Category: Environmental Policy

A Call for Pragmatic Climate Policies

Economists, including myself, have long favored carbon-pricing policies – either carbon taxes or cap-and-trade – as the best approach to reducing emissions of carbon dioxide (CO2) in large, complex economies – on the basis of:  feasibility of limiting emissions from hundreds of millions of point and non-point sources; short-term cost-effectiveness in the face of highly heterogeneous abatement costs associated with highly diverse sources; and long-term effectiveness and efficiency by bringing about carbon-friendly technological change. 

Although economists would therefore argue that carbon-pricing policies will be a necessary element of a truly meaningful policy portfolio, they would not claim that they will be sufficient, partly because of the presence of other market failures (such as principal-agent problems in the context of energy-efficiency technology adoption decisions in renter-occupied properties, and information spillovers leading to insufficient private investments in research and development).

But there is another reason for the insufficiency of carbon-pricing policies, and that reason is captured by a single word:  politics.  It has become increasingly clear that in the United States carbon-pricing policies do not have sufficient constituencies among either conservative Republicans or “progressive” liberal Democrats to become a central element of meaningful climate change policy.  Hence, there is increasing recognition – even by economists – that more attention needs to be given to other, so-called “second-best” policies, which may be more costly but will also be more politically feasible.

This point is made in compelling fashion by Gilbert Metcalf, Professor of Economics at Tufts University and a long-time analyst, expert, and advocate of the use of carbon taxes, in the latest episode of our podcast, “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program.”  You can hear Gib’s plea for broader thinking by listening to our conversation here.

In these podcasts, I converse with leading experts from academia, government, industry, and NGOs.  Gib Metcalf fits well in this group, as a long-time Professor of Economics at Tufts, a Research Associate at the National Bureau of Economic Research, a University Fellow at Resources For The Future, an Associate Scholar of the Harvard Environmental Economics Program, and a former Deputy Assistant Secretary for Environment and Energy at the U.S. Department of the Treasury (2011-2012).  He has spent much of his career working on policy design and evaluation in the area of energy and climate change, both in academia and government.

Gib Metcalf’s call for pragmatism and broader thinking on climate change policy by the economics community is particularly striking (and compelling) because of his extensive analysis over more than a decade and his strong advocacy for the development of a U.S. carbon tax.  This is exemplified by his excellent 2019 book, Paying for Pollution: Why a Carbon Tax is Good for America (Oxford University Press). 

As a longtime proponent of a carbon tax to affix a social price on CO2 emissions, Metcalf is particularly convincing when he acknowledges in our conversation that he is now convinced that a carbon tax is not a practical option in today’s exceptionally partisan political climate.

“I am a firm believer that we should do the most efficient policies possible, and I think carbon pricing is precisely the way to do that. I prefer a carbon tax to cap-and-trade, I think for a number of reasons … but the political environment is such that, that’s just not going to happen,” he says. “And meanwhile, the concentration of greenhouse gases in the atmosphere continues to rise. So given, that I think we are obligated, those of us who care about the climate, to promote policies that will reduce emissions now, even if they’re not necessarily our most desirable policies.”

So, Metcalf argues that the Biden Administration should consider regulatory actions and executive orders in addition to statutory subsidies to give polluters incentives to seek cleaner energy alternatives.  Commenting on the serious legal challenges that some regulatory initiatives are likely to face (particularly given the 6-3 conservative majority on the U.S. Supreme Court), he offers a cause for optimism:

“I see less of a problem with fuel economy standards [by] ratcheting those up. So, we can do something in transportation.  I think we’ll [also] use tax credits in the electricity sector instead of regulation and perhaps we’ll do the same in buildings, but that gets to the third leg of what I would call a policy tripod in a third best world, which is R&D spending. And here, I think the R&D spending really needs to be focused on the technologies that have the greatest potential to lower the cost of clean energy.”

Gib Metcalf argues that production tax credits can be used to encourage further development of clean energy options, including wind power, but they should be designed in a way that will account for the increasingly negative impacts of carbon emissions.  

