Category: Positive Political Economy

Reflecting on Federal Regulatory Policy and the Future of Electric Vehicles

As I’ve discussed previously, the political barriers that exist in the U.S. Congress to the enactment of significant new climate change legislation will likely force the Biden administration to turn, at least in some cases, to regulatory approaches.  This is in addition to the numerous government subsidy programs that are part of the administration’s infrastructure plans, some of the most important of which are for diffusion of electric vehicles (EVs).

So, this is a particularly opportune time to reflect on the role of federal regulatory policy, as well as the outlook for EVs.  For that purpose, an exceptionally qualified observer is my newest podcast guest, Dr. John Graham, Dean Emeritus and Professor at the Paul O’Neill School of Public and Environmental Affairs at Indiana University, and former Administrator of the Office of Information and Regulatory Affairs (OIRA) in the U.S. Office of Management and Budget (OMB).

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 talk with well-informed people from academia, government, industry, and NGOs.  John Graham obviously fits perfectly in this group, with tremendous experience both in academia and government.

John Graham is Dean Emeritus – and still a professor – at the Paul O’Neill School of Public and Environmental Affairs at Indiana University.  Previous to that, he was Dean of the Pardee RAND Graduate School in Santa Monica, California.  And before that, he served in the George W. Bush administration as the Administrator of OIRA.  And prior to that, he was a professor at the Harvard T.H. Chan School of Public Health in Boston, where he founded the Harvard Center for Risk Analysis.

In our podcast conversation, Dr. Graham offers his thoughts on Regulatory Impact Analysis, federal energy policy, domestic climate change policy, and electric vehicles.  He also talks about his early experiences in the Bush 43 White House, where he and his team had to make the case to the President to increase the stringency of Corporate Average Fuel Economy (CAFE) Standards at a time when the Vice President was opposed.

“We had to actually go into the Oval Office and make our case to President Bush. And when I did so, it was apparent that the president and the vice president were not totally on the same page on this issue, but we were able to persuade the president to move forward and we did so, and now it’s a very important part of the program that the federal government has on fuel economy and on carbon dioxide control,” he says.

Graham, whose Ph.D. dissertation was on the topic of automobile airbag technology, also discusses his new book, “The Global Rise of the Modern Plug-In Electric Vehicle: Public Policy, Innovation, and Strategy,” which outlines the significant ways in which the wide use of electric vehicles will influence our daily lives, economies, urban air quality, and global climate change.

“When I was working for George W. Bush, we were very convinced that the electric vehicle was not a very cost-effective technology, and we resisted strongly California’s efforts to mandate so-called zero-emission vehicles, and they really had in mind electric cars,” Graham explains. “But what has happened is the spillover of lithium-ion battery technology from consumer applications to the auto industry, [and the extent to which it] is now creating enormous excitement and innovation in the auto sector, and that’s the stimulation for the book.”

Graham predicts that electric vehicles will play a significant role in the future of transportation.

“The transition from the internal combustion engine to electric propulsion is in fact underway and irreversible seeds have been set to make this happen. However, the pace of the transition is going to move at very different rates in different parts of the world, and a lot of this depends as much on politics as it does on markets,” he says.

John Graham explains that Norway is leading the world with electric vehicles, making up 80 percent of the nation’s new car fleet. That compares to ten percent in Germany and the UK, and approximately three percent in the United States. Production in the USA will grow, Graham argues, once appropriate government policies are in place.

“This is one of these cases I find it fascinating where the industrial policy strategies, which many Western economists regard as in disrepute … are in fact the standard approach to making a big change in an industry like this, and I think that’s what’s going to have to happen. Now the details about whether the Biden Administration gets it right, it’s far too early to judge.”

My complete conversation with John Graham is the 23rd 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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The Path Ahead for U.S. Climate Change Policy

It is clear that the Biden Administration is devoting substantial attention to addressing climate change, certainly in comparison with the previous Trump administration, but there is a long road ahead for the development of substantive domestic policies to reduce greenhouse gas (GHGs) emissions. That is one of the messages that emerges most clearly from 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 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 solid experience in at least three of these sectors – academia, government, and the NGO community.  I’m talking about Nathaniel (Nat) Keohane, my former student, co-author, and friend.

