Category: Economic Policy

On Becoming an Environmental Economist

My essay this month represents a departure from my standard blog posts about a contemporary environmental policy issue. Rather, it is of a more personal nature, and stems from the fact that the second volume of my collected papers has just been published by Edward Elgar, Economics of Climate Change and Environmental Policy: Selected Papers of Robert N. Stavins, 2000-2011 (2013), a successor to the first volume, published in 2000, Environmental Economics and Public Policy: Selected Papers of Robert N. Stavins, 1988-1999.

When the publisher invited me to collect my papers in these edited volumes, it was suggested that I write a personal introduction in which I might reflect on the professional path that led to my research and writing. I did this, and the introductory chapter of the second volume contains my latest reflections on that path. This essay essentially consists of an abbreviated version. My hope is that some readers will find it of interest, particularly students and others who aspire to work in this exciting and growing field.

A Professional Path

Over the past two decades, environmental and resource economics has evolved from what was once a relatively obscure application of welfare economics to a prominent field of economics in its own right. The number of articles on the natural environment appearing in mainstream economics periodicals has continued to increase, as has the number of economics journals dedicated exclusively to environmental and resource topics. Likewise, the influence of environmental economics on public policy has increased significantly, particularly as greater use has been made of market-based instruments for environmental protection.

In retrospect, my own professional path may now appear somewhat direct, if not altogether linear, but it hardly seemed so as I traveled along it. The path I describe below took me back and forth across the United States and to several continents, and it took me from physics to philosophy, to agricultural extension, to international development studies, to agricultural economics, and eventually to environmental economics. It culminated in my receipt in 1988 of a Ph.D. degree in economics at Harvard University, where I have since been a faculty member at the John F. Kennedy School of Government. During this time, much has changed in the profession.

Early Days at Harvard

The early ascendency of the field of environmental economics, during the period from 1970 to 1990, was centered within departments of agricultural and resource economics, mainly at U.S. universities, and at Resources for the Future (RFF), the Washington research institution. Within most economics departments, however, environmental studies remained a relatively minor area of applied welfare economics. So, when I enrolled in the Ph.D. program in Harvard’s Department of Economics in 1983, and when I received my degree five years later, no field of study was offered in the field of environmental or resource economics.

Fortunately, Harvard permitted its graduate students to develop an optional, self-designed field as one of two “special fields” on which they were to be examined orally before proceeding to dissertation research. Without an active environmental economist in the Department of Economics (Robert Dorfman had retired, and Martin Weitzman had yet to move to Harvard from the Massachusetts Institute of Technology), I developed an outline and reading list of the field through correspondence with leading scholars from other institutions, most prominently Kerry Smith, then at North Carolina State University. My proposal to prepare for and be examined in the special field of environmental and resource economics (along with econometrics) was approved by the Department’s director of graduate study, Dale Jorgenson. So began my entry into the scholarly literature.

A Nurturing Environment at Cornell

But my interest in environmental economics pre-dated by a considerable number of years my matriculation at Harvard. Like many others before and since, I came to the field because of a personal interest in the natural environment (the origin of which I describe below). This personal interest evolved into a professional one while I was studying for an M.S. degree in agricultural economics at Cornell University in the late 1970’s, where my thesis advisor and mentor was Kenneth Robinson. I had originally gone to Cornell to study for a professional degree in international development, but found agricultural economics more appealing, largely because of the opportunity to examine social questions with quantitative methods within a disciplinary framework.

The faculty at Cornell and the care given to graduate students (including masters students like me) were both outstanding. Ken Robinson, my first mentor within the economics profession, became my ongoing role model for intellectual integrity. It was a very sad day in 2010 when Professor Robinson passed away.

A course in linear algebra, brilliantly taught by S. R. Searle, inspired me to pursue quantitative methods of analysis, and I was fortunate to then have the opportunity to study econometrics with Tim Mount. One summer I had the great privilege of learning comparative economic systems in a small workshop setting from George Staller of the Cornell Department of Economics. Working with Bud Stanton, I had my first experience teaching at the university level, and with Olan Forker, I had my first try at serious writing. All of this led to research and writing of an M.S. thesis, “Forecasting the Size Distribution of Farms: A Methodological Analysis of the Dairy Industry in New York State.” The methodology in question was a variable Markov transition probability matrix, the cells of which were estimated econometrically in a multinomial logit framework. Much to my surprise, this work subsequently received the Outstanding Master’s Thesis Award in the national competition of the American Agricultural Economics Association.

A Defining Move from Ithaca to Berkeley

Armed with my M.S. degree, I moved from Cornell to Berkeley, California, where I eventually met up with Phillip LeVeen, who had until shortly before that time been a faculty member in the Department of Agricultural and Resource Economics at the University of California, Berkeley. Phil was another superb mentor, and from him I learned the power of using simple models — by which I mean a set of supply and demand curves hastily drawn on a piece of scrap paper — to develop insights into real-world policy problems. He introduced me to a topic that was to occupy me for the next few years — California’s perpetual concerns with water allocation. I remember many afternoons spent working with Phil at his dining room table on questions of water supply and demand.

This work with Phil LeVeen led to a consultancy and then a staff position with the Environmental Defense Fund (EDF), the national advocacy group consisting of lawyers, natural scientists, and — then almost unique among environmental advocacy organizations — economists. At EDF, I was able to experience for the first time the use of economic analysis in pursuit of better environmental policy. With W. R. Zach Willey, EDF’s senior economist in California, as a role model, and Thomas Graff, EDF’s senior attorney, as my mentor, I thrived in EDF’s collegial atmosphere, while thoroughly enjoying life in Berkeley’s “gourmet ghetto,” as my neighborhood was called. Sadly, Tom Graff — without whose mentorship I would not be where I am today — passed away in 2009 after a heroic battle with cancer.

