Category: Positive Political Economy

Assessing China’s National Carbon Market

On July 16th, China launched trading in the world’s largest carbon market, which is one part – but apparently an important part – of that nation’s efforts to curb its greenhouse gas (GHG) emissions.  That message was delivered on July 22nd by Carnegie Mellon University Professor Valerie Karplus during the most recent webinar in our series, Conversations on Climate Change and Energy Policy, sponsored by the Harvard Project on Climate Agreements (HPCA).   A video recording (and transcript) of the entire webinar is available here.

As readers of this blog 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 with solid experience in research and engagement, with her focus on energy and environmental policies in an exceptionally important part of the world, namely China.  Valerie Karplus is Associate Professor in the Department of Engineering and Public Policy at Carnegie-Mellon University, where she studies resource and environmental management in firms operating in diverse national and industry contexts. 

Professor Karplus is an expert on China’s energy system, including related climate change policies – a very timely topic given recent developments in China.  She previously directed the MIT-Tsinghua China Energy and Climate Project, a five-year research effort focused on analyzing the design of energy and climate change policy in China, and its domestic and global impacts.  She holds a BS in biochemistry and political science from Yale University, and a PhD in engineering systems from the Massachusetts Institute of Technology. 

In the first part of the webinar, Valerie uses a PowerPoint deck to take us through her views of “The Future of China’s National Carbon Market.”  She praises the Chinese government’s commitment to addressing climate change, while acknowledging that sustaining those efforts will be neither simple nor easy.  

“Many challenges around the question whether China can be trusted come from the fact you had different interests operating in different parts of the system,” she says. “I would say that the intentions of the top leadership to establish a credible system can be trusted…[but] a lot of the challenges will come in the implementation on the ground.”

Professor Karplus with QI Ye, Director of the Brookings-Tsinghua Center for Public Policy (BTC), at a workshop in Beijing in 2019 on carbon emissions trading, organized by the Harvard Project on Climate Agreements.

China’s new, national carbon trading system, launched earlier this month, is currently limited to the nation’s electricity sector, and includes more than 2000 power plants, but Karplus remarks that there will most likely be pressure to expand the scope of the system to other sectors in coming years to meet President Xi’s 2020 proclamation that the country will be carbon free by 2060.

“This is very ambitious because this is the first time that there has been discussion of deeply reducing emissions in China and tying that to a long-term goal,” she says. “There are plans underway to think about how all of the different energy sectors will need to change to support China’s carbon neutrality goal by 2060.”

China’s climate policies date back several decades, Karplus notes, and were crystallized by the nation’s Nationally Determined Contribution (NDC), announced in compliance with the 2015 Paris Climate Agreement. This includes making best efforts to reach peak CO2 emissions by 2030, reducing CO2 intensity by 60-65 percent relative to 2005 levels by 2030, increasing the non-fossil share of the primary energy sector by 20 percent by 2030, and increasing the forest stock by approximately 4.5 billion cubic meters by 2030.  Doing all of this will be challenging, to say the least.

 “China’s efforts to start to address carbon emissions we should think about as a gradual and long-term process, and the planning process and even action plans will also play an important role alongside efforts to address carbon through legislation targets,” she remarks. “The accounting of carbon is just now starting to happen. It’s well developed for the power sector, but for the other sectors it’s still not developed, so we need to ask how to read the tea leaves, essentially, on how different instruments will come into play and have different impacts over time.”

China’s national emissions trading system may be said to have begun with a set of sub-national pilot systems in 2014, in parallel with a number of other efforts designed to address air pollution.  The seven pilot systems eventually led to the announcement in 2017 that the country would push forward with the development of a national emissions trading system. Policymakers learned a great deal through those pilot systems, according to Karplus.  Looking forward, she predicts that China’s current carbon trading system, which is a tradable performance standard, will evolve into a mass-based cap-and-trade system by 2030, and will be accompanied by several other policy advances.

“You’re going to see a lot more electrification, a lot more renewables, a lot of directive energy policies in place alongside the cap-and-trade system, and the cap-and-trade system will evolve over time to have the function of both linking with global efforts and ambitions to provide a way of tracking and responding to other things happening in the world.  And it also will help to control emissions within an ever-shrinking share of the power sector, which is fossil generation, but I don’t see the carbon market per say as being the main driver. It is one of many drivers and that’s where I think things will be in 20 years.”

The Q&A session with the audience after Valerie Karplus’s presentation is particularly interesting and informative.  Do stay on the video for that!

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,” and Nathaniel Keohane describing his view of “The Path Ahead for U.S. Climate Change Policy.”

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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Obama’s Science Advisor Speaks Out on Biden’s Climate Policy

John Holdren, former director of the White House Office of Science and Technology Policy, expresses his optimism regarding the Biden Administration’s approach to climate change policy in the latest episode of “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program,” a podcast produced by the Harvard Environmental Economics Program.

You can hear our complete conversation in the podcast here.  

In these podcasts, I converse with very well-informed people from academia, government, industry, and NGOs.  John Holdren fits very well in this group, with significant experience in academia, government, and the NGO world.

            John Holdren is a Research Professor, and until recently was the Teresa and John Heinz Professor of Environmental Policy at the Harvard Kennedy School, and a professor in the Department of Earth and Planetary Sciences at Harvard.  He took an extended leave of absence from Harvard, from January 2009 to January 2017 to serve in the Obama administration as the President’s Science Advisor and as Director of the White House Office of Science & Technology Policy, and was the longest-serving Science Advisor to the President in the history of the position.  Before coming to Harvard, he was a long-time faculty member at the University of California, Berkeley, where he co-founded the Energy Resources Group.