Nat Keohane is Senior Vice President for Climate at the Environmental Defense Fund.  In the Obama administration, from 2001 to 2012, he served as Special Assistant to the President for Energy and Environment, and before that, he was Chief Economist at EDF.  Going back a bit further, he was an Associate Professor at the Yale School of Management, and before that, he earned his PhD degree in Political Economy & Government at Harvard University, and his BA degree in History and Environmental Studies at Yale University.

Our wide-ranging conversation took place just one week after the Biden administration’s Earth Day Climate Summit (April 22-23), and so it was a very good time to talk about the newly-announced U.S. pledge – its Nationally Determined Contribution (NDC) under the Paris Agreement – and about how the target in the NDC, a 50-52% percent reduction of U.S. greenhouse gas (GHG) emissions below the 2005 level by the year 2030, might be accomplished. 

More broadly, Nat Keohane shares his insights on both the science and the politics affecting climate policy, and his hopes for the upcoming UN Framework Convention on Climate Change (UNFCCC) Conference of the Parties (COP-26), scheduled for November in Glasgow, Scotland.

“President Biden and his team hit the ground running immediately,” Keohane says, referring to the administration’s move to reenter the Paris Agreement on January 20th. “But there’s still a fair amount of skepticism in the rest of the world…and [there is] a need for the U.S. to demonstrate that it’s serious [about its commitment to climate policy].”

Keohane goes on to suggest that the ambitious new U.S. NDC will serve to incentivize other large emitters to increase the ambition of their pledges prior to the upcoming COP.  Both Canada and Japan have already done so, Keohane notes, and there are hopes that China, India, and Brazil may follow suit if US Special Presidential Envoy for Climate John Kerry is successful in his climate diplomacy efforts with foreign leaders.

Here at home, Nat acknowledges that the Biden Administration faces an uphill battle passing significant climate legislation, but he argues that it can take very meaningful steps forward by regulating methane gas emissions, increasing investment in green technologies, and eventually building public support for a national carbon price, which would both stabilize GHG emissions and raise revenues.

“If we are going to really address climate change and reduce CO2 emissions at the scale and scope and pace that we need to, both to solve the climate problem and to meet the President’s [GHG reduction] target … the best way to do it would include some sort of limit and price on carbon pollution across the economy.”

Keohane is very aware that the “the politics of a carbon price on Capitol Hill are challenging,” but he believes that a carbon-pricing approach could be sold to the American people as a way to raise significant revenues, as much as a quarter of a trillion dollars a year. “That’s a lot of money, and there aren’t a lot of other sources of revenue that come up with 250 billion dollars,” he says.

A carbon border adjustment – an import fee levied by countries with ambitious climate policies on goods manufactured in countries with no or less ambitious climate policies – is a controversial proposal that many countries and regions, including the European Union, are seriously considering (and in the case of the EU, moving to implement).  Keohane calls it a “blunt force instrument … used to ideally help create incentives for other countries to act and to increase their ambition … but I don’t think we should think of it as a fine-tuned way to establish a carbon price that fairly addresses the carbon content of imported goods.”

As nations around the world prepare for COP-26 (assuming it does take place), Keohane expresses his hope that the U.S. will continue to leverage bilateral negotiations to encourage other large countries, particularly China, to increase their Nationally Determined Contributions (NDCs) before arriving in Glasgow.  But, interestingly, Keohane also argues that climate leaders need to rethink the role of the COP moving forward.

“I don’t know exactly what that looks like. Maybe it involves more engagement among countries with best-practice sharing. Maybe it involves bringing in civil society or businesses to talk about implementation, but we need to think creatively,” he remarks. “Rather than have the object of every COP be some negotiated text in a world in which we’ve got the text … what we need is implementation.”

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,” and Ottmar Edenhofer talking about “The Future of European 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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Reflecting on the Causes and Consequences of the Texas Energy Crisis

In mid-February of this year, a series of severe winter storms swept across the United States, due to the jet stream dipping particularly far south, stretching from Washington State to Texas, and running back north along the East Coast, allowing a polar vortex to bring exceptionally cold air across the country, and spawning multiple storms along the jet stream track.  This weather phenomenon resulted in record low temperatures throughout the state of Texas, with temperatures in Dallas, Austin and San Antonio falling below temperatures in Anchorage, Alaska!

