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What Can Universities Do About Climate Change?

There has been considerable debate about whether universities – and, for that matter, foundations – should divest fossil-fuel stocks from their investment portfolios as a way to reduce the risk of global climate change. My own institution, Harvard University, decided that such an action was neither warranted nor wise (a position that I have supported in a post at this blog, as well as in a longer essay published by Yale University’s environment360). Our sister institution on the West Coast of the United States, Stanford University, decided to divest coal stocks only, a position that apparently will have trivial implications for that university’s portfolio, partly because it does not affect investments in funds in which coal stocks are commingled, such as exchange-traded and mutual funds.

A broader, more positive, and fundamentally more important question is what role should universities play in addressing the threat of climate change (a topic I have addressed at this blog in the past). Recently, the Presidents of Harvard and Stanford co-authored an op-ed on precisely this topic, and so today I am pleased to reproduce it below. The original version was published in The Huffington Post.

What Universities Can Do About Climate Change

Drew Gilpin Faust, President, Harvard University

John L. Hennessy, President, Stanford University

September 24, 2014

This week’s UN Climate Summit calls upon people and institutions around the world to consider how they can become active leaders in combating climate change. What is the role of our colleges and universities in this effort? Those of us in the academy should be asking ourselves what more can we do to confront one of the most urgent and consequential challenges facing our civilization.Among those advocating for action in New York are many thousands of students, from our institutions and others. We are inspired by the passion and purpose they bring to this issue. We applaud and encourage the dedication of students who are determined to translate passion into action, to invest themselves in a cause that reaches far beyond themselves and their lifetimes and to remind us that the future of our planet is our collective, immediate responsibility, not something to leave to others for another day.

Educating informed, effective citizens of the world is a central part of the mission of our universities. Today’s students will lead our world in what will be a most critical era for assuring our planet’s health. We must continue working to provide innovative academic pathways that will equip them for that responsibility, along with leadership opportunities that build the skills they will need to be effective influencers, consensus builders and decision makers. We must intensify and expand our courses and programs focused on energy and environment, educating our students even as they educate us.In addition to their educational objectives, universities must continue to do even more in the research arena to provide actionable solutions for mitigating and adapting to climate change.

University scientists play crucial roles in investigating the origins and trajectory of climate change, in gauging its present and prospective consequences and in devising the new technologies that will accelerate the transition to renewable energy sources. Whether through breakthroughs on battery technology that will make energy storage more reliable and economical, or improvements in efficiency and production costs for solar systems and hydrogen fuel, a wide span of university research both fundamental and applied will drive many of the solutions to climate change.

The effort must go well beyond our scientists and engineers. University scholars across fields are vital actors in efforts to shape policy, organizational practices and wider attitudes regarding climate change and the grave risks it poses. This week, Rob Stavins and his team at the Harvard Project on Climate Agreements released new research that centers on aligning national and regional climate policies through a new international framework. Stanford faculty have been leaders in the international UN effort to document the scientific consensus on the state of the world’s climate and the impacts of climate change in fields ranging from human health to food security. Economists and lawyers, architects and ethicists, political scientists and experts in organizational behavior and finance, sociologists and humanists — all have essential parts in envisioning and spurring creative, pragmatic strategies to align governments, businesses and others in a shared quest for solutions.

A third area for university leadership is in piloting and modeling effective operational practices. Stanford has dramatically reduced employee drive-alone rates to work and is building a new campus energy system that will substantially reduce water use and carbon emission on campus. Harvard has implemented initiatives that have already resulted in a reduction in greenhouse gas emissions of 21 percent, when we include the effects of growth and renovation in our physical plant (31 percent excluding growth), and has joined forces with other universities and the Commonwealth of Massachusetts to develop the Massachusetts Green High Performance Computing Center, which uses state-of-the-art approaches to reduce energy consumption by minimizing cooling needs. Universities must “walk the walk,” acting as pioneers in embracing the new technologies and policies that will be needed to sustain our ecosystem.

The work of universities alone will not be sufficient, of course. We agree that — in the words of United Nations Secretary General, Ban Ki Moon — ‘everyone must step up and become a leader on climate change’. Nations — including the largest emitters of greenhouse gases — must step up and play a collaborative role in shaping new international agreements if we are to make meaningful progress. Local governments must also step up, as they shape regulations and infrastructure that will guide development and growth in cities around the world. Industry must step up, accelerating the development and deployment of alternative and affordable sources of energy while committing to greater energy efficiency.

