After two decades of much progress, corporate environmental sustainability is at a crossroads according to the Harvard Business Review. This is primarily due to a shifting political landscape. Several well-known companies have already started to back-pedal their ambitions while the U.S. government has quickly begun undoing various sustainability commitments made under previous administrations. At the same time there has been great progress made in China regarding renewable energy capacity, which was responsible for 40% of the world’s capacity expansion between 2019 and 2024. In China, it seems that renewable energy has become both economically viable and an object of geopolitical competition.

Over the last 50 years, the number of disasters caused by climate change has increased by a factor of five. Now popular opinion in the United States could of course start to reshape politics due to deteriorating climate conditions, but that is far from certain. However, new business models are helping to transform sustainability into profits, thereby giving businesses a competitive advantage. Decades of global investment and capital expenditure into, for example, power grids around the world have enabled widespread electrification that lowers the marginal cost of renewables and makes rolling back progress harder. In 2023, renewable energy represented nearly a quarter of the EU’s final energy use due to the significant investments made there.

Discussion Questions:

  1. Why are disasters caused by climate change considered negative externalities and what discuss ways to improve resource allocation in situations where negative externalities affect large portions of the population.
  2. Using the economic terms used in this course, discuss why the optimal amount of pollution is never zero.