What economics can (and can’t) tell us, part 1: carbon taxes

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On my first day as a civil servant, my new boss asked, “So, Hannah, what would you say are the three key concepts in economics?”  I was tongue-tied – it felt like a trick question. What three concepts could I possibly pick to impress him?

Over the next few weeks, I’m going to do a short series of blog posts about the three concepts I settled on. The first was ‘equilibrium’.

Equilibrium features in a lot of sciences – chemistry, biology, physics, etc. It’s generally meant to describe a ‘balanced’ or steady state of affairs. For example, we might think of the equilibrium of a factory – where there is a lot going on, but there is an underlying ‘order’ associated with it. Equilibrium is very much associated with macroeconomics – i.e. how economies – whether that’s whole countries or just a village – function.

Some people think the world works like a factory. Credit: DFID, 2010

Economists use equilibrium all the time. Take yesterday, when Australia announced that it’s going to bring in a carbon tax from July 2012. It was fantastic and well-overdue news for the world. Australia signed up to the Kyoto Protocol just before the Copenhagen Climate talks in 2009. But only now has it managed to bring in new policy to tackle climate change.

In all the news reports about the carbon tax, people have been quoting hotly contested numbers about the sorts of effects the tax might have on prices, businesses, people’s incomes, jobs, and the economy – neatly summarised in this infographic. The numbers are mostly derived from economic reports, the most important by Australia’s Treasury in 2008, and by Professor Ross Garnaut – Australia’s equivalent of the UK’s climate change guru Lord Stern.

If you look closely at this economic analysis, you’ll see that equilibrium is at their core. Most of the numbers were calculated using computable general equilibrium models – models that use historic data and mathematical formulae to predict how an economy might react to changes in policy, technology or other external factors. I described these models briefly in a previous blog post.

Australia isn’t unusual in using equilibrium analysis. In the Stern Review, we used a dynamic stochastic general equilibrium model. Applied general equilibrium models and partial equilibrium models also exist. Such models are also used in developing countries. For example, a 2010 study for South Africa (pages 78-98) suggested that a carbon tax – especially if revenues were re-distributed to the poorest households or investment was increased – could have positive effects on the economy and poverty reduction. A 2007 study in Indonesia suggested similar outcomes. The analysis has been persuasive: South Africa’s Treasury have now announced plans to bring in a carbon tax.

But I have to admit that I’ve always found equilibrium to be one of the most difficult concepts to get my head around, partly because the world doesn’t really seem to function like one big factory. We see big, irreversible shifts that change the entire structure of factories or economies all the time – from natural disasters, to mobile phone revolutions, to internal practices like the Ford assembly line. These – and their effects – are unlikely to be predicted by equilibrium models. Indeed, physical scientists have been progressively moving away from the concept of equilibrium, now examining ideas like the “Anthropocene” – which focuses on the profound effects that humans are having on the planet – as explained in this Tea with the Economist Video:

Luckily, I’m not alone in feeling somewhat uncomfortable with equilibrium.  The Origin of Wealth by Eric Beinhocker, a Senior Fellow at the McKinsey Global Institute, sets out ideas for how policy might look different if we based our thinking on “complexity economics” instead of ordered equilibrium thinking. This amusing short video, discovered yesterday by a fellow blogger Oxfam International’s Duncan Green, provides an even easier-to-digest idea of the potential differences.

I’m not saying equilibrium models are useless. Not at all! They can tell us a lot and, crucially, prepare us for change. But, for example, there have been some effects of UK climate change policy that models didn’t predict – such as the ease with which companies would be able to reduce their emissions when the UK Emissions Trading Scheme was first introduced. So much so that almost a third of the emissions credits had to be cancelled two years later.

That’s why it’s crucial that equilibrium models are complemented by other types of analysis. For example, in a paper for the DFID-funded International Growth Centre, economists Duflo, Greenstone, Pande and Ryan have suggested that a pilot Emissions Trading Scheme in India should be rigorously monitored and evaluated. This could be done by comparing the emissions over time of a number of randomly selected factories that are involved in the pilot scheme, to the emissions of a random selection of factories not involved in the pilot, and perhaps another random selection of factories regulated in a different way.

I do hope that Australia, South Africa and all the other countries implementing carbon management policies will take the opportunity to monitor their outcomes too, so that we can learn from our real-world actions.

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Research Analyst

Edmond is a research analyst who is passionate about sustainable development, innovation, and the environment. Passionate about climate financing, he firmly believe there is a more reliable system to promote equality, growth, and welfare in societies without affecting the ecosystem. Through his skills, knowledge and experienced gained over 7 years, he wants to make an impact in the world of development. Edmond holds a Master’s Degree in Public Policy from Korea Development Institute and a BA Degree (Honors) in Business from University of Derby.


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Hannah Ryder is the Founder & CEO of Development Reimagined. A former diplomat and economist with 20 years of experience, named one of 100 most influential Africans in 2021, she is also Senior Associate for the Africa Program of the Center for Strategic International Studies (CSIS), sits on the Board of the Environmental Defence Fund, and is a member of UAE's International Advisory Council on the New Economy. Prior to her role at DR, Ms Ryder led the United Nations Development Programme (UNDP)’s work with China to help it scale up and improve its cooperation with other developing countries, including in Africa. She has also played various advisory roles for the UN and OECD and co-authored the seminal Stern Review of the Economics of Climate Change in 2006.