But we in higher education must continue to step up, as well. Universities have the opportunity and obligation to look toward the long term. Uniquely, they bring together a wealth of intellectual resources across fields, an abundance of creativity and collaborative energy across generations, an opportunity to convene key actors on neutral ground, a commitment to serving society in ways that privilege objective evidence and rigorous analysis and the dedication to pursuing powerful long-term solutions without becoming subservient to near-term economic interests or partisan political concerns.

Universities must use these inherent strengths to make the most potent possible contribution on climate change. There is no challenge facing the world today whose effective redress depends more on the capacity and commitment of every part of society — governments, industry, universities, nonprofits and each one of us as citizens. Whether we rise to that challenge, with the urgency it demands, will largely determine what sort of world we leave for the generations to come.

The UN Climate Summit and a Key Issue for the 2015 Paris Agreement

World leaders converged at the United Nations in New York City this past week for Secretary-General Ban Ki-moon’s much anticipated Climate Summit, a lead-up to global negotiations that will take place in Lima, Peru, in December of this year, and culminate a year later in Paris. The challenge before negotiators is great, because there are significant obstacles to reaching a meaningful agreement, as I describe in an Op-Ed that appeared in The New York Times on Sunday, September 21^st, “Climate Realities.”

However, partly because of the new path that is being taken under the Durban Platform for Enhanced Action, in which all countries will be included under a common legal framework in a politically realistic hybrid policy architecture, the prognosis for a meaningful international agreement is better now than it has been in decades. I discuss this briefly at the end of the Times article, and emphasize it in a follow-up Op-Ed that appeared in The Boston Globe on September 23^rd, “UN summit can accelerate momentum to a new approach to climate change.” (Also, for my overall assessment of the UN Climate Summit, see this interview carried out by the Harvard Kennedy School’s Doug Gavel.)

A New Development at the UN Climate Summit

The most significant development at the UN Climate Summit this past week was the degree to which carbon pricing became central to so many discussions, including with leaders from the business community. As carbon pricing – in particular, cap-and-trade systems – have emerged as the policy instrument of choice in many parts of the world, interest in linking these systems together has grown. Linkage (unilateral or bilateral recognition of allowances) among carbon markets — and, for that matter links with non-market-based systems — can reduce the aggregate cost of achieving climate targets. And lower compliance costs can in turn encourage countries to increase the ambition of their contributions under the 2015 Paris agreement.

New Research from Harvard

Because of this, the Harvard Project on Climate Agreements has been collaborating with the International Emissions Trading Association (IETA) to explore the role of linkage in the new international climate change agreement to be completed in Paris. In this new research, my co-authors (Daniel Bodansky of Arizona State University, Seth Hoedl of Harvard Law School, and Gilbert Metcalf of Tufts University) and I examine linkage — not only among cap-and-trade systems, but among cap-and-trade, carbon tax, and non-market regulatory systems — and the role that linkage should play in the 2015 agreement. We look both at what would inhibit or even prevent linkage and should therefore be avoided in the 2015 agreement, and what – in a positive sense – should be included in the agreement to facilitate effective linkage of regional, national, and sub-national climate policies.

We released an Executive Summary of our research paper (“Facilitating Linkage of Heterogeneous Regional, National, and Sub-National Policies Through a Future International Agreement”) in New York City on September 22^nd at an event co-sponsored by IETA and the Harvard Project, on the sidelines of UN Climate Summit, “Carbon Pricing and the 2015 Agreement” (the agenda of the event is available here).

In the executive summary (which can be downloaded in full here), we conclude that among the design elements the 2015 agreement should avoid because they would inhibit linkage are so-called “supplementarity requirements” that require parties to accomplish all (or a large, specified share) of their emissions-reduction commitments within their national borders. The 2015 agreement also should avoid including detailed linkage rules in the core agreement; an agreement with more flexibility would allow rules to evolve on the basis of experience.

Importantly, we also find that, to advance linkage, the 2015 agreement should: define key terms, in particular the units that are used for compliance purposes; establish registries and tracking mechanisms; and include default or model rules, from which nations are free to deviate at their discretion. Overall, the most valuable outcome of the Paris Agreement regarding linkage may simply be including an explicit statement that parties may transfer portions of their emissions-reduction contributions to other parties — and that these transferred units may be used by the transferees to implement their own commitments.

Looking Forward

We will release the complete research paper in November of this year, prior to the Twentieth Conference of the Parties (COP-20) of the United Nations Framework Convention on Climate Change in Lima, Peru, in December 2014, where the Harvard Project and IETA plan to conduct a side-event that will focus on this work.

When the full paper is released in November, I will provide a more complete description at this blog of our research methods and our findings.

[Additional press coverage is here, here, here, here, here, here, here, here, here, and here.]

