Category: Economic Policy

Looking Back, Looking Forward: Implications of Trump 2.0

            This is a blog essay I have been dreading having to write, because I knew that writing it would be painful, if not downright depressing.  However, I also felt that it is a blog essay that I am obliged to write. 

Why Am I Obliged to Write This Essay?

Three reasons.  First, back in October 2016, as that year’s Election Day approached, I came out of my political closet (as a long-time bipartisan and moderate independent), and revealed my great concerns, indeed fears, of what a Trump presidency would mean – not just for environmental and climate change policy, but for a much larger set of issues with profound consequences domestically and internationally (This is Not a Time for Political Neutrality).  I wrote about “what a Trump presidency would mean for my country and for the world in realms ranging from economic progress to national security to personal liberty,” based on Trump’s “own words in a [2016] campaign in which he substituted impulse and pandering for thoughtful politics” … and “built his populist campaign on false allegations about others, personal insults of anyone who disagreed with him, and displays of breathtaking xenophobia, veiled racism, and unapologetic sexism.”

Second, just a week after Trump’s surprising win over Hilary Clinton, I turned my focus in this blog to considering carefully the implications of the (first) Trump administration for environmental, energy, and climate change policy and action (What Does the Trump Victory Mean for Climate Change Policy?).  I’m pleased to say that much (but not all) of what I feared that first Trump administration would bring did not occur, for four reasons, among others:  (a) the incompetence of the administration, particularly in regard to producing regulatory changes that would withstand legal challenges (Reflecting on Trump’s Record); (b) some Trump appointees provided guardrails protecting the country from the President’s worse instincts; (c) the (Democratic) Congress provided significant checks; and (d) dedicated, expert staff in the various departments and agencies (and even in the Executive Office of the President) were determined to resist the undoing of decades of sound public policy.

Third, in January 2021, just days before the inauguration of President Biden, I wrote in some detail about what I expected the consequences to be for domestic and international climate change policy of the then forthcoming Biden administration.  For better or for worse, much of what I anticipated, did indeed subsequently come to pass (Climate Change Policy & Action in the Biden Administration).

            So, now with Trump 2.0 two months away, I feel obliged to offer my thoughts about the forthcoming administration’s implications for climate change policy and action.  I need not point out that none of the four reasons I listed above to explain why much of what I feared from the first Trump administration did not occur, apply for the second Trump administration.

A Very Important Caveat Before Turning to Climate Change Policy

            I want to acknowledge that my major reactions to the Trump victory and my major concerns about the forthcoming Trump administration are not about climate change policy or even environmental policy more broadly, but about: the future of American democracy; global security (the future of NATO and the stability of the European Union); the real economic consequences of across-the-board tariffs (consumer costs, inflation); tax cuts for the rich; mass deportations; and leadership by uninformed demagogues – Matt Gaetz as Attorney General, RFK Jr as Secretary of Health and Human Services, Peter Hegseth as Secretary of Defense, Elon Musk on economic policy and business regulation, and so many others.  The four I name are not just bad appointments, but absolutely appalling ones, who share the one characteristic that apparently matters – blind loyalty to the authoritarian who has been elected President.

            But my expertise is not in the study of democratic institutions, international affairs, macroeconomics, or immigration policy, but in the study of environmental and climate change economics and policy.  So, I will turn to this now, and I will be brief, partly because we will learn much over the coming two months, as more cabinet-level and then lower-level nominations are announced.  My other reason for being brief is that, as I suggested at the outset, it is painful to write this essay, and so I want to finish writing as quickly as I can.  I apologize for that.

International Climate Change Policy

            In terms of the international dimensions of climate change policy, that is, cooperation with other countries in addressing a fundamentally global commons problem of massive magnitude, the focus needs to be on the United Nations Framework Convention on Climate Change (UNFCCC), the Paris Agreement, and the annual Conferences of the Parties.  Having just returned from COP29 in Baku, Azerbaijan, my next blog essay will focus on that and will appear in a week or so, after COP29 has adjourned and the outcome has become clear.  So, for now, I will stick to some broad observations about the consequences of Trump 2.0 for the international domain.

