Essay by Eric Worrall
“… standard productivity measures ignore the progress that some economies have made in terms of lowering carbon dioxide emissions …”
Adjusting productivity for carbon emissions: A new perspective on the growth slowdown
17 Aug 2025
Productivity growth has been lacklustre over the past 20 years in most advanced economies. But standard productivity measures ignore the progress that some economies have made in terms of lowering carbon dioxide emissions. This column proposes a method to embed those efficiency gains into existing productivity measures. For traditional (small) estimates of the cost of climate change, the adjustment to productivity for emissions is small. When quantified using recent (high) estimates of the economic costs of climate change, emissions-adjusted productivity growth has accelerated – rather than slowed down – in recent years.
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Standard productivity statistics do not, however, take into account that economies have become less reliant on carbon dioxide emissions. Although carbon emissions remain too high to meet climate goals in many places, emissions have declined significantly since the mid-2000s in many advanced economies, and especially so in the US. Absolute US carbon emissions fell by 23% between 2005 and 2024 (Figure 1b), while the ratio of carbon emissions over GDP declined by 40%. The decline is similar in magnitude when measured based on territorial emissions – those arising from domestic production, and consumption-based emissions – which account for rising international trade and imported emissions from countries such as China (Andrew and Peters 2024).
…In a new paper, we propose a method to adjust productivity growth for changes in carbon dioxide emissions (De Ridder and Rachel 2025). Emissions-adjusted total factor productivity (TFPE) measures how efficiently the economy transforms inputs into the present value of consumption, accounting for the negative impact of carbon emissions on future output and factor accumulation. Standard total factor productivity (TFP), by contrast, measures how efficiently inputs are converted into current output.
Read more: https://cepr.org/voxeu/columns/adjusting-productivity-carbon-emissions-new-perspective-growth-slowdown
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The researchers appear to be proposing mixing current productivity measures with a Nordhaus style discount factor adjusted future harm measure, to try to pimp carbon reduction measures as a worthwhile current goal.
“Discount factor” is a fancy economist measure of interest rates.
The kind of measure the authors are proposing works like a savings account in reverse.
With a regular savings account, if you invest $10,000 at a tax free 5% interest today, in 20 years your money would have grown to $26,532.
The researchers are proposing we reverse this principle to pimp sluggish Western productivity growth figures. if you take measures today like reducing CO2 emissions, and assume those measures will prevent $26,532 of losses 20 years from now, the researchers propose this is like pocketing an extra $10,000 today.
The problem is you can’t spend that imaginary $10,000 of inferred future benefit. Nobody will lend you $10,000 on the basis that you will be $26,532 better off in 20 years. That $10,000 only exists in the models which predict your actions today are averting $26,532 of future harm.
As has been repeatedly demonstrated, we have no idea what the future holds when it comes to climate change. Sure, some things in life are predictable, like if you smoke two packs a day and drink a bottle of bourbon every night, you have a heightened risk of future health problems. But climate change isn’t like that – history is littered with predicted climate catastrophes which never happened.
There is substantial evidence CO2 emissions are helping not harming – elevated CO2 is causing a massive boost in agricultural productivity.
There are multiple other problems with this approach to measuring productivity
There is a tremendous opportunity cost to booking unrealised productivity growth as if it was real – if a genuine national emergency were to occur, you can’t spend all that hypothetical future benefit fixing real problems.
The emissions reduction calculation also appears to ignore outsourcing of emissions – arguably all nations which are embracing green energy are cooking the books on their emissions reduction achievements, by not including emissions from manufacturing which has been outsourced to Asia in their calculations.
The claimed future benefit does not contribute to economic growth in the same way as real productivity gains would – next year’s productivity growth will be based on real productivity, not hypothetical long term future benefits. And god help anyone who tries to use this dubious calculation to set interest rates – today’s inflation will not be curtailed by hypothetical distant future events. If emissions adjusted TFPE is used to justify lower central bank interest rates than TFP would have delivered, inflation will explode.
I’m sure we’ll see more about this emissions adjusted productivity growth measure, because it would make basket case green obsessed economies like Britain and the European Union look good. But the amounts booked to the emissions reduction side of the modified productivity calculation cannot be used to pay the bills. All the hypothetical future benefit in the world is no use if your uncompetitive national industries are collapsing and you can’t feed your kids.