EPA’s Proposed Greenhouse Gas Regulation: Why are Conservatives Attacking its Market-Based Options?

This week, the Obama Administration’s Environmental Protection Agency (EPA) released its long-awaited proposed regulation to reduce carbon dioxide (CO₂) emissions from existing sources in the electricity-generating sector. The regulatory (rule) proposal calls for cutting CO₂ emissions from the power sector by 30 percent below 2005 levels by 2030.

The Fundamentals in Brief

Through a carefully designed formula, EPA’s proposal lists specific targets for each state, under Section 111(d) of the Clean Air Act. States are given broad flexibility for how to meet their targets, including: increasing the efficiency of fossil-fuel power plants; switching electricity dispatch from coal-fired generating plants to natural gas-fired generating plants; developing new low-emissions generation, such as new natural gas combined cycle plants, more renewable sources (wind and solar), nuclear, or coal with carbon capture and storage; and more efficient end-use of electricity.

States are also given flexibility to employ (in their implementation plans to be submitted to EPA) any of a wide variety of policy instruments, including but by no means limited to market-based trading systems. Furthermore, states can work together to submit multi-state plans.

The proposed regulation will be finalized after receipt of comments one year from now (June 30, 2015). Then states will have until July 2016 to submit their plans, and can request one-year extensions (or two-year extensions for multi-state plans). Compliance commences in 2020.

A Big-Picture Assessment of the Proposed Rule

Let’s start by acknowledging that the proposed policy will be less effective environmentally and less cost-effective economically than the economy-wide approach the Administration previously tried with the Waxman-Markey bill, which passed the U.S. House of Representatives in 2009, but failed to receive a vote in the U.S. Senate. Electricity generation is responsible for about 38 percent of U.S. CO₂ emissions, and about 32 percent of U.S. greenhouse gas (GHG) emissions.

Given ongoing political polarization in Washington and the inability of Congress to approve that more comprehensive and more cost-effective approach, this is probably the best the administration could do. Together with the motor-vehicle fuel efficiency and appliance energy efficiency standards previously put in place, this is certainly a step in the right direction.

More broadly, the importance of these U.S. moves in the international context should not be underestimated. Although the United States accounts for only about 17% of global CO₂ emissions (second to China’s 26% in 2010), these steps by the U.S. government can help international efforts to bring the large emerging economies (China, India, Brazil, Korea, South Africa, and Mexico) on board for a future (Paris, 2015) agreement under the Durban Platform for Enhanced Action.

Domestically, EPA’s proposed state-by-state approach does not guarantee cost-effectiveness, because under the formula employed, marginal abatement costs will initially vary across states. However, freedom is given to the states to employ market-based instruments, in particular, cap-and-trade systems (with carbon taxes presumably also an option). And EPA has emphasized its willingness to consider multi-state implementation plans (think, for example, of the existing Regional Greenhouse Gas Initiative – RGGI – the cap-and-trade system operating in nine northeast states; and the likelihood of a future linked policy bringing together California’s AB-32 cap-and-trade system with policies in Oregon and Washington).

The ability of states to develop under EPA’s rule such linked systems of market-based instruments, as well as the freedom for states and regions to subsequently establish linkages means that although EPA may not be guaranteeing cost-effectiveness, it is certainly allowing for it, indeed it is facilitating it.

Response from Environmental Advocacy Groups and Industry

Much of the response this week has not been surprising. The major environmental advocacy groups have been supportive of the proposed rule, despite the fact that they would prefer even greater ambition. Many in industry have also offered praise for the approach, particularly because of the flexibility that EPA has given for the means of achieving emissions reductions. In fact, some electricity-sector executives have been supportive, precisely for this reason, and appear to be encouraging the adoption of cap-and-trade systems. At a minimum, leading electric utilities, including some that are fossil-heavy, such as FirstEnergy Corporation and American Electric Power, Inc., have taken a “wait-and-see” attitude, rather than attacking the proposal.

Also not surprising has been strong opposition from the coal industry, as well as some prominent industry trade associations, including the U.S. Chamber of Commerce. Once the rule has become final (about a year from now), lawsuits will surely be filed by some of these private industry opponents and by a number of resistant states.

I will leave it to the lawyers to comment on the likely grounds of those anticipated lawsuits, as well as their probabilities of success. But, clearly, for the plan to succeed it will need to survive those legal challenges, which will work their way through the courts over several years.

Also, a significant change in the senate majority and in the party holding power after the next presidential election could result in progress being slowed to a crawl, if not the abandonment of the approach proposed by the current administration.