“My recommendation is that we ought to tie that tax credit to the social cost of carbon.  Given the official social cost of carbon numbers that the Biden Administration is using, that would be about a two and a half cents per kilowatt hour production tax credit. So, it doesn’t change the [tax] credit now, but as the social cost of carbon rises over time, then the production tax credit should rise over time.”

Gib Metcalf and the author on a panel at COP21 in Paris in 2015

At the end of our conversation, I ask Gib Metcalf for his thoughts on the current, prominent youth movements pressing for more aggressive action on climate change.  His response is that he was initially skeptical about their impact, thinking of them as little more than a “side show” to meaningful action through the international climate negotiations, for example.  But that is no longer the case.

“I’ve actually changed my mind entirely.  I’m more pessimistic [now] about where the negotiations will get us given the urgency of action. But the youth movements, Greta Thunberg and others, are really, to me, incredibly important in that they are driving public opinion and bringing media attention to the problem, in a way that I think is extremely valuable.  So, I see them as just absolutely essential.”

I raise the question of whether this very prominent youth activism is an age effect (hence likely to become more moderate as young people become adults) or a cohort effect (likely to retain its strength over time).  Gib responds that the young people involved in these climate movements are likely to remain engaged.

“I think the current youth movements see a very clear stake for themselves in terms of the damages that we’re seeing in the world today because of climate change. So, I think that gives them a more enduring stake that may outlast their youth.”  

That’s an excellent, optimistic note on which our conversation comes to a close.

For this and much more, I hope you will listen to my complete conversation with Gib Metcalf, the 30th episode in 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 Particularly Valuable Perspective from Europe on COP26

In an essay following my return from COP26 in Glasgow, Scotland, and more recently in a Q&A in the Harvard Gazette, I offered my views on what happened (and what did not happen) at COP26 last month in Glasgow.  But given the leadership of the European Union on climate change policy, a European perspective is exceptionally important.  Fortunately, in the most recent webinar in our series, Conversations on Climate Change and Energy Policy, sponsored by the Harvard Project on Climate Agreements (HPCA), we featured a conversation with Dr. Laurence Tubiana, the well-known French economist who was France’s climate ambassador at the time of the negotiations that led up to the signing of the Paris Agreement in 2015.  A video recording (and transcript) of the entire webinar is available here.

As you know, in this webinar series we feature leading authorities on climate change policy, whether from academia, the private sector, NGOs, or government.  In this most recent Conversation, I was fortunate to engage with someone who has had solid experience in at least three of these sectors – academia, government, and the NGO community. 

Laurence Tubiana, who received her PhD in economics from the Sorbonne, and served as France’s Climate Change Ambassador during the 21st  UN Framework Convention on Climate Change (UNFCCC) Conference of the Parties (COP21), when the Paris Agreement was signed, is currently CEO of the European Climate Foundation.

In our conversation, Laurence begins by maintaining that while the recent COP26 talks in Glasgow did not produce any breakthrough pacts, those talks represented a real step forward.

“We are making slow progress…130 countries have committed to a target net-zero [emissions] by 2050 or soon after,” she says. “Very few, almost none, are backed or substantiated by any kind of precise pathway to get there, so that is why short-term action is more important than ever.”

One positive development from Glasgow, Dr. Tubiana reports, was the commitment by the signatories to the Paris Agreement to update their Nationally Determined Contributions (NDCs) in time for COP27, scheduled for next year in Egypt (although it should be noted that the United States, the European Union, and the United Kingdom have subsequently indicated that they would not be producing new NDCs with enhanced ambitions one year from now).  As I’ve written in my two previous blog posts, countries agreed to accelerate “efforts towards the phase-down of unabated coal power and inefficient fossil fuel subsidies,” and to try to increase their monetary contributions to developing countries to help them cope with the effects of climate change and make the switch to clean energy.

When I ask Laurence for her thoughts about the prospects for the multilateral development banks to contribute significantly to the climate change fight, Tubiana expresses some doubts.