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What is wrong with these people? They basically admitted that those who worked hardest to lower CO2 emissions have experienced lower GDP rates. In order to make us feel better about that they want to credit our lower emissions efforts to make our GDP look better. You morons, that doesn’t pay the bills. You are making yourselves look like jackasses.
It’s a bit like ski-jumping. The competitors take turns to whizz down the ramp, sail through the air, and one will end up having jumped further than the others. Then the judges decide which competitor won. It’s normally not the longest jump, because too much of that would risk putting the judges out of work.
This latest idea about productivity opens up wonderful opportunities, right across the board: in education for example, students could all take an external exam, the school would be told their scores and would then decide which student to give each score to. Oh, sorry, Australia already did that (really!). Or university admission could be based on the student’s father’s occupation when the student was 14 instead of on exam marks. Oh sorry, the UK is already doing that (really!). Or in business, instead of selecting and paying employees based on merit, prospective employees could be divided into groups and the government could decide which groups the companies had to pick from. There would be a strict adherence to free market rules, of course, and if some groups were small then companies would be forced to offer those people higher pay in order to attract them. What? Everyone is already doing that?? There must be something complicated and unproductive that could be used to raise productivity, mustn’t there? I know … the government could pick something that companies have to do, and then set a limit above which they get fined. That way productivity would get a big lift because no company would be able to get very far ahead and all companies would get their fair share of production. We could call it “cap and trade”. That is so innovative surely no-one could be doing that yet. Could they?
For sure – let’s not forget they tried to add a “happiness” score to GDP not too long ago. The losers would rather cook the books than fix the problems.
That is the way of the bureaucrat. If you can’t blame someone else for a problem, find a way to hide it.
We should have low energy cost per $ of GDP, for a high standard of living, but counting CO2 molecules should not be a consideration, because CO2 is absolutely vital for creating green flora all over the world, including in arid areas. That will increase forests, and fauna, and cropyields to better feed 8 billion people.
They are funded by Black Rock etc, the satanic organisation who met with the UK government recently to make plans for our demise and digital prison.
In 2016, I predicted that electricity generated from wind and solar and stored in lithium batteries would dramatically increase the cost of grid electricity compared with coal fired generation. I even submitted my report to the Finkel enquiry.
For some time, I have predicted that Earth is at the early stages of re-glaciation. I will not live to see that and I doubt my grandchildren will either. But it is as certain as the northern hemisphere being closer to the Sun when it is pointing at the Sun in the coming centuries.
The hope in my lifetime is that this reality is widely recognised. It will take considerable planning to avoid serious consequences for the human population.
Yes — It can hardly be emphasized strongly enough that we are presently at the Great-Winter’s Solstice.
And it could be taught (again*) to every schoolchild in the world, using mechanical models similar to those of the planetary orbits / solar system.
Alongside the paleoclimate records of the other re-glaciations.
The implications would be clear, allowing future generations — the “my grandchildren” above — to prepare accordingly, on a global scale.
*Hamlet’s Mill gathers the evidence that it was taught, in every major civilization, until quite recently. Lost knowledge, wisdom of the ages, restored at last.
“Productivity growth has been lacklustre over the past 20 years in most advanced economies”
That’s about the same length of time the anti-CO2 nonsense has been going on.
Decarbonisation attempts, wind turbines, solar industrial estate, electricity costs skyrocketing as a consequence.
Not a coincidence.!
All the hypothetical future benefit in the world is no use if your uncompetitive national industries are collapsing and you can’t feed your kids.
Steel boss complains about local gas market ‘madness’
They keep trying to tell the doomsters.
We’ve got the same problem in Australia with coal. In Queensland, the coal mining companies are literally going bust because of massive taxes on digging up coal (obviously those trillions in ‘fossil fuel subsidies’ are late…). If the current government doesn’t repeal these taxes (and who ever saw a government which ever saw a tax it didn’t like, unless it was on MP’s second and third investment properties?) we won’t have any coal mining.
No coal mining, no backup for useless ‘Replaceables’. No electricity.
Latest when they run out of electricity they shall see the light….ehm I have my doubts sarc
Surely it’s lunatic, isn’t it? CO2 doesn’t affect the weather.