            In short, it is 2016 all over again, when Trump stated during the campaign that he would withdraw the United States from the Paris Agreement, and then announced the “withdrawal” on June 1, 2017.  As I wrote at the time (Trump’s Paris Withdrawal: The Nail in the Coffin of U.S. Global Leadership?), the Paris Agreement itself specifies that the soonest any Party to the Agreement can initiate withdrawal is three years after the Agreement comes into force, followed by a one-year delay before withdrawal takes effect.  Hence, Trump’s announcement did not take effect until November of 2020!  For almost the entirety of Trump 1.0, the United States remained a Party to the Paris Agreement, and dedicated staff from the U.S. State Department continued to participate in the ongoing negotiations in meaningful ways.

Hence, the United States was out of the Paris Agreement for just a few months – from November 2020 until a month after Inauguration Day, January 20, 2021, when President Biden filed the paperwork for the U.S. to rejoin 30 days later.

            Now, however, the statutory three-year delay period has long since passed, and so assuming that Trump files the withdrawal papers on January 20, 2025 (which is likely, given the much more careful preparations his supporters have been making for the past year), one year later the U.S. will be alone among the community of nations as a non-Party of this fundamental and path-breaking Agreement (after some delay, Iran and Algeria ratified the Agreement).  Furthermore, it is much less likely that Civil Service staffers at the State Department, EPA, or the Department of Energy will be able to continue their work, as Trump 2.0 seems determined to purge the upper ranks of the Civil Service of anyone other than Trump loyalists (by making these positions require political appointment).

            A more drastic action would be to withdraw the United States not just from the Paris Agreement of 2015, but from the umbrella agreement, the United Nations Framework Convention on Climate Change (UNFCCC, 1992).  Ironically, this requires only a one-year delay to become effective after filing paperwork.  During Trump 1.0, serious consideration was never given to this more significant move, perhaps because the UNFCCC was ratified (by voice vote with apparent unanimity) by the U.S. Senate in 1992 and signed by Republican President George H.W. Bush.

Now, some of the most passionate climate skeptics in Trump’s orbit want the U.S. to pull out of the UNFCCC as well.  A key question, which legal scholars will debate, is whether withdrawal requires Senate action, including a super-majority vote, which Democrats in the chamber could easily defeat.  There seems to be some uncertainty.  While Senate action is required to ratify treaties, Senate involvement in withdrawal is not mandated nor even mentioned in the U.S. Constitution.  But Presidents have previously withdrawn from treaties unilaterally.  That said, this apparently remains a debated issue in U.S. constitutional law.

In the meantime, a key question is what will the effect of U.S. withdrawal from the Paris Agreement – or more broadly, the election results and the promise of Trump 2.0 – have on other countries’ climate stances and policies.  As of now, it seems that Trump’s election need not derail global climate action, but it is too soon to make firm predictions.  It does appear that Trump’s victory may have emboldened Saudi Arabia to be much more strident in its defense of fossil fuels at COP29 (more about this in my next blog essay).

Domestic U.S. Climate Change Policy

            It is already evident that the key appointments in the energy, environment, and climate change space in the new administration will be held by individuals with histories of strident opposition to climate policies and equally strong support for fossil fuels.  Examples include Trump’s choice for Secretary of Energy – Chris Wright, a fracking booster and climate skeptic, Lee Zeldin as Administrator of the Environmental Protection Agency, and a number of others.

            It also seems clear that the new administration will try to roll back many provisions of the Inflation Reduction Act (IRA), and perhaps some provisions of the Bipartisan Infrastructure Act.  Actual repeal of the statutes is unlikely, due to Senate filibuster rules (i.e., the necessity of 60 votes, more than Republicans will control).  In the face of this, the Biden administration is rushing to finalize regulations, and to get IRA money (explicit subsidies) out the door.  Beyond this, the White House has considerable latitude to defund elements of the IRA, since nearly all are explicit or implicit subsidies.  The methane fee will be a particular target.

On the other hand, the protectionist elements of the IRA, including domestic content standards, will be harder to roll back, because of bipartisan support.  Furthermore, fully 80% of investments in the first two years of IRA implementation went to Republican Congressional districts, whether locations for electric vehicle plants in Georgia, battery factories in South Carolina, or others.

