The AI Revolution Mirrors the Green Transition

The push for artificial intelligence and the shift to clean energy share a striking similarity. Both require massive upfront investments. Both also risk significant job losses. In both cases, the government must play a key role. It must guide market forces to serve the public good. The race for AI is already changing the global economy. This makes it surprisingly similar to the green transition. Both technologies have the potential to upend traditional industries. They can also change labor markets and geopolitical balances. Each path demands trillions of dollars in initial spending. In exchange, these investments promise significant benefits over the medium and long term.

The promise of AI is that it will cut unnecessary costs. It will also boost labor productivity. AI will help humans solve previously impossible problems. Similarly, the green transition aims to contain climate change. Climate change is the most serious global problem we face. A successful green transition would eliminate the risk of "climateflation." This term refers to higher prices caused by climate-driven supply shocks. It would also stop "fossilflation." This happens when hydrocarbon supply shocks cause prices to rise worldwide. For example, the closure of the Strait of Hormuz can trigger such shocks. Additionally, the green transition would improve public health. It would increase economic resilience. It would create new jobs and preserve fragile ecosystems. The benefits are vast and varied.

However, while the long-run gains are clear, the shorter-term effects could be wildly disruptive. This is true if the transition is not managed well. Consider the immediate impact of a burst in spending. The BlackRock Investment Institute estimates that the AI buildout could increase inflation. It could raise inflation by up to half a percentage point over the next ten years. This pressure would last until productivity gains finally reduce inflation. Whether the green transition will cause similar near-term inflation is still debated. What is not in doubt is the need for significant upfront investments. These investments are required to tackle major challenges down the road. Policymakers must respond to these transition risks with careful planning.

One major risk associated with both the AI buildout and the green transition is worker displacement. For AI, the most direct effect may be on early-career positions. Sectors like customer service and software development have already seen relative employment decline. The decline was 16% in three years. Anthropic, one of the leading AI labs, estimates that this observed displacement reflects only a fraction of the effect that AI could have. Many white-collar occupations sit squarely in AI’s automation crosshairs. These include programming, financial services, and legal services.