William Nordhaus and Paul Romer honoured over two of most ‘basic and pressing’ issues

Two American economists at the forefront of work on climate change and the role of governments in boosting growth have been jointly awarded the prestigious Nobel Memorial prize for economics.

The Royal Swedish Academy of Sciences said William Nordhaus and Paul Romer were being honoured for their research into two of the most “basic and pressing” economic issues of the age.

Nordhaus made his name by warning policymakers during the first stirrings of concern about climate change in the 1970s that their economic models were not properly taking account of the impact of global warming and he is seen as one of the pioneers of environmental economics.

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The Yale economist was honoured a day after the latest UN warning on global warming said that urgent and unprecedented changes were needed to keep climate change to a maximum of 1.5C (2.7F).

The co-winner – Romer – is seen as the prime mover behind the endogenous growth theory, the notion that countries can improve their underlying performance if they concentrate on supply-side measures such as research and development, innovation and skills.

The New York University economist, who has argued that technological change can be accelerated by the targeted use of state interventions in areas such as R&D tax credits and patent regulation, famously inspired Gordon Brown to use the phrase “post-neoclassical endogenous growth theory” in a speech when he was shadow chancellor.

Romer was the chief economist at the World Bank but left after 15 months following repeated run-ins with staff.

The Royal Swedish Academy of Sciences said the two men had won the prize – which is not one of those originally instigated by Alfred Nobel – because they had “designed methods for addressing some of our time’s most basic and pressing questions about how we create long-term sustained and sustainable economic growth”.

The two men, it continued, had “significantly broadened the scope of economic analysis by constructing models that explain how the market economy interacts with nature and knowledge”.

Responding to news of his award, Romer said it was perfectly possible for global warming to be kept to a maximum of 1.5C, in line with the latest recommendation of the UN Intergovernmental Panel on Climate Change.

“Once we start to try to reduce carbon emissions, we’ll be surprised that it wasn’t as hard as we anticipated. The danger with very alarming forecasts is that it will make people feel apathetic and hopeless.

“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. Humans are capable of amazing accomplishments if we set our minds to it.”

Per Krusell, one of the panel that awarded the prize, said both men were part of the same agenda, thinking about “long-run, global” issues. Romer and Nordhaus “had similar views about economic policy and market failure, even though superficially they looked different”.

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Nordhaus has been a prominent advocate of the use of a uniformly applied carbon tax as the best way to put a true cost on the use of burning fossil fuels and so reducing greenhouse gas emissions.

The committee that awarded the prize said he was the first person to design “simple but dynamic and quantitative models of the global economic-climate system, now called integrated assessment models (IAMs).

“His tools allow us to simulate how the economy and climate would co-evolve in the future under alternative assumptions about the workings of nature and the market economy, including relevant policies.”