Category: Environmental Economics

Electricity Sector Regulation, Carbon Pricing, and Climate Policy

In the United States, Europe, China, India, and many other parts of the world, when policymakers and others consider ways to reduce CO2 emissions to help address climate change, major attention is frequently given to the electric power sector, partly because of its standing as the first or second largest source of emissions, and partly because it frequently offers low-hanging fruit, that is, low-cost abatement opportunities.  In the most recent episode of my podcast series, “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program,” I host an economist with three decades of experience studying the electricity sector, and making important contributions to the design of new institutions and appropriate regulations. 

I’m referring to Karen Palmer, a Senior Fellow at Resources for the Future in Washington, D.C., where she directs the Future of Power Initiative.  Karen continues to carry out valuable research, participate in government panels, and recently served as President of the Association of Environmental and Resource Economists.  The podcast is produced by the Harvard Environmental Economics Program.  You can listen to our complete conversation here.

Dr. Palmer, who is renowned for her research on the U.S. electric power sector, shares her insights on electricity regulation and deregulation, carbon pricing, and climate change policy.  She has spent almost 34 years at Resources for the Future (RFF), having initially been drawn to it at a time when governments were taking early steps to deregulate the electric power sector.

“I came here because the overlaps in terms of regulation in my prior research in graduate school and what happens in electricity and also to a certain extent natural gas were evident, but things were definitely changing in both natural gas and electricity sector early during my [early] time here,” she says.

In 1996, Palmer and several colleagues wrote a book titled “A Shock to the System: Restructuring America’s Electric Industry,” which served to inform policy debates then taking place about the sector’s transformation.

“As the electricity sector started to introduce more competition in terms of who was going to actually deliver electricity, it became clear that there are a lot of challenges in terms of policy and pricing and how markets function that remained open and could use some informing,” she remarks.

Turning to the present day, Palmer observes that the Biden Administration’s energy and climate policy relies primarily on subsidies to encourage the use of clean electricity and other clean power sources, but hasn’t yet given up on efforts to use other policy tools to stimulate positive change.

“The fact that they weren’t able to fully price carbon doesn’t mean that there’s not going to be efforts to address emissions from emitting sources, which aren’t really targeted under the subsidies directly,” she argues. “We have seen the proposed form of the third try at using the Clean Air Act to regulate emissions from existing and new fossil fuel generators. There’s not only the carrot, but there is a bit of a stick.”

“Going beyond the federal level … there’s a lot of activity happening in the states on both fronts, again, in terms of subsidizing clean sources of power [and] also imposing increasingly prices on power producers. As economists, we like carbon pricing because it’s efficient. We often pose this dichotomy between … we either price carbon or we subsidize clean energy. I think that’s kind of a false dichotomy, and that policies are going to build both ways from both ends,” she continues.

Finally, acknowledging the increasingly important role played by the concept of environmental justice in climate policy considerations and debates, Palmer says that policymakers must be sensitive to addressing past harms and mitigating future harms born by those least able to afford them.

“As we look to decarbonize the economy more broadly, the costs of electricity are going to play an important role in terms of people’s incentives to adopt or to do things that will likely be necessary to get rid of fossil fuel use in buildings, like adopting heat pumps and electrifying other energy end uses such as vehicles,” she says.

“Keeping electricity prices low in general or the role that electricity prices will play in general will be part of that. But also, there are important upfront costs associated with doing these things and adopting these new technologies, which really substitute more capital costs and less energy costs. Because not only are they electrified, but they’re often extremely efficient,” Karen Palmer explains. “Finding ways to make that work across the board for all types of consumers, including low-income consumers and historically disadvantaged communities, is going to be an important part of the policy puzzle.”

For this and much, much more, I encourage you to listen to this 50th episode 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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Launching a Harvard Initiative to Reduce Global Methane Emissions

In February of this year, I wrote at this blog about a then-forthcoming “Soup-to-Nuts Initiative (at Harvard) to Reduce Global Methane Emissions.”  Today, I’m pleased to announce that this initiative has now been launched, with funding and broader engagement from the Salata Institute for Climate and Sustainability at Harvard University.  In today’s blog post, I describe the overall initiative, as well its six initial research projects being executed in the first year of the three-year initiative.

Overview of the Initiative

This is a major research and outreach initiative to reduce global methane emissions. The initiative seeks meaningful and sustained progress in global methane-emissions reductions through research and effective engagement with government policymakers – and with key stakeholders in business, nongovernmental organizations, and international institutions. Methane-emissions abatement can, in the near term, significantly reduce the magnitude of climate change and its impacts – giving the world time to “bend the curve” on CO2 emissions, conduct research on carbon removal, and, more generally, to implement longer-term strategies to mitigate and adapt to climate change.

