# Can ‘Golden Straitjackets’ Deliver Good Environmental News? Fall 2026 • Regulation By Jody Lipford and Bruce Yandle [ Download PDF ](https://www.cato.org/sites/cato.org/files/2026-09/regulation-fall-2026-article-briefly-noted.pdf) Writing in *Regulation* early in the Biden administration, we explored regulatory approaches for reducing carbon emissions and criticized a “Green New Deal” that targeted 100 percent “clean” energy by the year 2030 (Lipford & Yandle 2021). We suggested that there were lower-cost ways of dealing with carbon emissions and provided evidence that growth in gross domestic product could deliver lower carbon emissions. Since then, the energy world and important assessments of climate change have shifted significantly. Recently, the United Nations’ Intergovernmental Panel on Climate Change (IPCC) revised its worst-case forecasts for climate change (known as Representative Concentration Pathway 8.5), suggesting that combined market and regulatory forces had worked together to produce a less bleak outcome (Wall‑Y 2026). The IPCC reassessment implies that progress in dealing with increased energy scarcity and related environmental concerns ultimately may be determined by energy efficiency, which is how much energy is required to produce another unit of real GDP. Less energy consumed will result in lower carbon emissions. Our earlier work reported Environmental Kuznets Curves (EKCs) for a sample of 13 developed and developing countries for carbon emissions from 1950 through 2019. Shaped like an inverted bowl, the EKCs showed that carbon emissions expanded at lower levels of GDP per capita, but then, for some developed countries, total emissions peaked and moved downward. Once these GDP-per-capita thresholds were passed, higher income became consistent with cleaner air. But there is a lot going on here, and the decline in carbon emissions did not hold for the developing countries in our sample or even for all the developed countries. We recognize that, at any moment, global environmental quality is the result of market and regulatory forces, and income growth can be driving both markets and regulation. We also know that unless we examine global data, we cannot determine if reduced carbon emissions in the developed world will simply be replaced with imports, inducing higher emissions elsewhere. This said, based on our ongoing research, we are convinced that market forces may have become the major driver in curbing carbon emissions. Forced efficiency generated by global competition is the key. ***Golden straitjacket*** / Dating back to the 1990s, GDP-enhancing globalization brought competition and cost-sensitivity to countries that chose to don what journalist Thomas L. Friedman, in his 1999 bestseller *The Lexus and the Olive Tree*, called the free-trade “golden straitjacket.” Indeed, the period from 1985 to 1995 saw the greatest reduction in global trade barriers and resulting trade expansion in world history. Countries worldwide moved to flexible exchange rates and generally sought to increase foreign trade. Following a surge of growth beginning in 1985, the value of merchandise trade, measured by an index based on the average of exports and imports where 2015 is equal to 100, rose from 64 in 2005 to 158 in 2025, or 4.6 percent annually. Nations that wanted access to the world’s goods had no choice but to be constrained by competitive market forces. Other disruptions played a role, too. We believe that post‑9/​11 disrupted energy markets and COVID shutdowns inspired energy conversions that reduced the energy content per unit of GDP for leading industrial nations. In addition, Russia’s 2022 Ukraine invasion disrupted energy flows to Europe, raised world prices, and inspired significant changes in energy consumption. This year, the Iran war has yielded yet another energy supply breakdown that raises serious questions about regulation and other policies that might reduce the burden of higher-cost energy. Countries across the world are responding to higher and more volatile energy prices. Recently, the *Wall Street Journal* reported improved energy efficiency for China, the United States, the Euro area, and the world since 2000 (Douglas & Dulaney 2026). These fundamental changes and concerns suggest it is time to refresh our data and consider what they tell us. In this article, using data maintained by the US Department of Energy, we update our 2021 piece using the same sample of countries to see if there is any meaningful change in the shape of the carbon emission–GDP per capita relationship. Assuming that higher and less certain energy prices have accelerated the search for more efficient energy use and recognizing that increased energy efficiency can lead to environmental gains, we next report the results of a close examination of the energy–GDP relationship that accounts for marked gains in energy efficiency. With this more optimistic view of energy consumption, carbon emissions, and climate change, we briefly speculate on the most appropriate policy response for a world that has changed dramatically. ***Reviewing the EKCs*** / Despite the IPCC’s retraction of its worst-case climate change scenario, the panel remains concerned about climate change, and for good reason: World carbon emissions continue to rise, as shown in Figure 1. ![Figure 1: Regulation - Fall 2026 - World Carbon Dioxide Emissions](/sites/cato.org/files/styles/pubs_2x/public/2026-09/regulation-fall-2026-briefly-noted-figure-1.png?itok=8QMZC84L) When we estimated EKCs by country, the results for developed countries showed that they were already past peak carbon, or at least mostly so. France, Germany, Japan, the United Kingdom, and the United States are increasing output while emitting less carbon. Canada and Italy are closer calls, but a look at their carbon emissions over time shows declines since 2018 and 2003, respectively. There is cause for optimism among developing countries