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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History May Convey Some Hope for Biden’s Climate Agenda

Before launching into unbridled enthusiasm about the implications for environmental policies of the change from Trump to Biden, it can be helpful to place this change into some historical context.  Someone who is exceptionally well qualified to do this is my guest in the latest episode of my podcast, released today – Daniel Esty, who held a variety of senior roles in the George H.W. Bush (Bush 41) administration, and has been a close observer – and sometime consultant – on environmental policies of the four subsequent Presidential administrations.  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.  Dan Esty certainly belongs in this group, as he has occupied positions in two of these sectors, and has worked with all four!  Currently, he is the Hillhouse Professor at Yale University, with primary appointments at the Environment School and the Law School.  I’m pleased to say that he and I are both proud, long-time members of the Board of Directors of Resources for the Future, the Washington-based think tank.  Dan is the co-author with Todd Cort of a new book, Values at Work: Sustainable Investing and ESG Reporting.

Early in our conversation, Dan Esty reflects on his time in government, and recalls the high degree of bipartisanship that characterized voting in the U.S. Congress 30 years ago on the path-breaking Clean Air Act Amendments of 1990, when 96% of Democrats and 87% of Republicans in the House of Representatives voted in support (in the Senate, 91% of Ds and 87% of Rs voted in the affirmative).  This stands in sharp contrast with voting in 2009 on the Waxman-Markey climate legislation, which had support from 83% of Democrats and 4% of Republicans!

In regard to the recent presidential transition, Dan comments that he was disturbed by the ease with which the Trump Administration rolled back environmental policies, but is heartened by the change of leadership in Washington and the course that the new administration is charting.

“I’m excited about having a commitment across the administration to good science, good data, and good analysis. And, frankly, the elevation of the White House Science Advisor to Cabinet-level status is a signal of that, and an important one, that…science is back, and we’re going to build on the best evidence we can establish, and drive policy from there,” he says.

Esty commends President Biden for many of his high-level appointments, including John Kerry as climate envoy, Gina McCarthy as domestic climate change czar, Jennifer Granholm as Secretary of Energy, Pete Buttigieg as Secretary of Transportation, and Michael Regan as Administrator of the Environmental Protection Agency. Kerry in particular, Esty notes, can play a critical role in helping rally international support for climate policy as the U.N. Conference of the Parties prepares to hold its next annual meeting, this November in Glasgow, Scotland.

“There’ll be a big push as we approach that November gathering in Scotland to really have countries demonstrate renewed commitment and increased ambition to speed up the pace at which de-carbonization takes place,” Esty says. “We’re not going to renegotiate the Paris agreement, but I think John Kerry is the one who could say, the U.S. is back in this agreement, serious of purpose in terms of its own strategy for emissions reduction, and he will be able to tell that story with conviction to the leaders across the world.”

Dan is cautiously hopeful that the new administration will deploy a bipartisan approach to domestic climate policy as it lays the foundation for the transition to a clean energy economy in the United States.

“There is a hope, but I know that it’s a tough moment, that we might get back to a time, perhaps not this year or next, but at some point soon, when more of the agenda does move on a bipartisan basis.  I think we’re going to need to see a new tool box, a new set of approaches to the strategy of moving to clean energy, and I’m excited about that because I think it offers the promise, not the certainty, but the possibility of bringing together a broader coalition across party lines.”

Dan’s hope is commendable, and given the current state of political polarization in the U.S. Congress, he recognizes that it will require some truly inspired and highly creative proposals from the new administration to bridge the divide that exists.

All of this and much more is found in the latest episode of “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program.”  I hope you will listen to this latest discussion here.  You can find a complete transcript of our conversation at the website of the Harvard Environmental Economics Program.

My conversation with Professor Esty is the 20th episode in the Environmental Insights series, with future episodes scheduled to drop each month.  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 Future of European Climate Change Policy

In my previous blog post, on January 14th, I offered my personal views regarding “International Climate Change Policy & Action in the Biden Administration.”  Today, I’m pleased to turn to a parallel assessment of future European climate change policy by Ottmar Edenhofer, a greatly-accomplished German economist, admired by academics, as well as leaders in government, industry, and non-governmental organizations.

