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Emissions-adjusted total factor productivity

Author

Listed:
  • De Ridder, Maarten
  • Rachel, Lukasz

Abstract

In many economies, the recent productivity slowdown coincided with declines in carbon dioxide emissions. Productivity statistics ignore this progress, even though lower emissions raise future consumption. We propose emissions-adjusted total factor productivity (TFPE), a forward-looking, welfare-relevant productivity measure. TFPE requires few assumptions, relying on the social cost of carbon as a sufficient statistic. At recent consensus estimates of the social cost of carbon, U.S. TFPE could grow twice as fast as TFP during a transition to net zero by 2050. At these costs of carbon, historical productivity adjustments are modest; at higher values, the post-2005 U.S. productivity slowdown disappears. In other countries, TFPE growth significantly exceeds TFP growth during the 1990s.

Suggested Citation

  • De Ridder, Maarten & Rachel, Lukasz, 2026. "Emissions-adjusted total factor productivity," LSE Research Online Documents on Economics 140962, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:140962
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    File URL: https://researchonline.lse.ac.uk/id/eprint/140962/
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    JEL classification:

    • N0 - Economic History - - General
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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