elsewhere, as do improvements in health and nutritional outcomes. Public services function poorly and in some respects are showing a decline. Inequities on the basis of income, caste, and gender are strong. With public services generally failing, there is an increased dependence on the private sector, but access is governed by ability to pay. A striking finding is that despite myriad reasons for concern there appears to be little protest within the village against the poor quality and availability of services.

This chapter examines, in detail, the nature and trends in tenancy in Palanpur. It explores the ways in which the evolution of tenancy is associated with land ownership patterns, landlord–tenant relations, castes, absent or missing markets, and employment in non-farm activities. The chapter starts with an examination of trends in tenancy and different types of contracts in Palanpur. It asks how broader developments within and around the village have affected the institution of tenancy. Patterns of tenancy and of tenancy contracts are also examined in relation to the caste and land ownership of the landlord and tenant. The importance of ‘communities of trust’ amongst villagers—often linked to caste—is highlighted. Such social mechanisms reduce the need for constant and direct monitoring of the tenant’s efforts by the landlord, and can help to explain why sharecropping remains a relatively popular tenancy contract.

This chapter attempts to draw on the analysis of seven decades of data and evidence from Palanpur to indicate some predictions for the future. It suggests that all-India trends of expanding non-farm, informal, employment will continue to exert an influence in Palanpur. The central role of caste and landholding in driving distributional outcomes is predicted to gradually diminish over time. However, a critical question relates to the potential role that the currently high, and rising, inequality might play in locking-in the forces that perpetuate inequality. The chapter argues that there is an intense need for improvement in the public supply of education and health services. Given the still weak state of education outcomes and also still poorly developed availability of financial services, it argues that for the foreseeable future entrepreneurship will continue to draw primarily on households’ own resources and initiative.

The Introduction emphasizes that development economics should be about how and why lives change. It should illuminate the drivers of change, why some people do better or worse than others, and what influences mobility and inequality. And it should, therefore, help us in shaping policy for growth, development, and poverty reduction in all the relevant dimensions of well-being. This book puts development economics to work, and assesses its performance and potential in a unique and powerful way, in explaining change in one, not unusual, village in a crucially important country. It uses a special data set with seven surveys, encompassing all households in one village, one for every decade since India’s Independence. The Introduction also argues that the development of one village since Independence must not only be set in the context of India’s story, but can provide real insights into that story.