The Prize in Economic Sciences 2018 has been awarded to William D. Nordhaus "for integrating climate change into long-run macroeconomic analysis" and Paul M. Romer "for integrating technological innovations into long-run macroeconomic analysis".
Nordhaus, at the University of Yale in New Haven, Connecticut, is the founding father of the study of climate change economics.
He began working on the interactions between energy and the economy in the 1970s and since the 1990s has produced models that have helped economist quantify the impact that climate change will have on the economy.
"Previous macroeconomic research had emphasized technological innovation as the primary driver of economic growth, but had not modeled how economic decisions and market conditions determine the creation of new technologies".
Hours before the award, the United Nations panel on climate changed warned of the risks of more frequent heat waves, floods and drought in some regions as well as the loss of species without a radical rethink in how societies operate. "I hope the prize today could help everyone see that humans are capable of unbelievable accomplishments when we set about trying to do something".
Romer's research demonstrates how economic forces govern the willingness of companies to produce new ideas, innovations and long-term prosperity.
George Alessandria, the chair of Rochester's Department of Economics, says the members of the department are thrilled that Romer is being recognized with the Nobel Prize.
The two will share the $1.01 million prize.
Romer told the Swedish academy in a live phone interview at the prize announcement that he was confident the world could reduce greenhouse gas emissions and still improve standards of living in the future.
The US duo was awarded the 2018 Nobel Prize in Economic Sciences for developing new methods that serve for the welfare of the world's population and provides long-term sustainable growth in the global economy. The prize in economic sciences was added by Sweden's central bank in 1968.
Romer is Rochester's third economics Nobelist.
One of Romer's insights was that ideas differ from other goods or services.
Last year, the honour went to United States economist Richard Thaler, a co-founder of the so-called "nudge" theory, which demonstrates how people can be persuaded to make decisions that leave them healthier and happier.
The peace prize was awarded on Friday to Denis Mukwege of Congo and Iraqi Nadia Murad for their work to draw attention to how sexual violence is used as a weapon of war.