Although I found the work at EDF exceptionally rewarding, I worried that I would eventually be constrained — either within the organization or outside it — by my limited education. So, like many others in similar situations, I considered a law degree as the next logical step. In fact, I came very close to enrolling at Stanford Law School, but instead, in 1983, I accepted an offer of admission to the Department of Economics at Harvard, moved back east to Cambridge, Massachusetts, and began what has turned out to be a long-term relationship with the University.

Origins of Interest in Environmental Economics

But where did my interest in the natural environment begin? Not at Cornell; it was present long before those days. But it had not yet arisen when I was studying earlier at Northwestern University, from which I received a B.A. degree in philosophy, having departed from my first scholarly interest, astronomy and astrophysics.

Rather, the origins of my affinity for the natural environment and my interest in resource issues are to be found in the four years I spent in a small, remote village in Sierra Leone, West Africa, as a Peace Corps Volunteer, working in agricultural extension (in particular, paddy rice development). It was there that I was first exposed both to the qualities of a pristine natural environment and the trade-offs associated with economic development.

So, I had begun in astrophysics, moved to philosophy (both at Northwestern), then to agricultural extension in a developing country (Sierra Leone), then to international development studies and subsequently to agricultural economics (both at Cornell), then to environmental economics and policy (EDF), and eventually to graduate study in economics at Harvard.

From Berkeley to Cambridge

My dissertation research at Harvard was directed by a committee of three faculty members: Joseph Kalt, Zvi Griliches, and Adam Jaffe. Joseph Kalt was the first faculty member at the Department of Economics to validate my interest in environmental and resource issues, and he was unfailingly generous to me and many other graduate students in making his office (and computer, then a rather scarce resource) available at all hours. Now a colleague at the Kennedy School, Joe provided examples never to be forgotten — that economics could be a meaningful and enjoyable pursuit, and that excellence in teaching was a laudable goal.

Zvi Griliches was not only my advisor and mentor, but my spiritual father as well. Generations of Harvard graduate students would offer similar testimony. My own father had died only a year before I entered Harvard, and Zvi soon filled for me many paternal needs. It is now more than a decade since Zvi himself passed away. I felt as if I had lost my father a second time.

If Zvi Griliches provided caring and inspiration, Adam Jaffe provided invaluable day-to-day guidance. It was Adam who convinced me not to go on the job market in my fourth year with what would have been a mediocre dissertation, but to put in another year and do it right. That turned out to be some of the best professional advice I have ever received. Our intensive faculty-student relationship from dissertation days subsequently evolved into a very productive professional (and personal) one that continues to this day. The name of Adam Jaffe appears frequently in my curriculum vitae as a co-author; he has been and continues to be much more than that.

Although they were not members of my thesis committee, I should acknowledge two other faculty members at the Harvard Department of Economics who played important roles in my education. I was fortunate to take two courses in economic history (a department requirement) from Jeffrey Williamson, who had recently arrived from the University of Wisconsin. Williamson’s class sessions were as close as anything I have witnessed to being an economic research laboratory. In class after class, we would carefully dissect one or more articles — examining hypothesis, theoretical model, data, estimation method, results, and conclusions. If there was any place where I actually learned how to carry out economic research, it was in those classes.

The other name that is important to highlight is that of Lawrence Goulder, then a faculty member at Harvard, and now a professor at Stanford. I say this not simply because he was willing to be my examiner in my chosen field of environmental and resource economics, nor because he subsequently became such a close friend. Rather, what is striking about my professional relationship with Larry is the degree to which he has been an unnamed collaborator on so many projects of mine. Although he and I have co-authored no more than a few articles, his name probably appears more frequently than anyone else’s in the acknowledgments of papers I have written. There is no one whose overall judgement in matters of economics I trust more, and no one who has been more helpful.

First Steps for a Newly-Minted Ph.D. Recipient

When I began graduate school at Harvard in 1983, it was my intention to return to EDF as soon as I received my degree. But by my third year in the program, I had decided to pursue an academic career, although one that was heavily flavored with involvement in the real world of public policy. Within the context of this professional objective, it was not a difficult decision to accept the offer I received in February, 1988, to become an Assistant Professor at the Kennedy School. Although some of the other offers I received at that time were also very attractive, the choice for me was obvious, and I have never regretted it — not for a moment.

I remain at the Kennedy School today, where I was promoted to Associate Professor in 1992 (an untenured rank at Harvard), and to a tenured position as Professor of Public Policy in 1997. In 1998, I accepted an appointment as the Albert Pratt Professor of Business and Government.

Twenty-Five Years on the Harvard Faculty

Two years later, I launched the Harvard Environmental Economics Program, which today brings together — from across the University — thirty Faculty Fellows and twenty-five Pre-Doctoral Fellows, who are graduate students studying for the Ph.D. degree in economics, political economy and government, public policy, or health policy. The Program, which I continue to direct, forms links among faculty and graduate students engaged in research, teaching, and outreach in environmental, natural resource, and energy economics and related public policy, by sponsoring research projects, convening workshops, and supporting graduate (and undergraduate) education.

A key reason why the Program — and its various projects, including the Harvard Project on Climate Agreements — have been so successful is the superb administrative leadership and staff support it enjoys. Everyone who has been involved in virtually any way has come away impressed by our Executive Director, Robert Stowe, and Program Manager, Jason Chapman.

