2046

Japan's population falls below 100 million

For most of the 20th century, Japan experienced high population growth. The post-war "miracle" saw its booming economy catapulted into second place behind only the USA by the 1980s. This period of rapid expansion ended with the bursting of the asset price bubble in 1991 and was followed by the "Lost Decade", which persisted into the 21st century. Japan experienced stagnation both financially and demographically.

By 2010, the country's population had peaked at 128 million.* From this point onward it would undergo a long, slow decline.* This net loss was caused by falling birth rates and almost no net immigration, despite the highest life expectancy in the world at 84.6 years of age. The rising costs of childbirth and child-raising, later average age of marriage, the increasing number of unmarried people and greater numbers of women in the workforce were all contributing factors. Japan's "total fertility rate" (defined as the average number of children born to a woman over her lifetime) was now 1.43, far below the 2.07 replacement-level fertility needed to sustain a country in the long term. In some isolated rural areas, this trend was so damaging that entire communities were already disappearing.

The shrinking segment of productive workers aged 15 to 64 began to seriously impact on Japan's GDP, affecting pensions and social welfare in particular. As the overall standard of living fell, calls were made for radical policies, but the low birth rate could not be fundamentally reversed. By the 2040s the population was falling by over a million each year. By 2046, it has dropped below 100 million,* a level last seen in the 1960s. This trend will continue for the rest of the century, with Japan struggling to achieve a "managed decline" as it deals with the inevitability of its situation and its waning influence on the world stage. Among the solutions being introduced is greater use of robots to keep society running. Japan's love for and experience of robotics (perhaps more than any other country) and its already well-established industry is helpful in this regard, mitigating some of the impacts it would otherwise have felt.

The UK state pension age has risen to 70

Due to increases in life expectancy, and unsustainable levels of age-related spending, the UK's state pension age has risen from 65 in 2012, to 70 now.* This provides a net benefit to the public finances of around 0.7% of GDP.

Carbon pricing is ubiquitous worldwide

By the mid-2040s, carbon pricing initiatives have been implemented by practically every government around the world, via policies such as carbon taxes and/or a requirement to buy permits to emit, generally known as cap-and-trade. This has finally solved the economic problem of CO2 and other known greenhouse gases being negative externalities – detrimental products lacking any market mechanism responsive to the costs of their emission.

In the 1990s, only a handful of countries had these measures in place, all of them in Europe. The number grew steadily in the early 21st century amid mounting concern over environmental impacts. International agreements, such as the Paris climate accord of 2016, gave added impetus.

There were, of course, a number of setbacks along the way. In Australia, for example, the Labor Party led by Julia Gillard implemented a carbon tax from 2012-2014 (priced at $23-24/tonne). This was later revoked by the Liberal Party, led by Tony Abbott, who insisted that coal was "good for humanity" and would be the "world's main energy source for decades to come." In the USA, meanwhile, President Trump announced his intention to withdraw from the Paris Agreement and introduced a slew of policies aimed at rolling back regulations.

Momentum continued to build, however, as the impacts of climate change became more and more obvious. Alongside this, a demographic shift was undermining the Baby Boomer generation, who had supported many traditional conservative policies. Their influence was waning in favour of Generation X and the Millennials, who preferred stronger action on the environment. Not only were national governments taking steps, but smaller regions and individual cities were introducing policies too. As the years rolled by, public opinion showed increasing support for carbon taxes and emissions trading. Studies were finding that a price on carbon – combined with tax cuts for businesses, and rebates to low-income families most affected by the scheme(s) – could be an effective and bipartisan way to curb emissions of greenhouse gases.*

By 2020, China had introduced a national cap-and-trade scheme for its power sector, boosting the share of global emissions with a pricing system in place from 15% to around 20%.*

As progress in carbon (and other greenhouse gas) pricing continued, a substantial economic shock lay on the horizon. The installed capacity of renewables like solar and wind power had increased exponentially,** thanks to dramatic improvements in cost and efficiency, alongside major advances in batteries, smart grids and other low carbon technology. When combined with a rapid uptake of electric vehicles (and the outright phasing out of traditional internal combustion engines by many countries),* fossil fuel companies now had trillions of dollars' worth of stranded assets.

A sudden drop in the value of fossil fuels – and the bursting of this "carbon bubble" – became apparent in the early 2030s,* by which time, around 50% of worldwide greenhouse gas emissions had a pricing mechanism in place. While many investors had recognised the scale, speed and inevitability of this energy transition and taken steps to limit their exposure, a significant amount of economic disruption nevertheless occurred. The losses, centred on the U.S. and Canada, were greater than those seen during the financial crisis of 2008.*

By the 2040s, the world has largely recovered from this earlier shock – although new economic risks and uncertainties abound, with technology and society now changing faster than ever before, alongside a frantic race to ameliorate the effects of climate change.