“The international financial system nowadays is not fit for the problem of the climate challenge we face. We are talking about three to four trillion [dollars] a year in additional investment on the global level for this ecological transition and the international financial system is not responding and maybe cannot respond in this actual form,” she says. “So called ‘green finance’ is around two percent of the global financial markets, so with that we cannot respond [adequately] to the challenge.”

Tubiana lauds the dramatic speech delivered at COP-26 by Barbados Prime Minister Mia Mottley, in which she called upon those nations that have contributed most to global emissions to take immediate responsibility for the climate change challenge and to assist those nations most at risk. Mottley stressed that island nations suffering from extreme weather events every few years do not have the economic capacity to rebuild every time and to pay back the debts they would incur if they tried.

At the end of our conversation, when I ask about grassroots youth climate activism, Laurence Tubiana remarks that she understands their anxieties as they face a very uncertain future. 

“They feel that their demonstration in the streets isn’t working enough. Governments aren’t responding to what they’re asking for,” she says. “We are failing them, and we are failing them not only because we aren’t active enough on climate change, but because we don’t offer them the political pathways to participate and make their voices hear in the political system.”

All of this and much more can be seen and heard in our full Conversation here.  I hope you will check it out.

Previous episodes in this series – Conversations on Climate Change and Energy Policy – have featured Meghan O’Sullivan’s thoughts on Geopolitics and Upheaval in Oil Markets, Jake Werksman’s assessment of the European Union’s Green New Deal, Rachel Kyte’s examination of “Using the Pandemic Recovery to Spur the Clean Transition,” Joseph Stiglitz’s reflections on “Carbon Pricing, the COVID-19 Pandemic, and Green Economic Recovery,” Joe Aldy describing “Lessons from Experience for Greening an Economic Stimulus,” Jason Bordoff commenting on “Prospects for Energy and Climate Change Policy under the New U.S. Administration,” Ottmar Edenhofer talking about “The Future of European Climate Change Policy,” Nathaniel Keohane reflecting on “The Path Ahead for Climate Change Policy,” and Valerie Karplus talking about “The Future of China’s National Carbon Market.”

Watch for an announcement about our next webinar. You will be able to register in advance for the event on the website of the Harvard Project on Climate Agreements.  

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Separating Signal from Noise at COP26

                As a follow-up to my recent (admittedly long and nearly comprehensive) essay at this blog about what happened (and didn’t happen) at COP26 in Glasgow, I’m offering today a much briefer Q&A which was conducted by the Harvard Gazette and appeared just yesterday.  It hits the top highlights and gets into a few other issues – such as the role of youth activism – more than I did in my blog post.  Perhaps you’ll find it of interest.

Kris Snibbe/Harvard Staff Photographer

BY Alvin Powell, Harvard Staff Writer

November 17, 2021

At times it was hard to separate the signal from the noise at the United Nations’ Conference of the Parties on climate change, which ended Friday. The meeting, called COP26, featured new global agreements and protests demanding more action, major announcements from the U.S., China, and others, and denouncements from disappointed activists like Greta Thunberg. For an assessment of what was done, and left undone, the Gazette spoke with Rob Stavins, the Harvard Kennedy School’s A.J. Meyer Professor of Energy and Economic Development and head of the Harvard Project on Climate Agreements, who attended his first COP in 2007 in Bali. The interview was edited for clarity and length.

Q&A with Rob Stavins

GAZETTE: John Kerry declared COP26 a success before it was even halfway done. And Greta Thunberg did the opposite, declaring it a failure. Do you agree with one or the other? Or is that the wrong way to look at this?

STAVINS: Looking at it as success or failure is both simplistic and obscures much of the purpose and function of these annual negotiations. This is a marathon, not a sprint. To continue that metaphor: It’s a relay race and the fundamental thing about an individual Conference of the Parties in any given year is that you don’t drop the baton when you pass it off to the next one. And this was a reasonable pass off to the next Conference of the Parties [to be held in Egypt next November].