            In Texas, this led both to dramatic increases in electricity demand for heating, and – at the same time – drastic reductions in electricity supply, as natural gas, nuclear, and wind generating facilities faced a variety of restrictions.  This severe supply-demand imbalance on the Texas electricity grid resulted in what has already come to be called the “Texas energy crisis of 2021,” which according to my most recent podcast guest, William Hogan, was of “unprecedented” scale, scope, and duration.

            William Hogan is the Raymond Plank Research Professor of Global Energy Policy at the Harvard Kennedy School, where he directs research in the Harvard Electricity Policy Group.  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 talk with well-informed people from academia, government, industry, and NGOs.  Bill Hogan surely belongs in this group, as one of the world’s leading authorities on electricity markets, the founding director of Stanford University’s Energy Modeling Forum, and the founding Research Director of the Harvard Electricity Policy Group.

Among the questions I discuss with Bill Hogan in the podcast are these: 

  • There have been previous electricity grid problems and blackouts – in Texas, California, New York – as well as in other parts of the world.  What made this one so different?
  • What were the the supply-side causes, including for generation from natural gas, nuclear, and renewables?  What about the fact that Texas has its own grid, with limited interconnections?  Was that a major problem?
  • On the demand side, if the state’s high reliance on electric heating was part of the problem, what does that say, if anything, about the fact that California and other jurisdictions seem to be moving toward prohibit natural gas connections for new home construction, because of climate change concerns?
  • Was the nature of the Texas electricity market and its regulation (or lack thereof) a significant factor in the crisis?
  • What about the consequences of the Texas crisis, such as the incredibly high electricity prices faced by some of those who were fortunate enough not to lose their power? 

As I noted above, the Texas energy crisis unfolded when a convergence of winter storms produced record-cold temperatures across much of the central part of the United States, reaching as far south as the Lone Star State. The sustained cold caused significant damage to energy infrastructure in Texas, knocking down transmission lines, freezing natural gas pipelines and pumps, severely pinching supplies, and creating blackouts throughout much of the state.  At the same time, the exceptionally cold weather resulted in spiking demand, as electric heating was cranked up by consumers. Hogan describes the scale, scope, and duration of the crisis as “unprecedented,” characterizing it as a one-in-one-hundred-year event.

“It’s a very tragic situation. Terrible. And when you’re dealing with systems like this, you can plan for some things. And then, when you get outside the envelope, you’re in trouble,” he says.

In our conversation, Bill describes how this situation resulted in a severe energy supply/demand imbalance during which hundreds of thousands of homes and businesses were left without power for days, and some of those who remained on the grid were at risk of receiving extremely high electricity bills (because they had previously opted for contracts which passed on wholesale costs plus a relatively small monthly charge).

Some observers have pointed fingers at Texas’ relatively less regulated energy market as the culprit for the crisis that unfolded, but Professor Hogan largely disagrees.

“One of the claims that has been very popular in certain press articles is that Texas has a free market in electricity. And you can’t have a free market in electricity because of problems like this. And that’s a mischaracterization of what has happened in Texas,” he says. “There are differences in the level of choice. But there are also reliability conditions, operating reserves that are imposed, transmission constraints that you have to respect. So, it’s a complicated mix of engineering and economics. And you have more choice, perhaps, in Texas than you have elsewhere. But I think it’s a mistake to characterize it as just having no regulation.”

Hogan agrees that the Texas energy grid is not equipped to withstand such pronounced and sustained cold snaps as the one in February, but he argues that the state’s electricity market design, which is highly responsive to typical changes in supply and demand conditions under normal circumstances, is one that is admired and hence being replicated in other parts of the country.

“You see evidence in the Western energy imbalance market that’s expanding rapidly because of the pressure coming from renewables. And you see the Southeast electricity and energy market proposed a couple of weeks ago, which is trying to accelerate the amount of trading and the amount of market operations. All of these things are moving in the direction of the Texas energy market,” he says. In general, Hogan concludes, the Texas electricity market design isn’t “as broken as people have claimed.”

My complete conversation with Professor Hogan is the 21st 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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