The initiative’s objectives are to build on new scientific research on measurement and attribution of emissions; understand legal, regulatory, and political opportunities and constraints to methane-emissions reductions in the United States and in some other countries; design policies that might best contribute to methane-emissions reduction; work effectively through existing international venues, such as the Global Methane Pledge; and define roles that business – and international and multilateral organizations – can play in these efforts.

The intellectual landscape across the disciplines addressed by the methane cluster’s seventeen participating faculty members is exceptionally diverse. These faculty are based in four departments in Harvard’s Faculty of Arts and Sciences (Earth and Planetary Sciences, Economics, Government, and History) and five professional schools (Harvard Business School, Harvard John A. Paulson School of Engineering and Applied Sciences, Harvard Kennedy School, Harvard Law School, and Harvard T.H. Chan School of Public Health). They approach methane-emissions reduction through the disciplinary lenses of natural science, engineering, economics, political science, history, law, business, and policy studies.

The methane initiative will achieve its goals primarily through focused research projects, each conducted by two or more Harvard faculty members. Faculty members within a particular project are, in most cases, from different disciplines and Harvard schools. The six projects being pursued in the first year of the initiative are described below. Additional research projects will be identified in the future for the subsequent years of this three-year initiative. The full group of seventeen faculty will also meet regularly and communicate electronically to exchange insights and identify synergies across (and beyond) projects.

The organization and management of the initiative will ensure that faculty communicate and collaborate across disciplinary and institutional boundaries to support real action to reduce methane emissions. Indeed, this carefully designed structure will ensure that this a truly end-to-end initiative, from natural science to policy and action, to reduce methane emissions – that the whole of the initiative will be greater than the sum of its parts, with regard to both knowledge-generation and impact.

I have the privilege of serving as Principal Investigator of the methane initiative, and I’ve included information on the sixteen other faculty members below.  Robert Stowe serves as Executive Director of the Initiative, and – working with me – coordinates activities of the Initiative and its constituent research projects.

The methane initiative is one of five ambitious, three-year climate-change research clusters that the Salata Institute is supporting.  The others address corporate net-zero targets, climate adaptation in South Asia, climate adaptation in the Gulf of Guinea, and approaches to strengthening communities through equitable and locally-driven energy development.

Research Projects Supported by the Methane Initiative in Academic Year 2023-2024

Using Satellite Observations of Atmospheric Methane to Serve U.S. Reporting and Regulatory Needs

Daniel Jacob, Vasco McCoy Family Professor of Atmospheric Chemistry and Environmental Engineering, Harvard John A. Paulson School of Engineering and Applied Science, and Harvard University Department of Earth and Planetary Sciences

Carrie Jenks, Executive Director, Environmental and Energy Law Program, Harvard Law School

The project’s goal is to increase the value of satellite observations of atmospheric methane for reporting and regulation of methane emissions in the United States. In particular, Jacob, Jenks, and their teams: (1) seek to improve reporting of methane emissions from landfills under the U.S. Environmental Protection Agency’s Greenhouse Gas Reporting Program; (2) develop a near-real-time satellite-based monitoring system for verification of emission reductions and quantification of methane intensities.

The Economic Costs of Reducing Methane Emissions

Joseph Aldy, Professor of the Practice of Public Policy, Harvard Kennedy School

Forest Reinhardt, John D. Black Professor of Business Administration, Harvard Business School

Robert Stavins, A.J. Meyer Professor of Energy and Economic Development, Harvard Kennedy School

The project seeks to identify opportunities for applying empirical methods to improve cost estimates, as well as policy instruments for transferring emissions-control responsibilities from one emissions-source category to another (to reduce aggregate abatement costs). In pursuit of this goal, Aldy, Reinhardt, and Stavins are reviewing literature and advancing research on three types of cost estimates: Engineering cost estimates, econometrically-estimated measures of costs, and costs revealed through public policies in the United States.

Regulatory Obstacles and Opportunities for Well-Capping in Pennsylvania

Stephen Ansolabehere, Frank G. Thompson Professor of Government, Harvard University Department of Government

Carrie Jenks, Executive Director, Environmental and Energy Law Program, Harvard Law School

Dustin Tingley, Professor of Government, Harvard University Department of Government

This project will convene major stakeholders in western Pennsylvania to discuss ways to address regulatory and economic obstacles to capping natural gas wells that are no longer producing – of which there are at least 400,000 in the area. The objectives of the workshop are to clarify the issues and challenges faced and to develop a blueprint for regulatory and legislative action. Participants will include state regulators, state legislators, current well owners and operators, land owners, community leaders, and experts in emissions and well-capping. Participating Harvard faculty and their teams will consider implications of their findings for other regions of the United States and for other segments of the oil and gas industry.