At the Kennedy School, I have had an excellent mentor, William Hogan, and a superb advisor and friend, Richard Zeckhauser. Over the years, five successive deans have provided leadership, guidance, and support (including abundant time for my research and writing) — Graham Allison, Robert Putnam, Albert Carnesale, Joseph Nye, and David Ellwood. At Harvard more broadly, I have benefitted from regular interactions with Daniel Schrag, director of the Harvard University Center for the Environment, and Martin Weitzman of the Department of Economics. For two decades, Marty and I have co-directed a bi-weekly Seminar in Environmental Economics and Policy, which has provided me with frequent opportunities to learn both from seminar speakers and from Marty’s questions and comments. I will refrain from naming the many others at Harvard and elsewhere from whom I continue to learn — including my many co-authors — only because the list of such valued colleagues and friends is so long. Included have been a most remarkable set of Ph.D. students, many of whom have gone on to productive — indeed illustrious — careers.

Along the way, I have had my share of administrative responsibilities at Harvard, including serving as Director of Graduate Studies for the Doctoral Program in Public Policy and the Doctoral Program in Political Economy and Government, and Co-Chair of the Harvard Business School-Harvard Kennedy School Joint Degree Programs. Outside of Harvard, I have had the privilege of being a University Fellow of Resources for the Future, a Research Associate of the National Bureau of Economic Research, and the founding Editor and now Co-Editor of the Review of Environmental Economics and Policy, as well as a member of the Board of Directors of Resources for the Future, the Scientific Advisory Board of the Fondazione Eni Enrico Mattei, and numerous editorial boards. I must also note that I serve as an editor of the Journal of Wine Economics. In 2009, I was elected a Fellow of the Association of Environmental and Resource Economists.

Working with the “Real World”

What originally attracted me to the Kennedy School was the possibility of combining an academic career with extensive involvement in the development of public policy. I have not been disappointed. Indeed, a theme that emerges from my collected papers is the interplay between scholarly economic research and implementation in real-world political contexts. This is a two-way street. In some cases, my policy involvement has come from expertise I developed through research, following a path well worn by academics. But, in many other cases, my participation in policy matters has stimulated for me entirely new lines of inquiry.

What I have characterized as involvement in policy matters is described at the Kennedy School as faculty outreach, recognized to be of great institutional and social value, along with the two other components of our three-legged professional stool — research and teaching. Because they relate to a number of the papers collected in this volume, I should note that my outreach efforts fall into five broad categories: advisory work with members of Congress and the White House (for example, Project 88, a bipartisan effort co-chaired by former Senator Timothy Wirth and the late Senator John Heinz, to develop innovative approaches to environmental and resource problems); service on federal government panels (for example, my role as Chairman of the Environmental Economics Advisory Committee of the U.S. Environmental Protection Agency Science Advisory Board); on-going consulting — often on an informal basis — with environmental NGOs (most frequently, the Environmental Defense Fund) and private firms; advisory work with state governments; and professional interventions in the international sphere, such as service as a Lead Author for the Second and the Third Assessment Reports and a Coordinating Lead Author for the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, professional roles with the World Bank and other international organizations, and advisory work with foreign governments.

Finally, because my two books of collected papers focus on my articles, not my books, I should note that over the years I have been privileged to be co-editor with Joseph Aldy of Post-Kyoto International Climate Policy: Implementing Architectures for Agreement (Cambridge University Press, 2010), Post-Kyoto International Climate Policy: Summary for Policymakers (Cambridge University Press, 2009), and Architectures for Agreement: Addressing Global Climate Change in the Post-Kyoto World (Cambridge University Press, 2007); editor of three editions of Economics of the Environment (W. W. Norton, 2000, 2005, 2012); co-editor with Bruce Hay and Richard Vietor of Environmental Protection and the Social Responsibility of Firms: Perspectives from Law, Economics, and Business (Resources for the Future, 2005); editor of The Political Economy of Environmental Regulation (Edward Elgar, 2004), co-editor with Paul Portney of Public Policies for Environmental Protection (Resources for the Future, 2000); and author of Environmental Economics and Public Policy: Selected Papers of Robert N. Stavins, 1988-1999 (Edward Elgar, 2000).

The New Volume

That last book is the predecessor of the new volume. Whereas the first volume (Stavins 2000) included selected papers from the period 1988 through 1999, the second volume covers the period from 2000 through 2011. To prepare this new book, I selected 26 articles from the (many more) published papers I wrote — frequently with co-authors — over the past decade. Making this selection was not an easy task, but it was a rewarding one, because choosing the papers and organizing them has forced me to step back and reflect on the set of research endeavors in which I have been engaged over this decade, and thus to think more clearly about current and possible future directions.

The book is divided into seven parts. The papers in Part I provide an overview of environmental and resource economics, treating broadly several key topics, including economic views of: the problem of the commons (Stavins, American Economic Review, 2011); the history of U.S. environmental regulation (Hahn, Olmstead, and Stavins, Harvard Environmental Law Review, 2003); and corporate social responsibility (Reinhardt, Stavins, and Vietor, Review of Environmental Economics and Policy, 2008).

The articles in Part II deal with methods of environmental policy analysis, focusing, respectively, on: interpreting sustainability in economic terms (Stavins, Wagner, and Wagner, Economic Letters, 2003); the use of discounting in net present value analysis (Goulder and Stavins, Nature, 2002); the development of a new revealed-preference method for inferring environmental benefits (Bennear, Stavins, and Wagner, Journal of Regulatory Economics, 2005); and the value of formal assessment of uncertainty (that is, Monte Carlo analysis) in regulatory impact analysis (Jaffe and Stavins, Regulation and Governance, 2007).

