William Nordhaus, Paul Romer win economics Nobel for climate, innovation

The 2018 Nobel Memorial Prize in Economic Science was awarded on Monday to a pair of American economists, William D Nordhaus and Paul M Romer, for their work highlighting the importance of government policy in fostering sustainable economic growth.

Nordhaus was honoured for pioneering the assessment of the economic impact of climate change, including his advocacy of governments taxing carbon emissions. Romer was honoured for his work on the role of policy in encouraging technological innovation. Nordhaus, 77, is a professor at Yale. Romer, 62, is a professor at New York University.

The award came on the same day that a United Nations panel on climate change released a report warning of dire consequences from climate change and urging governments to respond to the problem with greater urgency.  “The message is that it’s needed for countries to cooperate globally to solve some of these big questions,” said Goran Hansson, secretary general of the Royal Swedish Academy of Sciences. Romer said he and Nordhaus shared a sense of optimism. “One problem today is that people think protecting the environment will be so costly and so hard that they want to ignore the problem and pretend it doesn’t exist,” he said at a news conference following the announcement. “Humans are capable of amazing accomplishments if we set our minds to it.”

Nordhaus, 77, graduated from Yale and then earned a doctorate in economics from the Massachusetts Institute of Technology in 1967. That year, he returned to Yale as a member of the economics faculty, and he has remained there ever since. 

In the 1960s and the 1970s, amid rising concern about pollution, economists began to argue that taxation was the most effective solution: The government should charge people for polluting. Nordhaus argued the best way to limit emissions was to calculate the cost of a fixed level of emissions and then require firms or governments to pay for those costs.

The Nobel Prize committee cited Nordhaus for his work in showing that “the most efficient remedy for problems caused by greenhouse gases is a global scheme of universally imposed carbon taxes.”

Nordhaus also was honored for his role in developing a model that allows economists to analyse the costs of climate change. 

Romer, 62, sought to explain the role of technological advances in driving economic growth. His work was inspired by a desire to understand the remarkable acceleration in growth that began with the Industrial Revolution.

Romer’s big idea was to argue that policymakers could foster technological innovation, for example, by investing in research and development and by writing patent laws that provided sufficient rewards for new ideas without letting inventors permanently monopolise those rewards. He argued that national differences in such public policies helped to explain differences in economic growth rates. Romer said in an interview that the value of his work was in being precise about a broadly intuitive idea. “It helps to see connections that weren’t obvious at first,” he said.

In 2016, Romer was named chief economist of the World Bank, a prestigious perch for a development economist. But he resigned 15 months later, in January 2018.

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