Professor Willi Semmler Unpacks the Economics of Climate Change

This is the first in a series of Research Matters articles profiling the interdisciplinary climate change work of students, faculty, and alumni at The New School for Social Research. Check back for more!

Despite his contributions to scholarship in the economics of climate change, Willi Semmler—the Arnhold Professor of International Cooperation and Development in the Economics Department at The New School for Social Research—considers himself a relative latecomer to the field.

“I stepped in just a few years ago,” he explained, reflecting on decades-long efforts to understand the implications of a warming world for global growth.

Semmler suggested that serious discussions about these issues began with the first meetings of The Club of Rome, an international group of scholars and practitioners from across fields and areas of expertise that first met in 1968. “They recognized that growth has limits,” he said, “It affects the environment. And it uses up resources that won’t be available for future generations.” If given the opportunity, Semmler can trace the highlights and lowlights of climate change policy throughout the half-century that followed the 1968 meeting—from Rome to Rio, Kyoto to Cancun, and Doha to the 2015 United Nations Climate Change Conference in Paris.

Semmler now serves as the Director of the Climate Change Project at The Schwartz Center for Economic Policy Analysis, and was recently named Senior Researcher on climate change issues at the International Institute for Applied Systems Analysis (IIASA) in Laxenburg, Austria. With Lucas Bernard—PhD alumnus of The New School and Professor at NYC College of Technology—Semmler edited The Oxford Handbook of The Macroeconomics of Global Warming. In their introduction, they write, “The developed world can protect itself against climate change through infrastructure improvement and will use more energy to adapt to climate change effects. But it is in developing countries where some of the most dangerous consequences of climate change will be concentrated.”

In this sense, questions about the economics of climate change can rehash fundamental debates about the winners and losers of globalization, and the haves and have-nots within an interdependent global economy. “The losers of globalization were not compensated, and this has produced inequality,” Semmler said. As a result, the current political moment—in which climate change is already a hot-button issue—is made more complicated by debates about globalization itself. He explained, “We are seeing imbalances within individual countries and across borders [and] people are more skeptical about what type of globalization we really want.”

Semmler argued that this is especially the case in countries like the United States, where large swaths of the manufacturing labor force has been affected by globalization over the last three decades. He pointed out that the negative fallout for workers is particularly pronounced, “if you don’t have a proper social system where the victims or the losers of globalization and the free markets don’t have much in the way of unemployment benefits, welfare benefits, or opportunities to do re-schooling or reskilling.”

In this context of considerations about both climate change and the consequences of globalization, Semmler is examining whether financial markets can be used to help shift investment toward green technologies, nudging policy toward regulations that will promote sustainability and growth.

Semmler again returns to fundamental debates about the role of financial markets and regulation of industry to illuminate the stakes of his analysis. Breaking down the argument in his recent book Sustainable Asset Accumulation and Dynamic Portfolio Decisions, Semmler said, “There are basically two views on financial markets: the first is that you can’t constrain operations of the market and you can’t too much constrain investment choice.” In this approach, if social problems or unexpected needs emerge, then the markets should be free to allocate resources to address them. “You make your money freely and then you give it to social needs.”

But Semmler’s research suggests that, “There can be guidelines for more responsible investment: investment that takes into account environmental responsibilities, or that creates social impact.” Against the notion that such guidelines limit growth potential, Semmler has suggested that such strategies—which consider the responsibility to address social dilemmas like climate change—can produce better results for investors. “It doesn’t necessarily mean that you will lose money,” Semmler said, “Because you may be better off in the long run.”

If there is something that concerns Semmler most, it is the possibility that political uncertainty might be a drag on growth. “The global uncertainty comes from the global world order,” he said, “It’s now the global world disorder. Economies, corporations, people, and firms are affected by these macroeconomic phenomena.”

Potential solutions to these enormously complex challenges, in Semmler’s estimation, will continue to require nuanced and collaborative solutions that can better understand the often-hidden forces that are driving economic change. To celebrate Semmler’s contributions to the field of economics, several of his students and colleagues assembled a festschrift—13 essays on his work and career—in 2016. Of his work, New School for Social Research economics PhD alumnus Aleksandr Gevorkyan writes that, “Semmler’s macroeconomic analysis penetrates the most deeply hidden and convoluted aspects of the complex modern global economy.” Judging by the essays included in the collection, titled Dynamic Modeling, Empirical Macroeconomics, and Finance, climate change is less of a hidden aspect now than when Semmler began working on the issue.

And judging by the pace of news and persistence of uncertainty in the field, it seems that the economics of climate change will only continue to demand new research and insight.