Part III turns to economic analysis of alternative environmental policy instruments, with examinations of: vintage-differentiated environmental regulation (Stavins, Stanford Environmental Law Journal, 2006); cost heterogeneity and the potential savings from employing market-based environmental policies (Newell and Stavins, Journal of Regulatory Economics, 2003); the effects of allowance allocations on the performance of cap-and-trade systems (Hahn and Stavins, Journal of Law and Economics, 2011); and second-best theory and the use of multiple policy instruments (Bennear and Stavins, Environmental and Resource Economics, 2007).

Part IV focuses on a topic that also received considerable treatment in the predecessor to this volume, namely the economics of technological change. Here the articles include: a survey of the literature on environmental policy and technological change (Jaffe, Newell, and Stavins, Environmental and Resource Economics, 2002); an analysis of the interaction of environmental and technological market failures (Jaffe, Newell, and Stavins, Ecological Economics, 2005); an empirical assessment of the effect of environmental regulation on technology diffusion in the case of chlorine manufacturing (Miller, Snyder, and Stavins, American Economic Review Papers and Proceedings, 2003); and the effects of economic and policy incentives on carbon mitigation technologies (Jaffe, Newell, and Stavins, Energy Economics, 2006).

Part V consists of three articles in the area of natural resource economics dealing with land and water resources: an analysis of the factors driving land-use change in the United States (Lubowski, Plantinga, and Stavins, Land Economics, 2008); an econometric examination of the significance of terroir, the notion that wine quality is primarily determined by location (Cross, Plantinga, and Stavins, American Economic Review Papers and Proceedings, 2011); and an assessment of urban water demand under alternative pricing structures (Olmstead, Hanemann, and Stavins, Journal of Environmental Economics and Management, 2007).

Part VI consists of four articles on domestic (national and sub-national) climate change policy, beginning with a description and assessment of a comprehensive U.S. cap-and-trade system for carbon dioxide and other greenhouse gas emissions (Stavins, Oxford Review of Economic Policy, 2008), and followed by: an examination of the interactions of national and sub-national climate policies (Goulder and Stavins, American Economic Review Papers and Proceedings, 2011); an econometric study of the carbon-sequestration supply function (Lubowski, Plantinga, and Stavins, Journal of Environmental Economics and Management, 2006); and an assessment of the factors that affect the costs of biological carbon sequestration (Newell and Stavins, Journal of Environmental Economics and Management, 2000).

Finally, Part VII focuses on the international dimensions of climate change policy, and consists of four articles: a comparison of alternative global climate change policy architectures (Aldy, Barrett, and Stavins, Climate Policy, 2003); an assessment of the Kyoto Protocol (Stavins, Milken Institute Review, 2005); an examination of a promising post-Kyoto international climate regime (Olmstead and Stavins, American Economic Review Papers and Proceedings, 2006); and a detailed examination of a key element of emerging international climate policy architecture, namely the linkage of regional, national, and sub-national tradable permit systems (Ranson, Jaffe, and Stavins, Ecology Law Quarterly, 2010).

Reflections on Common Themes

Selecting the essays for this second volume of my papers permitted me to take note of some common themes that emerge from this decade of research and writing. First, there is the value — or at least, the potential value — of economic analysis of environmental policy. The cause of virtually all environmental problems in a market economy is economic behavior (that is, imperfect markets affected by externalities), and so economics offers a powerful lens through which to view environmental problems, and therefore a potentially effective set of analytical tools for designing and evaluating environmental policies.

A second message, connected with the first, is the specific value of benefit-cost analysis for helping to promote efficient policies. Economic efficiency ought to be one of the key criteria for evaluating proposed and existing environmental policies. Despite its limitations, benefit-cost analysis can be useful for consistently assimilating the disparate information that is pertinent to sound decision making. If properly done, it can be of considerable help to public officials when they seek to establish or assess environmental goals.

Third, the means governments use to achieve environmental objectives matter greatly, because different policy instruments have very different implications along a number of dimensions, including abatement costs in both the short and the long term. Market-based instruments are particularly attractive in this regard.

Fourth, an economic perspective is also of considerable value when reflecting on the use of natural resources, whether land, water, fisheries, or forests. Excessive rates of depletion of these resources are frequently due to the nature of the respective property-rights regimes, in particular, common property and open-access. Economic instruments — such as ITQ systems in the case of fisheries — can and have been employed to bring harvesting rates down to socially efficient levels.

Fifth and finally, policies for addressing global climate change — linked with emissions of carbon dioxide and other greenhouse gases — can benefit greatly from the application of economic thinking. On the one hand, the long time-horizon of climate change, the profound uncertainty in links between emissions and actual damages, and the possibility of catastrophic climate change present significant challenges to conventional economic analysis. But, at the same time, the ubiquity of energy generation and use in modern economies means that only market-based policies — essentially carbon pricing regimes — are feasible instruments for achieving truly meaningful emissions reductions. Hence, despite the challenges, an economic perspective on this grandest of environmental threats is essential.

Final Words

On a personal level, the professional path I have taken offers some confirmation that research can influence public policy, and it also illustrates that involvement in public policy can stimulate new research. The quest — both professional and personal — that took me from Evanston, Illinois, to Sierra Leone, West Africa, to Ithaca, New York, to Berkeley, California, and finally to Cambridge, Massachusetts suggests some consistency of purpose and even function. I continue to find myself doing similar things, but in different contexts. It is fair to say that my professional life has taken me along a path that has brought me home. The words of T. S. Eliot (1943) ring true:

We shall not cease from exploration
And the end of all our exploring
Will be to arrive where we started
And know the place for the first time.