During his time as the President’s Science Advisor, the Obama Administration unveiled its ambitious Climate Action Plan (June 2013), and in 2015, nearly 200 countries signed onto the Paris Climate Agreement.  In our conversation, John Holdren tells me that those were two of the high points during his time in Washington. 

“The biggest low point I would say is that we were not able to get the budget increases for research and development that President Obama had committed himself to at the very beginning of his administration,” Holdren remarks. “We didn’t get there, not from lack of interest, but from lack of ability to persuade the Congress to boost those budgets.”

While his work in Washington was rewarding, it was also very high-pressure:

“It was 24/7/365,” he says. “When you’re what is called a commissioned officer of the president, you are on duty all the time. You can never be out of touch. You can’t go anywhere without having a way for the White House to reach you immediately if the president wants you, and there is such a continuing flow of issues that need your immediate attention.”

Assessing the Biden Administration’s early efforts to shape climate policy, Holdren says he would give it a grade of A-, complimenting the President’s selection of respected officials for key positions, including Secretary of State Tony Blinken, U.S. Special Presidential Envoy for Climate John Kerry, White House National Climate Advisor Gina McCarthy, Office of Science and Technology Policy Director Eric Lander, and Deputy Director for Climate and Environment in the White House Office of Science and Technology Policy Jane Lubchenco.

“[President] Biden has put together just a superb team. I think it’s by far the strongest team on climate change that’s ever been assembled in a government,” Holdren says. “And when asked what’s the most important thing in achieving success in science and technology policy in government, or indeed any other domain of government activity, I always answer the single most important thing is people. The single most important thing is having an absolutely top-flight team in terms of relevant competencies and their ability and willingness to work seamlessly together. That is what President Biden has put in place.”

When I ask Holdren what he expects from U.S. climate policy over this decade, Holdren surprisingly predicts that the United States will institute a significant carbon tax by 2024.

“It will happen for a couple of reasons, one of which is that the impacts of climate change are now so conspicuous that it is becoming impossible for people to, with any credibility at all, deny that this is an immense challenge to well-being on the planet,” he remarks. “People are coming to understand in larger and larger numbers that this is a challenge that society must rise to meet. And I think the deniers and the wafflers are in retreat. And that’s one of the reasons I think we will get at least quite a lot of what we need in the next few years.”

My complete conversation with John Holdren is the 25th 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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Reflecting on Economics, Politics, and Climate Policy

Addressing climate change with meaningful policy action will be neither cheap nor easy, but presently the greatest barrier to action in the United States is not technological, nor perhaps even economic, but fundamentally political.  This becomes a theme in my latest podcast, where I engage in a wide-ranging conversation about economics, politics, and climate change with Gernot Wagner, Clinical Associate Professor at New York University, and former staff economist at the Environmental Defense Fund.

You can hear our complete conversation in the podcast here.

In these podcasts – “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program – I converse with very well-informed people from academia, government, industry, and NGOs.  Gernot Wagner fits well in this group, with experience in academia, industry, and the NGO world.

Wagner, whose career also includes time spent as a consultant at the Boston Consulting Group and a journalist at the Financial Times, brings to his thinking about the economics of climate change policy a rich and varied set of perspectives gained through his years of multi-sectoral experience.  

He is a graduate of Harvard College, where he took my environmental economics course as a freshman (and then proceeded to receive the highest grade in the class).  In addition, I had the privilege of serving as chair of Gernot’s dissertation committee when he received his Ph.D. in Political Economy and Government from Harvard in 2007.

Gernot Wagner is author of two books, “But will the Planet Notice: How Smart Economics Can Save the World?,”and “Climate Shock: The Economic Consequences of a Hotter Planet,” which he co-wrote with the late Harvard Professor Martin Weitzman, whom he had met his first week on the Harvard campus as a freshman in 1998.

“I went to meet Marty on a Thursday that week,” Wagner recalls in our podcast conversation. “I remember Marty sitting me down and first of all, taking me seriously…much like you did. You did try to dissuade me from taking your class, but then I ended up taking it later that year. But Marty sat me down and guided me through, maybe in an attempt at dissuading me frankly of wanting to become an environmental economist or academic.”

In my podcast conversation with Gernot, we turn to the topic of current-day climate policy, and Wagner sounds cautiously optimistic about the chances that the United States will meet the Biden Administration’s recently announced commitment to reduce CO2 emissions by 50-to-52 percent below 2005 levels by the year 2030, saying that it would be technically and economically feasible, although politically difficult.

“I’d like to think I can make a cogent argument for why it will happen, and this administration is uniquely positioned to make it happen. And the approach it is taking seems to be on the right path,” Wagner says, while also admitting that it will be a challenge for the administration to get any meaningful climate policy through a divided Congress.

Wagner also expresses his hope for establishing a carbon price of between 60 and 300 dollars per ton to provide incentives for companies and industries to reduce CO2 emissions. Exxon, he notes, has recently come out in support of a carbon price of 50 dollars per ton, but Democrats in Washington are not satisfied with that proposal.

“The progressives in the House wants something that has a higher price equivalent. The Biden Administration might be slightly less ambitious on that front,” he says. “All of it is still much more ambitious than the…simple 50 dollar per ton of CO2 carbon tax.”

At the end of our conversation, I ask Wagner for his thoughts on the youth climate movements that became prominent in 2019.

“What we do see is amazing action in the right direction, on a whole lot of different dimensions,” Gernot remarks. “Now we are back to – what should this movement push for? And frankly, now we are back to the raw politics of it all. It’s very, very difficult to see – the one simple approach that will just solve it all. That basically doesn’t exist. It exists in theory, maybe. Not in practice.”

My complete conversation with Gernot Wagner is the 24th 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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