Climate and Industrial Policy in an Asymmetric World

In today’s globalized world there is a complex relationship between economic activity and the environment. In addition, there is a feedback mechanism from the environment to economic activity and welfare. Besides the fact that economic development is a driving force for climate change, policies that aim to mitigate global warming may also impact negatively on the speed of global development processes. We aim to demonstrate that there can be no solution for the problem of global warming on a global scale that does not account for the effects that climate policy has on economic development, especially for less developed countries. Even more, the causal interdependencies are highly asymmetric. Looking at the variety of countries in the world, we observe major asymmetries and heterogeneities. There are asymmetries in welfare, technology, industry structure, pollution and the accumulation of a pollution stock, and in the way countries are affected by climate change. The effects of these asymmetries in the world economy are neither adequately understood nor taken into account. This paper seeks to highlight the main effects of the global asymmetries on the efficiency of a global climate and industrial policy, and to illustrate the distribution problems that arise from such a policy. Since economic theory is well developed with respect to environmental economics we can use the associated findings as a starting point for analyzing the asymmetry issue.