Selecting the papers for this volume forces me to reflect on the past and think more clearly about the future. The twenty-six articles that comprise this book and the twenty-two essays that comprised the predecessor volume are the product of twenty-three wonderful years on the faculty of the Harvard Kennedy School. During this time, I have continued to learn about environmental economics and related public policy from colleagues, collaborators, students, friends, and inhabitants of the ”real world” of public policy, individuals from government, private industry, advocacy groups, and the press. I hope that my learning will continue.

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The Second Term of the Obama Administration

In his inaugural address on January 21st, President Obama surprised many people – including me – by the intensity and the length of his comments on global climate change.  Since then, there has been a great deal of discussion in the press and in the blogosphere about what climate policy initiatives will be forthcoming from the administration in its second term.

Given all the excitement, let’s first take a look at the transcript of what the President actually said on this topic:

            We will respond to the threat of climate change, knowing that the failure to do so would betray our children and future generations. Some may still deny the overwhelming judgment of science, but none can avoid the devastating impact of raging fires, and crippling drought, and more powerful storms.  The path towards sustainable energy sources will be long and sometimes difficult. But American cannot resist this transition.  We must lead it.  We cannot cede to other nations the technology that will power new jobs and new industries.  We must claim its promise. That’s how we will maintain our economic vitality and our national treasure, our forests and waterways, our crop lands and snow capped peaks.  That is how we will preserve our planet, commanded to our care by God.

Strong and plentiful words.  Although I was certainly surprised by the strength and length of what the President said in his address, I confess that it did not change my thinking about what we should expect from the second term.  Indeed, I will stand by an interview that was published by the Harvard Kennedy School on its website five days before the inauguration (plus something I wrote in a previous essay at this blog in December, 2012).  Here it is, with a bit of editing to clarify things, and some hyperlinks inserted to help readers.

The Second Term: Robert Stavins on Energy and Environmental Policy

January 16, 2013

By Doug Gavel, Harvard Kennedy School Communications

President Obama’s second term in office began on Inauguration Day, January 21st, and the list of policy challenges facing his administration is daunting. Aside from the difficult task of addressing the nation’s economic woes, the president and his administration will also deal with the increasing complexities of global climate change, a rapidly changing energy market, entitlement and tax reform, healthcare reform, and the repercussions from the still simmering “Arab Spring.” Throughout this month, we will solicit the viewpoints of a variety of HKS faculty members to provide a range of perspectives on the promise and pitfalls of The Second Term.

We spoke with Robert Stavins, Albert Pratt Professor of Business and Government, and Director of the Harvard Environmental Economics Program, about energy and environmental policy issues the president will face in the next four years.

Q: What are the top priorities for a second Obama administration in energy and environmental policy?

A: The Obama administration faces a number of impending challenges in the energy and environmental policy realm in its second term, which I would characterize – in very general terms – as finding balance among three competing factors: (1) demands from some constituencies for more aggressive environmental policies; (2) demands from other constituencies – principally in the Congress – for progress on so-called “energy security;” and (3) recognition that nothing meaningful is likely to happen if the country’s economic problems are not addressed.

Q: What will be the potential challenges/roadblocks in the way of implementing those top priorities?

A: The key challenge the administration faces in its second term as it attempts to achieve some balance among these three competing objectives is the reality of a very high degree of political polarization in the two houses of Congress.

The numbers are dramatic.  For example, when the Clean Air Act Amendments of 1990 that established the landmark SO2 allowance trading system were being considered in the U.S. Congress, political support was not divided on partisan lines. Indeed, environmental and energy debates from the 1970s through much of the 1990s typically broke along geographic lines, rather than partisan lines, with key parameters being degree of urbanization and reliance on specific fuel types, such as coal versus natural gas. The Clean Air Act Amendments of 1990 passed the U.S. Senate by a vote of 89-11 with 87 percent of Republican members and 91 percent of Democrats voting yea, and the legislation passed the House of Representatives by a vote of 401-21 with 87 percent of Republicans and 96 percent of Democrats voting in support.

But, 20 years later when climate change legislation was receiving serious consideration in Washington, environmental politics had changed dramatically, with Congressional support for environmental legislation coming mainly to reflect partisan divisions. In 2009, the U.S. House of Representatives passed the American Clean Energy and Security Act of 2009 (H.R. 2454), often known as the Waxman-Markey bill, that included an economy-wide cap-and-trade system to cut carbon dioxide (CO2) emissions. The Waxman-Markey bill passed by a narrow margin of 219-212, with support from 83 percent of Democrats, but only 4 percent of Republicans. (In July 2010, the U.S. Senate abandoned its attempt to pass companion legislation.) Political polarization in the Congress (and the country) has implications far beyond energy and environmental policy, but it is particularly striking in this realm.

Q: In the Obama administration’s second term, are there openings/possibilities for compromises in those areas?

A: It is conceivable – but in my view, unlikely – that there may be an opening for implicit (not explicit) “climate policy” through a carbon tax. At a minimum, we should ask whether the defeat of cap-and-trade in the U.S. Congress, the virtual unwillingness over the past 18 months of the Obama White House to utter the phrase “cap-and-trade” in public, and the defeat of Republican Presidential candidate Mitt Romney indicate that there is a new opening for serious consideration of a carbon-tax approach to meaningful CO2 emissions reductions in the United States.

First of all, there surely is such an opening in the policy wonk world. Economists and others in academia, including important Republican economists such as Harvard’s Greg Mankiw and Columbia’s Glenn Hubbard, remain enthusiastic supporters of a national carbon tax. And a much-publicized meeting in July, 2012, at the American Enterprise Institute in Washington, D.C. brought together a broad spectrum of Washington groups – ranging from Public Citizen to the R Street Institute – to talk about alternative paths forward for national climate policy. Reportedly, much of the discussion focused on carbon taxes.

