Heterogeneous expectations and climate change

A looming energy crisis and persistent inflation create economic uncertainty that has diverging effects on the economic outlook. Some people believe that the current situation could be the watershed moment which accelerates decarbonization. Others expect the efforts towards achieving net-zero to be drowned out by energy security concerns. How can we incorporate heterogeneous expectations in models that evaluate the short and long-term effects of climate mitigation policies on the macroeconomy and emissions? For this digest, Francesca Diluiso (Mercator Research Institute on Global Commons and Climate Change) has selected some recent research which addresses this complex issue.

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