By Elea Castiglione
As U.S. climate policy reverses course, the economic argument for decarbonization grows stronger. Elea Castiglione explores how Penn experts view the costs of federal rollbacks, why China is winning the clean energy race, and whether private investment can fill the leadership gap.
The economic case for U.S. decarbonization, which refers to a reduction in CO2 and other greenhouse gas emissions driven largely by transitioning away from fossil fuels and towards renewable energy sources, is two-fold. Economic damages from extreme weather, sea-level rise, decreased crop yields, and heat-related deaths can be mitigated through decarbonization, thus reducing the costs of climate change. Simultaneously, investments in clean technology drive economic growth and job creation while strengthening national security and ensuring that the U.S. remains competitive in the global economy for generations to come.
According to the World Resources Institute, without new decarbonization policies, economic damages felt by the U.S. from climate change could be equivalent to 1-10% of the country’s GDP by 2100. A 2022 report by the Deloitte Economics Institute found that the U.S. economy could gain $3 trillion with rapid decarbonization, but without action, climate change could cause $14.5 trillion in losses to the U.S. economy.
“Energy is something that we have long taken for granted in the United States,” Heather Boushey, Professor of Practice at the Kleinman Center for Energy Policy and former Chief Economist of the Biden Administration’s Investing in America Cabinet, explained. “Energy is so important for the basics of economic growth, for any country, and the United States has been very lucky in that we’ve had access to coal and oil and have been able to use those and parlay those natural resources into an economic development strategy over the past 150, 200 years.” But, as Boushey emphasizes, the United States needs to look forward: “Over the next 50 years, I think [about] what’s going to create a strong middle class? What’s going to create competitive industries in the United States?”
Decarbonization offers a solution to both the economic costs of climate change, through reducing climate damages, while also opening pathways to a clean economy with real growth potential. Transitioning to lower-emission energy systems is critical to ensuring that the U.S. remains economically competitive with the rest of the world. Decarbonization also presents an opportunity to invest in national security and resilient supply chains. “Decarbonization is important for both national and economic security. And it’s not either-or, it is both,” Boushey said.
“This is about where global markets are going,” Boushey explained. “Other countries, other economies, continue to believe climate change is real and that is going to require that we rethink our energy systems, and to do that, we need to invest in these new technologies. You’re seeing American investors and manufacturers say to themselves, I don’t want to get left behind.”
Global investment in the low-carbon energy transition hit $2.1 trillion in 2024, and was primarily driven by investment and growth in China. “Being a leader in many promising clean technologies like large-scale solar, batteries, and electric vehicles will be important for the U.S. economy to be competitive in the energy and automotive sectors in the long term,” noted Arthur van Benthem, Professor of Business Economics and Public Policy at the Wharton School and Faculty Co-Director of the Wharton Climate Center. “China seems to be winning the race for high-quality, affordable EVs, for example. That does not bode well for the U.S. vehicle industry in the medium and long run.”
Despite clear economic evidence favoring emissions reductions, U.S. carbon emissions increased 2.4% economy-wide in 2025—the third-largest increase in the last decade. While clean energy installations have surged in recent years, coal-powered generation increased by 13% in 2025, due to increased electricity demand, rising natural gas prices, and Trump administration actions to block scheduled coal plant retirements.
“Global progress on climate change is harder without the U.S. playing a leadership role, and the U.S. economy will end up suffering from severe climate damages if global progress on decarbonization stalls,” van Benthem explained. The United Nations Environment Programme’s 2025 Emissions Gap Report found that global warming projections, based on current policies, will be 2.8°C. While this is an improvement from the year before, which predicted 3.1°C warming with current policies, U.S. withdrawal from the Paris Agreement would cancel out 0.1°C of that global progress to limit warming—a significant amount in the context of the 1.5°C warming threshold set by the Paris Agreement to avert the worst impacts of climate change.
The Biden administration prioritized decarbonization as an engine of economic growth through the Bipartisan Infrastructure Law (BIL), the CHIPS and Science Act (CHIPS), and the Inflation Reduction Act (IRA), legislation that focused public investment on U.S. manufacturing and emerging sectors. The billions in federal spending from these three pieces of legislation sparked over a trillion in private investment that helped create manufacturing and construction jobs across the country.
However, the Trump Administration has repealed $550 billion in funding for clean energy investments, while the Department of Energy canceled an additional $11 billion in contract awards for domestic manufacturing, innovation, and decarbonization projects. According to the Climate Action Tracker, the administration’s obstruction of renewable energy development, fossil fuel build out and reversal of the Biden Administration’s climate change policies form “the most aggressive, comprehensive, and consequential climate policy rollback that the [tracker] has ever analysed.”
Boushey explained that even with the federal reversal of decarbonization efforts, she remains optimistic about the role that the private sector may be able to play. “The United States, prior to the Biden administration, had the cleanest steel production in the world on average, but that wasn’t because the prior Trump administration had made that happen. It was because of the advance of technologies. It was because of the way that firms were using capital.”
“I remain optimistic that firms are going to see the economic advantage of investing in cutting-edge technologies, and those are going to continue to be clean. However, I am very concerned that the lack of federal leadership will make that process much slower than it needs to be,” she continued.
Van Benthem agreed that “private-sector funding is now more important than ever. The money will flow if the returns are there, and for some green technologies, the financial picture looks less appealing with lower incentives or bans (e.g., offshore wind). But technologies such as solar will continue to attract private capital.”
Boushey continued, “I have spent my career focused on how we think about doing economic policy that benefits America’s middle class, and it is clear to me that the biggest question facing the next generation is whether and how the United States embarks on a transition to clean energy, because that is going to be so fundamentally important to the technologies of the future, to the kinds of jobs we create, the development pathways that we’ve put ourselves on.”
Boushey will discuss the clean energy transition further in her Penn Climate Seminar “Building a Clean, Equitable Economy: Where Do We Go from Here?” on February 25.
Decarbonization in the U.S. is a simple economic equation: refusing to reduce emissions and limit climate change increases costs, while investment in decarbonization creates long-term economic growth, bolsters national and economic security, and ensures U.S. competitiveness in the global economy. Decarbonization saves money, while providing the tools to create a more secure, competitive, and growing economy for generations to come.
Elea Castiglione is an undergraduate student studying philosophy, politics, & economics with a concentration in public policy and governance, and minors in sustainability and environmental management and fine arts.