It is also important to recognize that the tremendous reductions that have been experienced over recent years in U.S. carbon dioxide (CO2) emissions were not due to government policies, but largely a result of exogenous technological change and market forces, namely the development of horizontal drilling and hydraulic fracturing (fracking), which resulted in opening up new, low-cost, unconventional sources of both natural gas and oil.  This is what led to the massive substitution in U.S. electricity generation from major reliance on coal to major reliance on gas.  Added to this are the very significant decreases experienced over the past few years in the costs of renewable sources – both solar and wind.  None of this will go away.

Finally, the November election brought a small, but meaningful bit of positive climate policy news when Washington State voters decided not to repeal the state’s Cap-and-Invest (cap-and-trade) program.  Linkage discussions with California and Quebec will soon commence, if they have not already.  Overall, this is a reminder of the fact that the next four years (at least) will again be a period when sub-national climate policy is increasingly important in the USA.  For the time being, this is the best I can do at trying to offer a somewhat positive end to this essay.  I wish I could do better.

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A Leading Expert on International Trade Talks About Climate Change

In my podcast series, “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program,” I’ve had the opportunity of engaging in interesting conversations over the past five years with a significant number of outstanding academic economists who have carried out work that is relevant for environmental, energy, and resource policy, including by serving in important government positions.  My most recent guest is no exception.  Robert Lawrence, the Albert Williams Professor of International Trade and Investment at the John F. Kennedy School of Government at Harvard University, served as a Member of President Clinton’s Council of Economic Advisers from 1999 to 2001.  A prominent theme of our conversation is that the rise of political populism and economic protectionism are serious barriers impeding efforts to combat global climate change.  You can listen to our complete conversation here.

Robert Lawrence notes that public policies designed to protect the U.S. economy and labor force often have deleterious impacts on the economy and on climate policy, particularly in the case of tariffs initially imposed on China by the Trump administration and more recently by the Biden administration.

“As part of our trade war with China, Trump imposed a 25 percent tariff on electric vehicles. We already had a two and a half percent tariff on automobiles. So, that’s a 27 and a half percent tariff on electric vehicles. And that was before Biden has now raised those tariffs even further to 50 percent. So, in effect, we’ve closed the US market for electric vehicles, and have taken similar measures when it comes to solar panels,” he argues.

“We also have broad tariffs on steel and aluminum, which are key inputs if you want to make wind turbines. So, what we’ve done is in the name of … national security and also to achieve and protect our own domestic production of these products, but [an impact] is to severely, in my view, slow down the pace of decarbonization.”

Lawrence acknowledges that the Inflation Reduction Act (IRA), passed by Congress and signed into law in 2022, was a fairly successful attempt to address climate change in a bipartisan way.

“The IRA, in using subsidies, is essentially dealing with a political reality that the first best, in the minds of most economists, [which is] raising the price of CO2 emissions, proved to be impractical within the American political system. And so, we got what I think of as a second-best approach, but nonetheless, it is an approach moving us in the right direction,” he explaines. “And so, I think we see the constraints of politics leading us to do what’s feasible.”

Robert goes on to say that the recent domestic shift toward protectionist trade policies has coincided with the decline of American manufacturing, but it has not had the effect of restoring the sector to the significant stature it once held.

“I think both the Biden Administration and the Trump Administration for that matter, got it wrong because they don’t understand the reality … They think you can restore the middle class by restoring manufacturing’s role in the economy, and I think basically we’re way past the peak where this is feasible,” he says. “It’s not that manufacturing isn’t important. It has a role to play in providing us with the hardware for de-carbonization, for the digital economy, but it’s not a driver of the opportunity that it once was for people who are relatively less skilled.”

The author of several books on trade policy, including the soon-to-be-published Behind the Curve: Can Manufacturing Still Provide Inclusive Growth?, Lawrence explains that while he is a proponent of free trade, he believes such policies must be crafted carefully.

“There is a very strong argument for an open trading economy and an open trading system. At the same time, I also think, and increasingly we’re aware, that there are different kinds of risks,” he says. “There’s an optimal pace of change from a political standpoint. Even if eventually a country would be better off putting its workers in areas where it can compete, the transition requires paying attention to some of the political consequences of doing that. And so, a lot of my work has been devoted to thinking about how you can move towards freer trade, but also deal with the labor market consequences of doing that.”

