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Will the COVID-19 Pandemic Bring About Long-Term Societal Changes?

We have just released the newest episode of our podcast, “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program.” In this latest episode, I engage in a conversation with Scott Barrett, who – more than any other environmental economist I can name – is exceptionally well equipped, based on his research and experience, to reflect intelligently on the coronavirus pandemic, and public policies to address it.

Scott is the Lenfest-Earth Institute Professor of Natural Resource Economics at Columbia University, where he also serves as Vice Dean of the School of International and Public Affairs. Readers of this blog will recognize Scott as one of the world’s leading authorities analyzing alternative approaches to addressing the threat of climate change through international treaties, but he has also written for more than a decade on an economic perspective on global infectious disease policy.

In addition to his scholarly work, Scott has served as an advisor to many international organizations, including the European Commission, the OECD, the World Bank, and the United Nations, and he and I worked together when we were Lead Authors of the Second Assessment Report of the Intergovernmental Panel on Climate Change. Also, I’m very pleased to say that Scott has been a frequent participant in our programs and projects at Harvard, and has been my co-author on a number of occasions.

Scott Barrett, Ph.D. Lenfest-Earth Institute Professor of Natural Resource Economics Columbia University, New York

In this podcast episode, Professor Barrett assesses the massive global efforts underway to address COVID-19 and the potential impacts of the pandemic on our lives in the future. He describes how COVID-19 will be a “persistent challenge” and will result in “fundamental changes in society.” Turning to domestic U.S. policy, he comments that “what really stands out is the failure of the United States to be prepared. It’s clear that our inability to do testing has really compromised the health and well-being of Americans.” Calling it “an equitable scourge,” Scott notes that the pandemic is affecting people from all levels of income and wealth, and that “it’s in everyone’s best interest that we control it.”

Comparing the COVID-19 outbreak to the Plague in the 14^th century and the Spanish Flu of 1918-19, Scott remarks, “I think this is going to have profound changes that will last at least a generation. It’s hard to know exactly what those changes will be, but there will be changes in terms of how we understand our relationship with each other, to technology, to science, to government, to international institutions. I think all of this is in play right now.”

All of this and much more is found in the newest episode of “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program.” Listen to this latest discussion here, where, by the way, you can also find a complete transcript of our conversation.

My conversation with Scott Barrett is the eighth episode in the Environmental Insights series. Previous episodes have featured conversations with:

Gina McCarthy, former Administrator of the U.S. Environmental Protection Agency
Nick Stern of the London School of Economics discussing his career, British politics, and efforts to combat climate change
Andrei Marcu, founder and executive director of the European Roundtable on Climate Change and Sustainable Transition
Paul Watkinson, Chair of the Subsidiary Body for Scientific and Technological Advice (SBSTA) within the United Nations Framework Convention on Climate Change
Jos Delbeke, professor at the European University Institute in Florence and at the KU Leuven in Belgium, and formerly Director-General of the European Commission’s DG Climate Action
David Keith, professor at Harvard and a leading authority on geoengineering.
Joe Aldy, professor of the practice of public policy at Harvard Kennedy School, with considerable experience working on climate change policy issues in the U.S. government.

“Environmental Insights” is hosted on SoundCloud, and is also available on iTunes, Pocket Casts, Spotify, and Stitcher.

New Publication on Chinese Climate Change Policy

Readers of this blog need not be reminded that climate change is a global commons problem and therefore necessitates cooperation at the highest jurisdictional level – that is, international cooperation among national governments – if it is to be adequately addressed. This points to the key role for national governments to put in place meaningful public policies, consistent with international cooperation.

But sub-national governments can also significantly advance efforts to mitigate climate change. Provinces and municipalities around the world have indeed undertaken initiatives – sometimes working together across national boundaries – to reduce greenhouse-gas emissions. This includes jurisdictions in the largest-emitting countries – China, the United States, and India – as well as in the European Union.

A New Publication Now Available on the Internet

We – the Harvard Project on Climate Agreements (HPCA) – have just released a new volume that examines sub-national climate-change policy in China. The volume focuses to a considerable degree on carbon-pricing policy in China, including how China’s sub-national (pilot) emissions-trading systems can inform the emerging national carbon-pricing system.

The briefs in this volume – edited by Dr. Robert Stowe and myself – draw on presentations and discussion at a research workshop organized by the HPCA in Beijing on July 18 – 19, 2019. The workshop was hosted and co-sponsored by Tsinghua University’s Institute of Energy, Environment, and Economy, directed by Professor Zhang Xiliang. Workshop participants included 24 researchers and practitioners from China, Australia, Canada, India, Norway, the United Kingdom, and the United States. Chinese participants were based in Guangdong Province, Hubei Province, and Shanghai, as well as Beijing. The agenda and participant list for the workshop are included at the end of the volume.

The volume – and the July 2019 workshop – are part of a larger initiative of the Harvard Project on Climate Agreements examining and comparing sub-national climate-change policy in China, India, the United States, and Canada. The Harvard Project is conducting a similar workshop in New Delhi in the summer of 2020 and will release a volume of briefs on sub-national climate-change policy in India in early 2021.

Overview and Framing

The volume begins with a brief by Zhang Xiliang and Zhou Li that details policies adopted by Chinese provinces and municipalities to address climate change. Ye Qi and Xiaofan Zhao then describe what they see as the most important drivers of climate-change policy in China, providing context for the volume.

Institutional Perspectives

Next, institutional perspectives are provided in four briefs by experts on center-provincial institutional dynamics in China, with applications to climate-change policy. Michael Davidson explores China’s “quasi-federalist” system, and discusses how this system might be leveraged to develop effective institutions for addressing climate change. Gørild Heggelund focuses on China’s national emissions-trading system (ETS).