Clearly, this “opening” is being embraced with enthusiasm in the policy wonk world. But what about in the real political world? The good news is that a carbon tax is not “cap-and-trade.” That presumably helps with the political messaging! But if conservatives were able to tarnish cap-and-trade as “cap-and-tax,” it surely will be considerably easier to label a tax – as a tax! Also, note that President Obama’s silence extends beyond disdain for cap-and-trade per se. Rather, it covers all carbon-pricing regimes.

So as a possible new front in the climate policy wars, I remain very skeptical that an explicit carbon tax proposal will gain favor in Washington. Note that the only election outcome that could have lead to an aggressive and successful move to a meaningful nationwide carbon pricing regime would have been: the Democrats took back control of the House of Representatives, the Democrats achieved a 60+ vote margin in the Senate, and the President was reelected. Only the last of these happened. It’s not enough.

A more promising possibility – though still unlikely – is that if Republicans and Democrats join to cooperate with the Obama White House to work constructively to address the short-term and long-term budgetary deficits the U.S. government faces, and if as part of this they decide to include not only cuts in government expenditures, but also some significant “revenue enhancements” (the t-word is not allowed), and if (I know, this is getting to be a lot of “ifs”) it turns out to be easier politically to eschew increases in taxes on labor and investment and turn to taxes on consumption, then there could be a political opening for new energy taxes, even a carbon tax.

Such a carbon tax – if intended to help alleviate budget deficits – could not be the economist’s favorite, a revenue-neutral tax swap of cutting distortionary taxes in exchange for implementing a carbon tax. Rather, as a revenue-raising mechanism – like the Obama administration’s February 2009 budget for a 100%-auction of allowances in a cap-and-trade scheme – it would be a new tax, pure and simple. Those who recall the 1993 failure of the Clinton administration’s BTU-tax proposal – with a less polarized and more cooperative Congress than today’s – will not be optimistic.

Nor is it clear that a carbon tax would enjoy more support in budget talks than a value added tax (VAT) or a Federal sales tax. The key question is whether the phrases “climate policy” and “carbon tax” are likely to expand or narrow the coalition of support for an already tough budgetary reconciliation measure.  The key group to bring on board will presumably be conservative Republicans, and it is difficult to picture them being more willing to break their Grover Norquist pledges because it’s for a carbon tax.

What remains most likely to happen is what I’ve been saying for several years, namely that despite the apparent inaction by the Federal government, the official U.S. international commitment — a 17 percent reduction of CO2 emissions below 2005 levels by the year 2020 – is nevertheless likely to be achieved!  The reason is the combination of CO2 regulations which are now in place because of the Supreme Court decision [freeing the EPA to treat CO2 like other pollutants under the Clean Air Act], together with five other regulations or rules on SOX [sulfur compounds], NOX [nitrogen compounds], coal fly ash, particulates, and cooling water withdrawals. All of these will have profound effects on retirement of existing coal-fired electrical generation capacity, investment in new coal, and dispatch of such electricity.

Combined with that is Assembly Bill 32 (AB 32) in the state of California, which includes a CO2 cap-and-trade system that is more ambitious in percentage terms than Waxman-Markey was in the U.S. Congress, and which became binding on January 1, 2013.  Add to that the recent economic recession, which reduced emissions. And more important than any of those are the effects of developing new, unconventional sources of natural gas in the United States on the supply, price, and price trajectory of natural gas, and the consequent dramatic movement that has occurred from coal to natural gas for generating electricity.  In other words, there will be actions having significant implications for climate, but most will not be called “climate policy,” and all will be within the regulatory and executive order domain, not new legislation.

Q: Are there lessons that a second Obama administration can draw upon from the first administration, or from history, when constructing its energy & environmental policy over the next four years?

A: It will take a great deal of dedicated effort and profound luck to find political openings that can bridge the wide partisan divide that exists on climate change policy and other environmental issues. Think about the following. Nearly all our major environmental laws were passed in the wake of highly publicized environmental events or “disasters,” including the spontaneous combustion of the Cuyahoga River in Cleveland, Ohio, in 1969, and the discovery of toxic substances at Love Canal in Niagara Falls, New York, in the mid-1970s. But note that the day after the Cuyahoga River caught on fire, no article in The Cleveland Plain Dealer commented that the cause was uncertain, that rivers periodically catch on fire from natural causes. On the contrary, it was immediately apparent that the cause was waste dumped into the river by adjacent industries. A direct consequence of the observed “disaster” was, of course, the Clean Water Act of 1972.

But climate change is distinctly different. Unlike the environmental threats addressed successfully in past U.S. legislation, climate change is essentially unobservable to the general population. We observe the weather, not the climate.  Notwithstanding last year’s experience with Super Storm Sandy, it remains true that until there is an obvious, sudden, and perhaps cataclysmic event – such as a loss of part of the Antarctic ice sheet leading to a dramatic sea-level rise – it is unlikely that public opinion in the United States will provide the tremendous bottom-up demand that inspired previous congressional action on the environment over the past forty years.

That need not mean that there can be no truly meaningful, economy-wide climate policy (such as carbon-pricing) until disaster has struck.  But it does mean that bottom-up popular demand may not come in time, and that instead what will be required is inspired leadership at the highest level that can somehow bridge the debilitating partisan political divide.

Postscript:  Please note that the Kennedy School series on the second term of the Obama administration also includes an interview with my colleague, Professor Joseph Aldy, offering his own views on potential environmental policy developments in the next four years.