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Leah Lynch is Deputy Director of Development Reimagined (DR), and head of the China office. Leah has over 10 years of experience in development and has lived in China for over 8 years. Leah has also travelled extensively around Asia and Africa for research. Leah supports the strategic direction of the team across China, with a mission to deliver high quality research on sustainable development and poverty reduction. Leah is also Chair of the Sustainability Forum at the British Chamber of Commerce in China, providing direction on sustainability initiatives for British and Chinese business. Leah has also consulted on various evaluations on UK aid (ICAI) and is a specialist on development cooperation from the UK and China. Leah has also consulted on various UN projects, including providing support to the UN China team during the COVID-19 Pandemic. Prior to DR, Leah was at the United Nations Development Programme (UNDP) China, supporting the UN’s portfolio on communication strategies, China’s South- South Cooperation and the Belt and Road Initiative (BRI). Before UNDP, Leah lived and worked in Kenya developing sustainable water policies for the Kenyan government.


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Yike Fu is a Policy Analyst and has been responsible for leading numerous areas of work, including on debt analysis in Africa and beyond, and China-Africa trade and investment logistics and analysis. She is the co-author of “African Debt Guide”, in which she challenged the narrative that Africa is in the midst of a new debt crisis by analysing data back to the 1970s and adopting new metrics to present the real story behind the data. She also developed a benchmark to compare the financial distribution of development partners such as the UK, US, Japan, France and China in Africa. Prior to her role at DR she worked at the International Finance Corporation and African Union Representational Mission to the US. She holds a Masters in International Affairs from George Washington University.


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Ovigwe specialises in geopolitics with particular reference to Africa in a changing Global Order. He is adept at critically analysing the politics of contemporary development processes and providing insight into the geopolitical interests that influence them. His work includes research, publications, tailored briefings and advising on global and regional trends, and issues at the nexus of geopolitics and development. Ovigwe appears frequently in media around the world such as Al Jazeera, TRT World, SABC, CGTN, BBC Radio, and other platforms.


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Jing leads China-African health and agriculture cooperation research at Development Reimagined, having managed our FOCAC Policy Analysis and Advocacy project. She is also the co-author of “China-Africa Health Cooperation under FOCAC Umbrella”, in which she analysed China’s commitments around health cooperation since the first FOCAC summit and deepdived into four African countries’ health overview, challenges and cooperation with China as cases studies. Before DR, Jing worked at GIZ Cambodia on M&E of a disability advocacy project. She also worked as a translator with Chinese medical team in Benin.


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Patrick is an International Trade Policy and Trade Law Expert with over 5 years of experience. His expertise includes trade law, trade policy analysis and regional integration. He is currently engaged with Development Reimagined as a Senior Trade Analyst and was the lead author of Development Reimagined's recent Report on Africa-China Relations titled "From China-Africa to Africa- China: A Blue Print for a Green and Inclusive Continent-Wide Strategy Towards China." and “Reimaging FOCAC Going Forward.” Patrick has previously consulted for the East African Community, UNECA and for the Kenya Ministry of Trade.


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Jade is a Project Manager for Development Reimagined’s flagship project Africa Unconstrained, which focuses on financing needs and debt vulnerabilities of African countries. Her research focuses on China-Africa development finance alongside debt vulnerabilities, infrastructure needs and South-South cooperation. She has worked with a breadth of stakeholders from China, Africa and the wider international community, including governments, private sector, NGOs and civil society. Her writing has appeared in a number of publications, including The Africa Report, The China-Africa Project, The Diplomat and more. Jade holds a Master’s in China and Globalisation studies from King’s College London.


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Rosie is also alumni of the School of International Studies at Peking University in Beijing where she is also an editor at the Peking Africa Think Tank. PATT is led by a diverse group of scholars who specialise in African Studies within the context of Sino-Africa relations.



Lauren has lived in six countries from the Americas to Europe and Asia and speaks both French and Spanish proficiently. At Development Reimagined, Lauren’s research focuses on climate action both in the Asia-Pacific and in Africa, and how countries are using tools such as SDGs and Covid-19 action to build a more climate-resilient future. She holds a Masters in International Relations from Leiden University.



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Dibekulu is an economist by training. He holds an MSc in International Development Studies from Palacky University Olomouc, an MSc in Development Economics from the University of Clermont Auvergne, and an MSc in Economics, Finance, and International Integration from the University of Pavia. At Development Reimagined, he works as an Economist consultant. He has strong data analysis skills, with research interests centring around development finance, impact assessment, food security, and agricultural insurance.


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Research Analyst 

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Founder and CEO

Hannah Ryder is the Founder & CEO of Development Reimagined. A former diplomat and economist with 20 years of experience, named one of 100 most influential Africans in 2021, she is also Senior Associate for the Africa Program of the Center for Strategic International Studies (CSIS), sits on the Board of the Environmental Defence Fund, and is a member of UAE's International Advisory Council on the New Economy. Prior to her role at DR, Ms Ryder led the United Nations Development Programme (UNDP)’s work with China to help it scale up and improve its cooperation with other developing countries, including in Africa. She has also played various advisory roles for the UN and OECD and co-authored the seminal Stern Review of the Economics of Climate Change in 2006.