None of that is particularly surprising, but what should be surprising is the fact that conservative attacks on EPA’s proposed rule have focused, indeed fixated, on one of the options that is given to the states for implementation, namely the use of market-based instruments, that is, cap-and-trade systems. Given the demonization of cap-and-trade as “cap-and-tax” over the past few years by conservatives, why do I say that this fixation should be surprising?

The Irony of Conservatives Targeting Cap-and-Trade

Not so long ago, cap-and-trade mechanisms for environmental protection were popular in Congress. Now, such mechanisms are denigrated. What happened? Professor Richard Schmalensee (MIT) and I recently told the sordid tale of how conservatives in Congress who once supported cap and trade had come to lambast climate change legislation as “cap-and-tax.” Ironically, in doing this, conservatives have chosen to demonize their own market-based creation.

In the late 1980s, there was growing concern that acid precipitation – the result of SO₂ and, to a lesser extent, nitrogen oxides (NOx) reacting in the atmosphere to form sulphuric and nitric acids – was damaging forests and aquatic ecosystems, particularly in the northeast U.S. and southern Canada. In response, the U.S. Congress passed (and President George H.W. Bush signed into law) the Clean Air Act Amendments of 1990. Title IV of this law established the SO₂ allowance-trading system.

By the close of the 20th century, the SO₂ allowance-trading system had come to be seen as both innovative and successful. However, the successful enactment and implementation of the SO₂ cap-and-trade system in 1990 combined with the subsequent Congressional defeat of CO₂ cap-and-trade legislation 20 years later has produced a striking irony. Market-based, cost-effective policy innovation in environmental regulation – in particular, cap-and-trade – was originally championed and implemented by Republican administrations from that of President Ronald Reagan to that of President George W. Bush. But in recent years, Republicans have led the way in demonizing cap-and-trade, particularly as an approach to limiting carbon emissions.

For a long time, market-based approaches to environmental protection, such as cap-and-trade, bore a Republican label. In the 1980s, President Ronald Reagan’s EPA put in place a trading program to phase out leaded gasoline. It produced a more rapid elimination of leaded gasoline from the marketplace than had been anticipated, and at a saving of some $250 million per year, compared with a conventional no-trade, command-and-control approach. Not only did President George H.W. Bush successfully propose the use of cap-and-trade to cut SO₂ emissions, his administration advocated in international forums the use of emissions trading to cut global CO₂ emissions (a proposal initially resisted but ultimately adopted by the European Union). In 2005, President George W. Bush’s EPA issued the Clean Air Interstate Rule, aimed at reducing SO₂ emissions by a further 70% from their 2003 level. Cap-and-trade was again the policy instrument of choice.

From Bi-Partisan Support to Ideological Polarization

When the Clean Air Act Amendments were being considered in the Congress in 1989-1990, political support was not divided on partisan lines. Indeed, environmental and energy debates from the 1970s through much of the 1990s typically broke along geographic lines, rather than partisan lines, with key parameters being degree of urbanization and reliance on specific fuel types. Thus, the Clean Air Act Amendments of 1990 passed the Senate by a vote of 89-11 with 87% of Republican members and 91% of Democrats voting yea, and passed the House of Representatives by a vote of 401-21 with 87% of Republicans and 96% of Democrats voting in support.

But twenty years later, when climate change legislation was receiving serious consideration in Washington, environmental politics had changed dramatically, with Congressional support for environmental legislation coming mainly to reflect partisan divisions. In 2009, the House of Representatives passed the American Clean Energy and Security Act of 2009 (H.R. 2454) – the Waxman-Markey bill – that included an economy-wide cap-and-trade system to cut CO₂ emissions. The Waxman-Markey bill passed the House by a narrow margin of 219-212, with support from 83% of Democrats, but only 4% of Republicans. In July 2010, the Senate abandoned its attempt to pass companion legislation. In the process of debating this legislation, conservatives (largely Republicans and some coal-state Democrats) attacked the cap-and-trade system as “cap-and-tax,” much as an earlier generation of liberals had denigrated cap-and-trade as “selling licenses to pollute.”

It may be that some conservatives in Congress opposed climate policies because of disagreement about the threat of climate change or the costs of the policies, but instead of debating those risks and costs, they chose to launch an ultimately successful campaign to demonize and thereby tarnish cap-and-trade as an instrument of public policy, rendering it “collateral damage” in the wider climate policy battle.

Today that “scorched-earth” approach may have come back to haunt conservatives. Have they now boxed themselves into a corner, unable to support the power of the marketplace to reduce their own states’ compliance costs under the new EPA CO₂ regulation? I hope not, but only time will tell.