Arctic Methane Emissions and Climate Mitigation

James Hammitt, Professor of Economics and Decision Sciences, Harvard T.H. Chan School of Public Health

John Holdren, Teresa and John Heinz Research Professor of Environmental Policy, Harvard Kennedy School

The project investigates quantitatively the economic value of narrowing uncertainty about future emissions of methane from thawing permafrost, as a function of how rapidly that narrowing can be accomplished. The work will draw in part on findings from ongoing work on monitoring and modeling emissions from permafrost thaw, both at the Salata Institute and in the TED/Audacious-funded Permafrost Pathways Project, whose component at Harvard Kennedy School is directed by John Holdren.

Using Remote Sensing Data to Inform Micro-Histories of Methane-Release Sites

Emma Rothschild, Jeremy and Jane Knowles Professor of History, Harvard University Department of History

Steven Wofsy, A.L. Rotch Professor of Atmospheric and Environmental Science, Harvard John A. Paulson School of Engineering and Applied Science, and Harvard University Department of Earth and Planetary Sciences

The project seeks to juxtapose micro-histories of the sites of methane emissions with the extraordinary potential of satellite and aircraft imaging. Its object is to understand what has been happening in locations that are of central importance to global greenhouse gas emissions, and to understand more about how emissions of methane can be reduced, including the social context. The focus will be on the upcoming flights of the new MethaneAIR remote sensing instrument for measuring methane concentrations along broad swaths of the landscape with very fine spatial resolution and high precision.

International Cooperation to Reduce Methane Emissions

Robert Stavins, A.J. Meyer Professor of Energy and Economic Development, Harvard Kennedy School

Robert Stowe, Co-Director, Harvard Project on Climate Agreements

The project characterizesthe complex landscape of international cooperation to reduce methane emissions and develop recommendations on how international cooperation might be advanced within a diffuse institutional framework. The project may proceed to address in depth: the interaction of trade policy (including with regard to natural gas) and efforts to reduce methane emissions; how large-emitting countries, including China, might advance efforts to abate, in part through international cooperation; and the potential role of cooperation with regard to the development and deployment of abatement technology.

Participating Faculty Advising Projects

A number of other Harvard faculty members are participating in the methane initiative but not affiliated with the specific projects listed above. They are advising these projects and the larger initiative, as their expertise warrants, and may direct new projects in subsequent years of the initiative. These are:

Jody Freeman, Archibald Cox Professor of Law, Harvard Law School*

Jeffry Frieden, Professor of Government, Harvard University Department of Government

Richard Lazarus, Howard and Katherine Aibel Professor of Law, Harvard Law School

Meghan O’Sullivan, Jeane Kirkpatrick Professor of the Practice of International Affairs, Harvard Kennedy School

Michael Toffel, Senator John Heinz Professor of Environmental Management, Harvard Business School

* Professor Freeman is also an independent director on the board of ConocoPhillips, advising the company on climate change and the clean energy transition.

External Collaborators

Finally, the Harvard Methane Initiative has formally engaged several experts from other universities and organizations as External Collaborators:

Mark Brownstein, Senior Vice President of Energy Transition, Environmental Defense Fund

Nathaniel Hendren, Professor of Economics, Massachusetts Institute of Technology

Catherine Wolfram, William Barton Rogers Professor of Energy Economics, Massachusetts Institute of Technology

Potential Collaborating Organizations

In preliminary work in spring 2023, the methane initiative has been in close communication with the following organizations that focus on reducing methane emissions. The initiative’s leadership expects to collaborate more actively with some of these over the course of the initiative’s three-year program.

Aiming for Zero Methane Emissions Initiative, Oil & Gas Climate Initiative

Clean Air Task Force

Climate Change Group, World Bank Group

Energy Emissions Modeling and Data Lab (focusing on methane); a collaboration of the University of Texas – Austin, Colorado State University, and the Colorado School of Mines

Environmental Defense Fund

International Methane Emissions Observatory, U.N Environment Programme

Office of the U.S. Special Presidential Envoy for Climate

Resources for the Future

I’m very excited that we’re launching our global methane research and outreach activities; and as the work progresses, I promise to keep readers of this blog up to date on our activities and results.