Professor Edenhofer’s presentation, “The European Green Deal – Reform or Regulatory Tsunami?” and our subsequent discussion is the most recent webinar in our series, Conversations on Climate Change and Energy Policy, sponsored by the Harvard Project on Climate Agreements (HPCA).  As you know, in this webinar series we feature leading authorities on climate change policy, whether from academia, the private sector, NGOs, or government.  A video recording (and transcript) of the entire webinar is available here.

Ottmar Edenhofer is Professor of Economics at the Technical University of Berlin, the Founding Director of the Mercator Research Institute on Global Commons and Climate Change, and Co-Director and Chief Economist of the Potsdam Institute for Climate Impact Research.  He has been a major contributor to scholarship on the economics of energy and climate change, and served as Co-Chair of Working Group III of Fifth Assessment Report of the Intergovernmental Panel on Climate Change, where I had the pleasure of working under his leadership.  He is a key advisor of the German Government, as well as the European Union.  He holds a Ph.D. in economics and a B.A. degree in philosophy (a pairing of degrees which –  I’m delighted to say – he and I share).

In his presentation and the discussion that follows, Ottmar Edenhofer offers a frank assessment of the European Green Deal’s potential to significantly address the impacts of global climate change. 

“It’s a very good time to talk about the European Green Deal because now the prospects that United States and Europe could work closer together on climate change or climate policy and energy policy are very good,” Ottmar notes, referring to the change in U.S. administrations and recent remarks by European Commission President Ursula von der Leyen reaffirming the European Union’s (EU’s) intent to reduce its target for emission reductions from 40 percent to 55 percent by the year 2030 and to achieve net carbon neutrality by the year 2050.

Calling it a “huge task,” Edenhofer outlines the actions that would need to occur to achieve such ambitious goals, including enhanced efforts to decarbonize the power sector, accelerated electrification for end-users, increased investments in bio-energy and semi-synthetic fuels, and advancements in carbon dioxide removal technologies. Using the EU’s climate policy impact assessment as a framework, he walks us through three different policy scenarios, ranging from one that relies heavily on regulation to one structured primarily around carbon pricing.

Characterizing the heavily regulatory approach as a “high-risk scenario,” he instead promotes the idea of an “intermediate step” in a which a mix of policy measures and carbon pricing are deployed to move toward the goal of a 55-percent carbon emissions reduction, and toward a longer-term strategy of using carbon pricing alone as the primary driver in CO2 reduction efforts.

“The crucial question therefore is, how can we design this intermediate step, and this is really the most important debate around this reform proposal,” he says, noting that several issues would need to be addressed.  “The intermediate step has to address the distributional issues and guarantee the stability and manage the political economy challenge between the sectors.”

Professor Edenhofer suggests that the intermediate step that may gain the political support necessary to succeed would be one that would allow for two separate emissions trading systems – one for the energy and industry sector, and the other for transportation and buildings.

“Meanwhile we could define gateways between these two systems. “Creating such gateways might have a two-fold effect – the first one is that market participants already anticipate that there are gateways and they anticipate these enterprise expectations, and this could lead to a convergence of the different prices across the sectors. And secondly, this is a starting point to manage the division of labor among the sectors, and this could be a credible pathway toward a carbon-price scenario when we have one ETS with one credible CO2 price scenario.”

In his presentation, Edenhofer also acknowledges the role that fiscal federalism could play in affecting the future direction of climate policy in Europe. While arguing that carbon pricing could generate roughly 800 billion euros between now and 2050, he notes that the funding base would shrink over time as emissions decrease, and therefore would not serve as a stable revenue source.  He has answers for this challenge as well.

After his presentation, Professor Edenhofer responds to questions from the virtual audience of more than 200 people. One question focuses on the impact of the new Biden-Harris Administration in Washington on global efforts to address climate change.

“The good thing is they are back in the Paris Agreement.  The announcement alone that the U.S. is committed has already helped.”

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

Previous webinars 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,” and Jason Bordoff commenting on “Prospects for Energy and Climate Change Policy under the New U.S. Administration.”

The next bi-monthly HPCA Conversation on Climate Change and Energy Policy will take place in March.  You can register in advance for that event at the HPCA website.

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