too, albeit tempered. Our EKC estimates indicated that Brazil, China, India, Mexico, and South Africa would increase carbon along with output, but in fact Mexico and South Africa emitted less carbon in 2024 than in 2019. The case of Russia was not as encouraging; although its carbon emissions are not as high as they were immediately after the fall of the Soviet Union, they have risen, if unevenly, since 2009. ***Growing energy efficiency*** / But what of market forces and the golden straitjacket? It is here that the cause for optimism is great and the news is good. The US Energy Information Administration tracks energy intensity across countries and for the world. Energy intensity is measured as thousand BTUs per dollar of 2015 GDP, adjusted for Purchasing Power Parity (PPP). It may be thought of as the inverse of energy efficiency. As shown in Figure 2, energy intensity for the world is down, and down dramatically. ![Figure 2: Regulation - Fall 2026 - World Energy Intensity](/sites/cato.org/files/styles/pubs_2x/public/2026-09/regulation-fall-2026-briefly-noted-figure-2.png?itok=_ahvhiJI) When we continued our country-by-country analysis, we found that this trend was not isolated to developed countries—or put differently, reductions in energy intensity in developed countries are not simply offsetting increases in energy intensity by developing countries. To the contrary, reductions in energy intensity are found in all 13 countries in our sample. True enough, the reductions in developing countries have usually come later than for developed countries, but they have come nonetheless. Market forces are at work. Global competition matters. And as a result, producers across the globe are finding ways to generate more output with less energy. But how big are the beneficial consequences of reduced energy intensity? How good is the environmental news? To find an answer to these questions, we calculated energy consumption from 1980 to 2024 using the actual values of world GDP but assuming 1980’s energy intensity. Figure 3 shows the results of this counterfactual analysis alongside actual energy consumption, and the implications are staggering. ![Figure 3: Regulation - Fall 2026 - World Energy Consumption: Actual vs. Counterfactual](/sites/cato.org/files/styles/pubs_2x/public/2026-09/regulation-fall-2026-briefly-noted-figure-3.png?itok=6KerbC2g) Without the reductions in energy intensity (or gains in energy efficiency), world energy consumption would have been sharply higher over the past 45 years. By 2024, energy consumption would have been higher by a factor of more than 2.3, or more than 800 quadrillion BTUs. Since carbon intensity, defined as the ratio of carbon emissions to energy consumption, has been relatively constant for fossil fuels across time, the implications for carbon emissions are equally staggering. Our analysis would be incomplete if we did not highlight renewable energy. As shown in Figure 4, the consumption of renewable energy has risen sharply, especially since the early 2000s. As a share of total energy consumption, renewables now comprise 7 percent, which is much higher than the 3 percent share in 1980. Again, market forces are at play. The prices of solar, wind, and bioenergy have fallen sharply in the last decade because of technological advances that make renewables increasingly competitive with traditional fossil fuels. In our own country, the United States, the demand for renewable energy has been bolstered by subsidies, tax credits, and old-time command-and-control regulations—but markets are having their say, too. ![Figure 4: Regulation - Fall 2026 - World Renewable Energy Consumption](/sites/cato.org/files/styles/pubs_2x/public/2026-09/regulation-fall-2026-briefly-noted-figure-4.png?itok=RUAgkjxu) ***Final thoughts*** / What does the future hold? We do not have a crystal ball and doubt that anyone else does either. What we can say with confidence is that market forces are delivering more goods with less energy and commensurate carbon emissions. If the world is to continue this happy trajectory, governments need to let markets work though policies of free trade and deregulation. Trade policies such as the Trump administration’s tariffs—and retaliation by the countries upon whom those tariffs have been levied—will reduce economic and environmental welfare across the globe. Policies that secure property rights, and taxes and regulations that are not overly burdensome, will encourage additional gains in energy efficiency and innovations in renewable energy technologies. If governments understand their limits, perhaps the IPCC’s new worst-case scenario will also be retracted in the future. And in a world where geopolitical threats grab the daily headlines, enhanced energy security will be a welcome benefit as well. ## Readings - Douglas, Jason, and Chelsey Dulaney, 2026, “Five Things the Hormuz Crisis Taught Us About the Global Economy,” *Wall Street Journal*, June 17. - Lipford, Jody, and Bruce Yandle, 2021, “Is a Green New Deal Even Necessary?” *Regulation* 44(4): 5–8. - Wall‑Y, 2026, “Research Committee that Provides Input to the IPCC Drops the Worst Climate Scenarios,” *Warp​News​.org*, May 21. ### Download This Regulation Article ##### Can ‘Golden Straitjackets’ Deliver Good Environmental News? [ Download PDF ](https://www.cato.org/sites/cato.org/files/2026-09/regulation-fall-2026-article-briefly-noted.pdf) ##### About the Authors ##### Jody Lipford “Professor of Economics, Presbyterian College ##### Bruce Yandle Alumni Distinguished Professor of Economics, Clemson University [![Creative Commons License](/build/cato_2020/images/creative-commons.svg)](http://creativecommons.org/licenses/by-nc-sa/4.0/) This work is licensed under a [Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License](https://creativecommons.org/licenses/by-nc-sa/4.0/). [ Download PDF ](https://www.cato.org/sites/cato.org/files/2026-09/regulation-fall-2026-article-briefly-noted.pdf)