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Studying the Real Impacts of Climate Change Policies

Over the past three years, in my podcast series, “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program,” I’ve held conversations with many long-time leaders in the world of environmental economics and policy.  But that has meant, quite naturally, that I have most frequently engaged with people – like me – in the grey-haired set.  So, I was particularly pleased to welcome to my most recent podcast someone who is decidedly younger than most of the people I’ve previously interviewed, but who – I hasten to add – is nevertheless a highly accomplished scholar, a full professor at the University of California, Berkeley, and continues to carry out important research.  I’m referring to Meredith Fowlie, Professor of Agricultural and Resource Economics and Co-Director of the Energy Institute at Haas, at U.C. Berkeley.  In addition, Meredith is a Research Associate at the National Bureau of Economic Research.  The podcast is produced by the Harvard Environmental Economics Program.  You can listen to our complete conversation here.

Fowlie has worked extensively on the economics of energy markets and the environment, with investigations of the real-world applications of market-based environmental regulations, the economics of energy efficiency, the demand-side of energy markets, and energy use in emerging economies. Her work has appeared in the American Economic Review, the Journal of Political Economy, Quarterly Journal of Economics, the Review of Economics and Statistics, and other leading academic periodicals.

She received her B.Sc. degree in International Agriculture and Development from Cornell University in 1997, an M.Sc. in Environmental Economics from Cornell in 2000, and her PhD in Agricultural and Resource Economics from U.C. Berkeley in 2006.  Before joining the faculty at U.C. Berkeley, she was an Assistant Professor of Economics and Public Policy at the University of Michigan.

Meredith is well known for her research on how environmental regulations have worked in practice.  One prominent example is her 2018 QJE paper co-authored with Michael Greenstone and Catherine Wolfram (both previous podcast guests), “Do Energy Efficiency Investments Deliver?: Evidence from the Weatherization Assistance Program,” which examined the efficacy of the federal Weatherization Assistance Program, which works with local energy services providers installing energy efficiency measures.  The research was both important and controversial.

“What we found was that the energy savings were less than half of what engineering projections had anticipated. So, that was a disappointing finding. It just meant that we weren’t getting the savings that the models projected and that the program wasn’t delivering as hoped,” Fowlie remarks. The reason the paper was controversial, she notes, is that the findings did not align with what lawmakers had expected.

Fowlie celebrates the work of her research assistant on that project, Erica Myers, who demonstrated in subsequent research how some relatively simple weatherization program adjustments could have significant upsides.

“[In her research, Myers found] that if you incentivize the workers who are making these improvements on the home, such that their compensation depends partly on the performance, you can significantly increase the effectiveness of those investments. And she has also been able to identify those investments that perform the best in order to help target some of these weatherization investments,” Meredith notes.

As I noted above, the impacts of such government regulation have been the focus of much of Fowlie’s research. In the podcast, she emphasizes that market outcomes often deviate from what is anticipated, because of the unexpected impacts of economic incentives, something policymakers need to pay close attention to when seeking and designing policy solutions to climate change.

“When we think about the industries that are on the front lines of climate change – that’s electricity; it’s natural gas; it’s insurance – a lot of these sectors and firms are subject to [previous] economic regulation. Regulators determine what investments get made, how costs get recovered, what prices get set. And I’m increasingly seeing that less as a bug and more as a feature. We have these economic regulatory tools at our disposal, and if we start thinking about them like climate policy tools, we can actually get a fair bit of leverage out of those tools,” she says. “I’m thinking about how public utility commissions set electricity rates in particular, and thinking about how those regulatory decisions have pretty profound implications for how we mitigate climate change and who pays the price.”

I also asked Meredith Fowlie for her thoughts on the topics of “environmental justice” and “just transition.”

“I’ve been thinking about these elevated concerns in a number of respects. One is, who is paying for climate mitigation and adaptation? These are needed investments, but how we make these investments has some implications for who ends up paying, and sometimes that’s unintentional,” she notes. “Part of my research is thinking about how we’re paying for climate mitigation and adaptation, and who ends up paying the cost. A second concern is cap-and-trade programs and the environmental justice concerns about those programs, particularly in California, and program design changes we could consider making in light of those concerns.”

At the end of our conversation, when we turn to the current youth movements of climate activism, Meredith expresses her admiration for the ways in which they are focusing attention on important issues.

“There’s a sense of urgency among the students I teach that I think is important and I want to encourage.  I have learned a lot talking to them about their concerns and their impatience and their frustration. And I hope they’ve also learned from me about some of my concerns with how they want to move forward and what approaches they want to take,” she stated. “There’s certainly a youthful energy in terms of the level of commitment they’re bringing, but I think it’s going to change the trajectory of many, many youth who are going to have a really profound impact on how we tackle the [climate change] problem in future generations.”

For this and much, much more, I encourage you to listen to this 49th episode 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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