If we look at it in terms of the ultimate measure for many, we could add up the Nationally Determined Contributions to global emissions reductions in comparison with the Paris Climate Agreement’s 2 degrees centigrade target or its aspirational target of 1.5 degrees C. Before Paris, we were on a trajectory for 3.7 degrees centigrade of warming this century. With the Paris Agreement’s original round of NDCs, we were on a trajectory of 2.7 degrees centigrade — this is all according to Carbon Tracker, which is an accepted institution that people use for this purpose. Then, with the updated NDCs at Glasgow, we could get to 2.4 degrees centigrade. And then, if you add in all of the statements from countries about net zero emissions by the year 2050, as well as private industry statements, we could be at about 1.8 degrees centigrade.

Greta Thunberg looks at that and says it’s all “blah, blah, blah” to her. When others look at it, they say, “Well, we’re certainly moving in the right direction.” My view is that we will have to see how it plays out [in terms of actual emissions reductions, rather than simply targets and aspirations].

GAZETTE: We heard about several different agreements at the COP: the methane agreement, an agreement on deforestation, and the agreement on carbon tariffs between the U.S. and EU. How significant were those agreements?

STAVINS: Some of them are potentially very important. Certainly, the methane agreement is, with 100-plus countries looking at a 30 percent reduction this decade. But remember there are no teeth for enforcement in these side agreements, and they don’t hold the same status as the Paris Agreement.

GAZETTE: Methane is a much stronger greenhouse gas than even carbon dioxide. Do we have a good grasp on how big a part of the overall problem methane is?

STAVINS: If you look over a very short-time horizon, methane is extremely important because its radiative forcing is much, much greater than carbon dioxide while it’s in the atmosphere. But its lag time in the atmosphere is drastically less than carbon dioxide. The way these are usually compared is to look at something like a 100-year time horizon, and then methane, although it’s important, isn’t like carbon dioxide, which is responsible for the lion’s share of the action anthropogenically.

GAZETTE: How about the carbon tariffs agreement between the U.S. and EU, which would level the playing field between nations whose production costs are higher because of steps to address climate change and those that aren’t taking similar action? Is that potentially beneficial to the U.S. steel and other industries in trade with the EU, or is it strictly a climate-related step?

STAVINS: It’s something that could greatly help with climate change because it could lead to a bottom-up coalition of like-minded countries, starting with the European Union and the United States, but with others possibly joining. Politically, it can have legs because the current wave of economic populism in the United States — a little less so in Europe — is highly correlated with a desire for China-bashing. So that approach could find favor in Congress.

GAZETTE: There was talk about the need to get rid of coal, but the final agreement’s language was watered down, for both that and fossil fuel subsidies. What happened?

STAVINS: There were NGOs and delegations that wanted to have language on phasing out coal, and some would surely have wanted it by a specific year. What came out was phasing down — not out — unabated coal, and what that refers to is carbon capture and storage. Symbolically, it’s very important to many people to have statements about coal, but ultimately the Paris Agreement is about reducing emissions, and individual countries will do it however they can.

GAZETTE: Why are they picking on coal? I know coal is the most polluting of the fossil fuels, but in order to reach the goals that we’re talking about, they all need to be addressed, don’t they?

STAVINS: That’s correct, and carbon capture and storage is conceptually part of the ultimate story, both for coal and natural gas, at least as a transition fuel. A general principle in the economics of environment is that performance standards are better than technology standards, because performance standards leave open which technologies are used and which technologies are used will depend upon national circumstance. Of course, carbon-pricing approaches — carbon taxes or cap-and-trade — are potentially even more cost-effective, but the politics are very difficult in the United States.

GAZETTE: How did the negotiations go on Article 6, which provides guidelines on how emissions reduction programs between countries interact? I know that was something you were particularly interested in.