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Reflections from Cambridge on the Climate Talks in Doha

Ever since I returned – some two weeks ago – from Doha, Qatar, the site of the Eighteenth Conference of the Parties (COP-18) of the United Nations Framework Convention on Climate Change (UNFCCC), I have planned to offer some commentary on this year’s annual climate negotiations, including the principal outcome, namely, the “Doha Gateway.” I decided to wait, mainly in order to put some geographic and temporal distance between the conference and my thoughts, so that I could reflect on “the forest,” rather than enumerating “the trees.”

Then, a few days ago, a reporter from the Harvard Gazette, Alvin Powell, came to my office to discuss this very subject. Having covered this and related topics for a number of years, he has considerable background on both the science and the policy. And he had done his homework to prepare for the interview. When I read the published result just now in the Harvard Gazette, I realized that this is – in fact – the reflection I had wanted to write for readers of this blog. So I’m offering it here.

The interview started with a quick history of climate negotiations, a brief description of my own role at COP-18 in Doha, and then an assessment of the conference’s outcome. From there, the conversation became more freewheeling, with Mr. Powell asking me about the status of U.S. climate policy, as well as the potential role and responsibility of a major research university such as ours. At the end of the interview, we returned to reflections on the slow pace of international climate negotiations.

You can read the original version in the Harvard Gazette here, but I also offer the published version below without any editing (but with the addition of some hyperlinks for interested readers).

Harvard Gazette

Climate change on world stage

Q&A with Robert Stavins on prospects for adopting a plan to confront it

By Alvin Powell

Harvard Staff Writer

Wednesday, December 19, 2012

International climate talks wrapped up last week in Qatar. Harvard Professor Robert Stavins attended and characterized the gathering as a qualified success, representing another step in a long process of reaching a workable international agreement.

Gazette staff writer Al Powell talked with Stavins about the work of international delegates and the prospects for a meaningful agreement going forward.

GAZETTE: Can you explain the purpose of these talks?

STAVINS: In 1992, at a United Nations conference in Rio de Janeiro, a major outcome was the adoption of the United Nations Framework Convention on Climate Change. Among other things, that convention provided for annual conferences at which representatives of countries would get together to discuss and negotiate how to address the threat of climate change. These annual negotiations go by the name of a “Conference of the Parties,” commonly abbreviated as a “COP.” COP-1 took place in Berlin in 1995, and COP-18 just took place in Doha, Qatar, in December 2012.

GAZETTE: What is your role at these conferences?

STAVINS: My role is typically on behalf of the Harvard Project on Climate Agreements. Our purpose is to help the various national negotiating teams identify modes of international cooperation that will address climate change in ways that are scientifically sound, economically rational, and politically pragmatic.

We hold events to which everyone is invited, two events this time. One of the mandates that came out of the Durban conference in December 2012 was for the delegates to think about new ways they can make use of the market to address the threat of climate change. We put together a panel of people to talk about potential “new market mechanisms.” We had a room with a capacity of several hundred, and every seat was taken. People were standing in the aisles, sitting on the floors, and spilling out into the hallway waiting to get in. In other words, interest in our intellectual contributions was at a high level. Importantly, the session was jointly sponsored with the Enel Foundation and the International Emissions Trading Association, which is a trade association of companies interested in emissions trading and related mechanisms.

The second event was co-sponsored with the government of the State of Qatar, and looked forward, post-Doha, to the potential paths ahead, with particular focus on the problems of arid countries, a chronic issue for the Middle East. The panel included Fahad Bin Mohammed Al-Attiya, chairman of the Qatar National Food Security Programme, who is one of the key thinkers and leaders on these issues.

In addition, we carry out bilateral meetings with negotiating teams and also do press meetings. Typically, we hold a couple dozen such meetings.

GAZETTE: How do you feel the conference went?

STAVINS: My view is that these international negotiations need to be viewed not as a sprint, in which you win or lose, but as a very long distance relay race, and the Qataris succeeded in handing off the baton.

The Qataris invited us to Doha last summer to help them begin to think about what success at the December conference would look like and how they could achieve it. There were three aspects to what we identified in advance as success, and they achieved all three, though maybe not to the degree or in the way that every country in the world would have preferred.

GAZETTE: What were those three?

STAVINS: First, they successfully brought to a close negotiations on a second commitment of the Kyoto Protocol, that is, extending the protocol beyond its first commitment period, which expires at the end of 2012. The second commitment period is now set. It will run to 2020. Second, they also brought to a successful close negotiations in what was called the Long Term Cooperative Action track, which included a set of issues that were put on the table at COP-13 in Bali in December 2007. Third, they began to make some progress on the one remaining negotiating track, which is the Durban Platform for Enhanced Action. They initiated discussions about establishing, by 2015, a comprehensive new international agreement, for implementation by 2020, that will include all key countries in the world, including the major emerging economies of China, India, Brazil, Korea, South Africa, and Mexico. That itself is a departure from the Kyoto Protocol, which is focused exclusively on a subset of countries of what used to be characterized as the industrialized world.

The negotiators from around the world did not make as much progress on the Durban platform as I would have hoped. But at a very minimum they did no harm, and that’s very important. That is, they did not introduce any problematic text into the negotiations that will later cause problems. In general, my view of these annual Conferences of the Parties is similar to the physician’s Hippocratic Oath: Do no harm, and keep things moving ahead.

GAZETTE: In looking at news coverage, I read about two emotions, anger and despair, felt by some after the conference. Are those warranted?

STAVINS: AOSIS [Alliance of Small Island States] nations are the most extreme in their point of view, for very good reasons, and they were surely disappointed by the outcomes. They’ve been very vocal, again for good reason. But the major emitters, the only ones that can do anything about the problem — the United States, China, the other large economies of the world, among them — there was recognition that in the real world, this is what success looks like.