For this and much more, please listen to my podcast conversation with Robert Lawrence, the 61st episode over the past five years of the Environmental Insights series, with future episodes scheduled to drop each month.  You can find a transcript of our conversation at the website of the Harvard Environmental Economics Program.  Previous episodes have featured conversations with:

“Environmental Insights” is hosted on SoundCloud, and is also available on iTunes, Pocket Casts, Spotify, and Stitcher.

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A Behavioral Economist Thinks About Energy and Climate Change

When examining environmental, energy, and climate change policy, the methods and the topic of behavioral economics arise with some regularity.  In my podcast series, “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program,” we’ve talked about such behavioral research in regard to energy-efficiency policies with Michael Greenstone and others.  And, much more recently, in a podcast episode just released, I had the opportunity to talk with a behavioral economist who is now on the faculty of a school that’s focused on environmental studies.  I’m referring to Hunt Allcott, who is Professor of Global Environmental Policy at the Doerr School of Sustainability at Stanford University, and who – I’m proud to say – is a graduate of the PhD program in Public Policy at Harvard.  You can listen to our podcast conversation, produced by the Harvard Environmental Economics Program, here.

Allcott serves as Co-Director of the Stanford Environmental and Energy Policy Analysis Center, and is a Research Associate at the National Bureau of Economic Research, as well a member of the board of editors of the American Economic Journal: Economic Policy.

The crux of Allcott’s research focuses on the ways in which human behavior affects economic decisions and outcomes in a variety of contexts, and the lessons those have for policymaking. In our conversation, he cites several examples where government policy can influence consumer decisions in ways that will benefit both consumers and the environment.

“It’s like what behavioral economists call a shrouded attribute. It’s a future cost that’s kind of easy to forget when you’re making a purchase decision. So, if it’s… true that consumers aren’t thinking very hard about these future energy costs, then we’re probably erring on the side of buying too many gas guzzling cars and energy guzzling air conditioners and light bulbs. And so, as a result, the government can make us better off by pushing us in the direction of being more energy efficient,” Allcott remarked. “It was fun for me to… work with a group of others to develop actual empirical tests of, okay, how would you substantiate those consumer protection arguments in the data? So, that’s some of the work that I’m most proud of.”

Allcott also discusses the federal electric vehicle tax credits, which are designed to incentivize consumers to reduce carbon emissions.

“You subsidize a new electric vehicle, that’s a new EV on the road, [and] that’s good for the environment in most places. You give somebody a tax credit to buy a used EV, that’s just trading an electric vehicle from one person to another, and so there’s no new net vehicle on the road, at least [not] directly,” he stated. “Is the incidence really on the used vehicle buyer, in which case there’s no environmental benefit, or maybe the prices of used electric vehicles are going up because they’re worth more upon resale. That’s not as good for the buyers, but then it might induce more new electric vehicle sales because when you buy a new EV, you then recognize that the resale value might be higher.”

Allcott officially joined the faculty at the Doerr School in September 2022, just as the school was being launched.

“There are 60 existing faculty members that were moved into that school as part of earth systems, energy systems, civil engineering, and some other departments. I was actually… the first external hire of this school to reach through the provost and actually show up on campus. And so, I’ve been here for, I guess, 15, 16 months so far, and it’s just been a great experience trying to help Stanford have an even bigger imprint in this space of impact on energy and environmental issues.”

Ironically, Allcott notes that much of the research taking place at the Doerr School and in which he’s now engaged is not focused on behavioral economics.

“This has been an opportunity to step back and rethink what is the right research direction for the next five to ten years. And perhaps interestingly, all the topics that our group is now working on are what I would call non-behavioral topics. There’s not really a behavioral economics angle to them,” he explained. “Upon arriving at Stanford [I asked] ‘okay, I’m in the sustainability school. What are the most important environmental economics topics?’ I think energy efficiency and behavioral economics is still on that list, but there’s so much other stuff. There’s the Inflation Reduction Act, there is electricity market design, and then within each one of those two, there’s a lot of different sub-areas that we’re actually focusing on.”

You can hear this and much more in my conversation with Hunt Allcott, which is the 59th episode over the past four years of the Environmental Insights series, with future episodes scheduled to drop each month.  You can find a transcript of our conversation at the website of the Harvard Environmental Economics Program.  Previous episodes have featured conversations with:

“Environmental Insights” is hosted on SoundCloud, and is also available on iTunes, Pocket Casts, Spotify, and Stitcher.

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