Productivity growth? Whassat then?
K Starmer age 13
And R Reeves age 46
Global temperatures normal, sea levels almost static, Pacific cooling. Greenland ice sheet gains 3 gigatons of ice during melt season.
UK electricity demand at the moment 30 GW. Wind producing 1 GW, Solar 2 GW. It’s all going well.
On any other website this would be deleted.
Roger Pielke Jr. looks at GDP vs carbon emissions to rate how countries more efficiently use energy. The UK does well by this measure. But when he looked at how the UK economy changed, he found that this was the result of shutting down energy intensive industries or more accurately, moving those industries and their emissions to Asia.
The structure for emissions accountability was fatally flawed when the world was divided into “developed” and “developing” nations where the former group was coerced to constrain emissions severely and the other was given a pass. The policies have been great for many economies in Asia but greenhouse annual gas emissions have risen half a billion tons annually for 35 years since this framework was set up. And the people who set up this farce still hammer developed nations to do more but give a pass to Developing nations like China which has become the world’s second largest economy. The UN and it’s cronies needs to be called out on this abject failure.
Furthermore, the claimed “future benefit” is based on a total lie. Not only is there no benefit, but reducing CO2 output is directly related to economic harm, by attacking proven, reliable and affordable energy and replacing it with the opposite. These people are evil as well as cretins.
That’s an insult to decent, honest cretins.
Nothing is a benefit if its value is less than its cost. The “future benefit” argument relies on ignoring all costs, and all benefits from increased CO2 and warmer temperatures.
Productivity is about efficiency of inputs – capital, labour, resources – converted into outputs. Increased productivity means reducing inputs per unit output.
Since “emissions reduction” costs more, requires more labour and resources, then it reduces productivity. It is a cost which reduces economic output, reduces wealth creation, and makes us all poorer.
In the twisted minds of the Ckimate Fascists, using more people and resources to produce the same product is “beneficial.”
As long as you accept the fictional “costs” of not doing what they tell you to do. AND ignore all the benefits of ignoring them.
All the money being wasted on CO2 emissions reduction is the primary reason why productivity growth has been lackluster.
That’s wealth, that we as a people, will never get back.
As usual, this approach appears to focus on the claimed benefits and ignore the costs. For example, I doubt that there are credits for enhanced agricultural and forest productivity in a world with higher CO2. They should also include the opportunity costs for alternative use of land or resources consumed by “renewables” like wind/solar as well as the minerals consumed for them as opposed to new data centers or industrial equipment. For example, the extra 1000kg of battery materials could be used for transmission lines or electronic equipment. Another example would be the loss of farm productivity due to building solar or wind farms on productive farmland.
The renewable facilities also require replacement after 20 years or so. The economic calculation would need to incorporate the replacement and disposal costs, compared to the 60 year useful life of fossil fuel, hydro, or nuclear. Then, there are the backup dispatchable power system, the additional distribution infrastructure, and the energy storage (usually batteries). These costs are rarely considered when discussing the supposedly lower cost of “renewables.”
Shouldn’t any perceived gain from a reduction in CO2 be offset by the increase in electricity rates that will happen?
Just so you know, productivity is already troubled by measurement issues but exalted in theory. Grafting this nonsense into an already troubled indicator will make it worse. But I’m sure they can hire Mark Zandi to do the work along the lines of the previous contract from Obama for measuring the impact of stimulus waste as jobs saved or created (while handing cash to favored groups).
There is nothing “productive” or “efficient” about “reducing CO2 emissions.”
Efforts to do so make energy less reliable and more expensive, and destroy economies in the process.
If they want to improve “accounting,” they should quantify the VERY REAL economic contributions that result from fossil fuel use, including a functional electric grid, modern transportation, more than adequate food production, communications, etc. ad nauseum.
Then they can rightfully rename the “Social Cost of Carbon” to the “Social BENEFIT of Carbon.”
This is quite the opposite of true economics since every form of carbon capture or reduction costs more than just continuing as we are. The efficiency of a coal-fired power plant goes from about 37% to less than 30% once carbon capture and injection are introduced. It is very energetically inefficient.
They’re only thinking of struggletown-
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