STAVINS: That was the one part of the action in Glasgow that really was negotiations about implementation of the Paris Agreement, because that was the one part of the Rulebook, which hadn’t been completed. It worked out. Some might describe it as a half-full glass of water. I’ll go for three-quarters full.

There are two important parts of Article 6. One is Article 6.4, which is essentially a continuation of the Clean Development Mechanism — an offset system from the days of the Kyoto Protocol. The other is Article 6.2, which is what I was working on, and it is the crucial accounting mechanism for linkages between different countries around the world and their systems to limit emissions. They can establish linkages, and then firms within those countries can carry out trading. This can lower compliance costs tremendously, and thereby facilitate significantly greater ambition. There were two problematic approaches that were being pushed by some countries, and they wound up in 6.4, but not in 6.2. So, I was relieved and pleased with that.

GAZETTE: There was also the question of the $100 billion for developing nations to adapt to the effects of climate change, plus the loss and damage issue. How did they wind up?

STAVINS: On finance, a commitment was made at the Copenhagen COP of $100 billion per year for developing nations, mainly for adaptation, and the payments were supposed to begin in 2020, but there has been a shortfall. By some measures the commitments — not the payments — are up to perhaps $80 billion per year. Obviously, the developing countries want to get that increased. So, there’s language in the decision out of this Conference of the Parties, which is called the Glasgow Climate Pact, that was voted out at the very end and that urges, but does not require, the developed countries to double their commitment.

The loss and damage issue is quite separate, and debates and discussions on that have been going on for a decade. This is about damages that will take place despite adaptation measures. It’s straightforward to think about adaptation actions and their cost, but the cost of damage is much more difficult to measure because damages are due to things like hurricanes and flooding, which are a result of specific weather events, and it’s just not possible to tie every weather event to climate change. There were hurricanes and typhoons long before we had climate change.

So, the concern of the countries that have contributed most to the accumulated stock of greenhouse gases — the United States, the European Union, and China — is that a loss and damage measure would be a prescription for unlimited legal liability for bad weather. On the other hand, if you’re from one of the most vulnerable countries in the world — in particular the small island states — where climate change is not just going to increase costs of adaptation, but is existential, then it’s absolutely essential to have this. So, the most vulnerable countries — and developing countries more broadly — wanted something to be in the Glasgow Climate Pact. In the end, it was blocked by the United States and other countries on the final day of the talks. Instead, they set up a dialog to continue to do research on this and consider it at future conferences of the parties.

GAZETTE: How did U.S. credibility fare? I know that was one of the big issues with the change in administration.

STAVINS: U.S. credibility, from what I could sense, was more or less maintained. It surprised me that there wasn’t more discussion about it, because people are aware of the political problems the Biden administration has domestically in terms of achieving its targets. I think a lot of delegations were thrilled to have the Biden administration in place because they can actually talk with them, as opposed to the Trump administration, with whom they couldn’t even speak. There was also a joint press conference by Senator Kerry and Xie Zhenhua, China’s climate envoy. People felt very good that China and the U.S. would work together again, although it’s far from being a return to the co-leadership that the U.S. and China had during the Obama years.

GAZETTE: Looking more broadly, is there a threshold that to your mind will be a tipping point toward success? I’m thinking of the apparent increased engagement of the business community recently.

STAVINS: I think there are two important elements, and one is indeed the increased attention and activity of the business community. But the other is the presence of young people. It is absolutely clear that young people feel more strongly, by and large, about climate change and actions to address climate change than do older generations. This was clear with the demonstrations in London and in Glasgow and is true around the world. It’s true if you look at people who are of school age in the United States compared with people who were of school age a decade or two earlier. What we don’t know yet, however, is whether this is a cohort effect or an age effect. If it’s an age effect, then, as these people get older and get into positions of authority, their views may mellow. But if it’s a cohort effect, then these young people as they mature are going to change the world. And, if so, they will change the world not by demonstrating outside of the COP, but by being on the inside. Ten years or more from now, by being the delegates inside the COP, today’s youth will have a marvelous opportunity to change the world. Let’s hope they do so.

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