ECO Launches New Report Examining the Economics of Transitioning Away from Fossil Fuels Ahead of COP31
November 5th, 2025 | ECO Press Release
A new report finds that meeting climate goals will require a large increase in funding for research and development in low carbon energy along with robust carbon pricing.
As negotiators prepare to meet for COP31, a new report builds on the roadmap for a just, orderly and equitable transition away from fossil fuels launched at last year’s COP. It examines the economic challenges involved in the transition and sets out concrete policy recommendations to accelerate it. The Economics of Climate Organisation (ECO), hosted at the London School of Economics and Political Science (LSE) in collaboration with the COP30 Presidency, International Growth Centre (IGC) and the LSE Global School of Sustainability, held an event on 5 November bringing together leading economists and the COP30 Presidency team for the release of the report, The Economics of Transitioning Away from Fossil Fuels.
The report identifies two key market failures holding back the transition: fossil fuels remain underpriced because their environmental and health costs are generally not reflected in market prices, while investment in clean-energy innovation remains insufficient. It estimates that, under current policies, the world is on track for approximately 3°C of warming by 2100. The consequences are substantial-- for example, 2025’s global emissions by themselves will cause about $20 trillion of climate damages or roughly equal to 17% of global GDP. .
“The cruelty of the climate arithmetic is that it is impossible to meet conventional climate targets without today’s poorer countries undertaking massive emissions reductions, yet these countries can least afford to do so.,” says report co-author Michael Greenstone, the Milton Friedman Distinguished Service Professor in Economics and director of the University of Chicago’s Institute for Climate and Sustainable Growth. “Unless they are incentivized to undertake robust carbon pricing or innovation causes clean energy to become cheaper than fossil fuels, they are unlikely to make these kinds of emissions cuts..”
The report recommends three policy responses. First, countries should put a price on carbon—whether through a tax or a cap-and-trade market—so fossil fuel prices reflect the damage they cause. Research shows that pricing carbon can reduce emissions at a lower cost than conventional regulations, even in developing countries. The report recommends that countries start by setting a carbon price for high-emitting sectors like energy, transport and polluting industries, then expanding to land-use and other sectors. However, by itself, even an ambitious global carbon tax starting at $50 per tonne and rising 3 percent annually would leave the world on track for 2.2°C of warming by 2100, suggesting that carbon pricing by itself is not enough.
Second, the report recommends increasing funding for clean energy innovation, so low carbon energy become cheaper and more competitive. Together, carbon pricing and innovation policies could limit warming to approximately 1.9°C by 2100 and achieve net-zero carbon emissions by 2080.
And finally, the report recommends policies to accelerate clean energy adoption, including phasing out fossil fuel subsidies, expanding preferential financing through international development banks and trade organizations, and lowering trade barriers. These measures would help unlock investment in clean energy in emerging markets and developing countries and support sustainable growth.
“Carbon pricing and clean energy innovation reinforce each other,” says report co-author and ECO Co-chair Robin Burgess, Professor of Economics at the London School of Economics and Political Science (LSE) and director of IGC. “Making clean energy cheaper reduces the carbon price needed to achieve the same emissions reductions, making carbon pricing easier to implement and sustain. At the same time, carbon pricing creates a larger market for clean technologies, spurring further innovation.”
As countries come together at COP31 to discuss the next steps in the global transition away from fossil fuels, the report contributes to the ongoing policy discussion on how economic evidence can inform a just, orderly and equitable transition. It highlights the need to consider how carbon pricing, clean-energy innovation and the wider adoption of clean technologies can work together to accelerate the transition.
The report is supported by ECO, a global collaborative initiative bringing together economists and policymakers to advance climate research and strengthen the contribution of economic evidence to the design and implementation of climate policies. Launched in June 2026 by COP30 President Ambassador André Corrêa do Lago, ECO grew out of the COP30 Presidency Council on Economics, Finance and Climate.
The full report can be accessed here.
Media contact:
Shruti Bhimsaria (ECO), s.bhimsaria@lse.ac.uk
Vicki Ekstrom High (UChicago), vekstrom@uchicago.edu