I think of this as if we’re back at Bretton Woods in 1944, when Europe was in shambles. An agreement was reached at Bretton Woods, but it took 50 years to establish the World Trade Organization, and to continue the process of putting the global financial house in order. The problem of global climate change is actually more difficult politically than the economic problems that the world faced after World War II. We have this terrible situation where those who can reduce their emissions now are not the ones who will be damaged by climate change. You’re asking current voters to foot the bill, while it’s the future generation that will benefit from reduced damage. Furthermore, any country taking action will foot the bill for its costs, but the benefits of those actions — reduced climate change — will be spread globally. Hence, for any individual country the direct benefits of action will inevitably be less than the direct costs of action, despite the fact that global benefits may be considerably greater than global costs. That’s the global commons problem, and it creates an incentive for each country to free ride on the actions of others. So politically, it’s an exceptionally challenging problem.

GAZETTE: What about the gap between the emissions cuts that were promised and that have been achieved?

STAVINS: What became clear to me at the conference is that there is increasing acceptance of three facts from a broad set of delegations. One was that the frequently discussed target of limiting concentrations to 450 parts per million [of CO2 in the atmosphere], which is equated to approximately 2 degrees centigrade maximum warming, is simply not achievable.

Number two, there’s increasing recognition that a bottom-up international policy architecture is probably the future path forward, not a top-down approach. By top down, I mean a highly centralized approach like the Kyoto Protocol, with targets and timetables, as opposed to a bottom-up, pledge-and-review approach in which each country essentially says, “Look, this is what I can do,” and they put all of those into the hopper.

The third thing I observed was that there was greatly increased acceptance of the reality that market–based approaches to emissions reduction are absolutely essential. One heard this in the past from economists and from certain countries, but now it is unanimous, except for the small set of Marxist economies that essentially object to the world economic order.

GAZETTE: Where does the U.S. stand on that issue?

STAVINS: The U.S. has been at the forefront of that approach back to the Clinton administration. What’s interesting is that the official U.S. commitment under this pledge-and-review approach, a 17 percent reduction below 2005 emissions by the year 2020, is very likely to be achieved.

The reason is the combination of CO2 regulations which are now in place because of the Supreme Court decision [freeing the EPA to treat CO2 like other pollutants under the Clean Air Act], together with five other regulations or rules on SOX [sulfur compounds], NOX [nitrogen compounds], coal fly ash, particulates, and cooling water withdrawals. All of those will have profound effects on retirement of existing coal-fired electrical generation capacity, investment in new coal, and dispatch of such electricity. Combined with that is California, which Jan. 1, 2013, is putting in place a CO2 cap-and-trade system that is more ambitious in percentage terms than Waxman-Markey was in the U.S. Congress. Add to that the recent economic recession, which reduced emissions. And more important than any of those is what new, unconventional sources of natural gas in the United States have done to the price and price trajectory of natural gas, and the dramatic movement from coal to natural gas for generating electricity.

GAZETTE: Are there things that places like Harvard can do?

STAVINS: My view is that the best thing that Harvard can do is to carry out first-rate research, combined with the best possible teaching, and effective outreach to the public sector and the private sector. That’s our comparative advantage. In other words, our greatest impacts on the environment, including with regard to global climate change, will be through our products (research findings, smart and capable alumni, and direct impact on the policy world and private industry), not our processes. The emissions reductions that Harvard will achieve as a result of changing our carbon footprint, for example, whether it’s through increased energy efficiency of some buildings or some other means, are absolutely trivial compared with our impacts on the world [through teaching, research, and outreach]. And all of us — students, faculty, and administrators — have only so much time available. A very important concept in economics is “opportunity cost,” and there’s an important opportunity cost of a faculty member’s time, for example. If they’re working on one thing, they can’t be working on something else.

GAZETTE: Isn’t there kind of a living-laboratory aspect to what we’re doing?

STAVINS: I agree with that. So the one caveat — which I always mention — to what I said would be if direct actions by the University to limit emissions or energy demand were part and parcel of a research initiative or part and parcel of teaching, then those would be part of our core functions.

GAZETTE: Does that extend to the conversation on divestment?

STAVINS: I guess the way in which it links to that issue is whether or not symbolic actions are of value, but again you have to weigh symbolic actions against truly meaningful actions.

GAZETTE: What’s the most important thing for a member of the public to know about the climate talks and about climate change generally?

STAVINS: I think the most important thing to understand is that this is a long-term problem. Economically, a cost-effective approach is going to be very gradual reductions in emissions, not sudden changes. We’re not confiscating everyone’s automobiles tomorrow, but putting in place incentives or regulations so that next time they buy an automobile they move in the right direction, one that is less carbon intensive.

A massive amount of technology change is going to be required. That’s long term, and the creation of durable international institutions is going to be necessary, and that’s long term. That’s why that cliché we always hear from ballplayers each spring when they’ve lost their first 10 games — that it’s a marathon, not a sprint — applies even more to global climate change policy.

People should get neither excited nor depressed, in my view, over one single negotiation. It’s an ongoing process that’s going to be with us for a long time.

GAZETTE: Are you confident that ultimately what needs to happen will happen?

STAVINS: I’m not sure that it will happen through a centralized, top-down, international agreement. Nor am I even certain that the core of the action will be through international negotiations. Remember, 20 countries and regions account for about 90 percent of emissions. So there are alternative venues where meaningful action can happen without requiring agreement from 195 countries! One way or another, — through national action, bilateral action, multilateral action — things will be addressed. That doesn’t mean they will be addressed without the world first experiencing significant climate change damages.

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