Tan Xianchun provides a concise yet detailed analysis of China’s administrative systems and procedures for addressing climate change – both carbon pricing and other approaches to reducing emissions, including the results of modeling that estimates the potential impact of a range of “[l]ow-carbon measures and policies” in Chongqing municipality and Guangdong Province.

Providing the final institutional perspective, Christine Wong discusses how the implementation and enforcement of environmental policy in China have evolved over the last decade. She finds that although the central government places greater emphasis on environmental policy than in the past and has provided considerable financial support for implementation and enforcement, renewed financial constraints in a period of low economic growth may prompt sub-national officials to favor carbon pricing over more traditional top-down policy approaches.

Emissions Trading Systems in China: Lessons for National Policy Design from the Pilots

Three contributors examine lessons for national policy design from experience with the pilot ETSs. Shaozhou Qi assesses the performance of the seven pilot ETSs. Tian Qi provides insights based on his study of Hubei’s pilot ETS, focusing on allowance allocation, as well as the closely-related topics of auction design and market-stability measures. Zeng Xuelan examines a range of GHG emissions-reduction policies in Guangdong Province, noting that Guangdong’s pilot ETS has been its “main mechanism for reducing provincial emissions.”

Zeng also notes the possibility of the central government terminating Guangdong’s ETS after lessons have been incorporated into the national carbon-pricing system.

The fate of the pilot ETSs more broadly is the subject of Valerie Karplus’s brief. She discusses three scenarios: “(1) coexistence, that is, maintaining separate sub-national trading systems alongside the national system; (2) partial integration, which would mean allowing credits from one system to be used in other systems; and (3) full integration, which would involve subsuming the seven sub-national pilots under a single national ETS.” Karplus discusses the tradeoffs among these options and then suggests an approach to strengthening the pilot ETSs that is somewhat independent of the path chosen.

Designing and Implementing China’s National ETS

Four briefs focus on the development of the national carbon-pricing system, though in each case with some reference to the sub-national pilots. Pu Wang identifies a set of important challenges to the implementation of the national system, concluding in part – as did Heggelund – that “institutional capacity related to the carbon market needs to be significantly enhanced at all levels, from the central government to the local level.”

We Libo discusses the results of a modeling initiative that explores sub-national distributional impacts of various trading-intensity and allowance-allocation scenarios. Zhang Jianyu presents ten policy recommendations for the implementation of the national system. Among these, he suggests that the pilot ETSs can continue to play a useful role after the national system is implemented, and that the central government should continue to support the pilots.

Finally, Fei Teng examines the important relationship between the power sector in China and the performance of the national carbon-pricing system. The power sector is highly regulated, though the central government is pursuing market-oriented reforms. Teng presents three options for passing through higher electricity costs resulting from carbon-pricing to electricity consumers, with one option including trading in generation rights.

Comparative Perspectives on Sub-National Policy

The final section of the volume includes three briefs providing cross-national comparative context on sub-national climate-change policy.

Radhika Khosla writes on India, Robert Stavins on the United States, and Katie Sullivan and Ellen Lourie on Canada.

Final Thoughts

Each of the seventeen briefs in the volume begins with several key points, and the seventeen sets of key points are compiled immediately following an introduction. We hope that this structure renders the insights, research results, and analysis contained in the briefs more readily accessible.

The Harvard Project on Climate Agreements is grateful to the Harvard Global Institute, which provides generous support for the initiative of which this volume and the July 2019 workshop in Beijing are part. We are also grateful for our ongoing collaboration with Professor Zhang Xiliang and his colleagues – a collaboration that has yielded insights that we hope prove useful to researchers and policy makers working to address the problem of climate change.

What Did (and Did Not) Happen at COP-25 Climate Talks in Madrid?

I recently returned from the climate negotiations in Madrid (the twenty-fifth Conference of the Parties – COP-25 – of the United Nations Framework Convention on Climate Change), and as I have done in previous years, I would like to provide you with my brief perspective on the outcome. This year that means commenting both on what did and did not happen.

A Very Quick Overview

The press has characterized the Madrid climate talks in rather stark terms – as a failure, in contrast with the inspirational calls from youth activists and others for greater ambition. For example, Somini Sengupta, writing in The New York Times, characterized COP-25 as “widely denounced as one of the worst outcomes in a quarter-century of climate negotiations …” As usual, reality is somewhat more nuanced.

On the one hand, the inability of the climate negotiations to produce an aspirational statement calling for greater ambition in the next round of national pledges is not terribly significant in terms of its real effects, despite the fact that some members of civil society – ranging from Greenpeace to Extinction Rebellion – have framed this as the key task for COP-25. On the other hand, there was a significant unfulfilled objective of the negotiations, namely writing meaningful rules (for Article 6.2 of the Paris Agreement) that would help facilitate global carbon markets. As I explain below, this was indeed a significant disappointment, but not the fatal failure that some have portrayed it to be.

So, there is good news and bad news. I will begin with the latter.

But before I turn to the substance, I will note for the record that we – the Harvard Project on Climate Agreements – were busy at COP-25, including: five speaking engagements focused on two topics – national and sub-national carbon-pricing policies (carbon taxes and emissions trading), and international linkage and the critical role of Article 6 of the Paris Agreement); and podcasts with key observers and participants in the negotiations (Andrei Marcu on December 8^th and Paul Watkinson on December 11^th).

The Bad News

From my recent essay at this blog just before I departed for Madrid (What to Expect at COP-25 in Madrid, December 5^th), you know that a key task for COP-25 was to complete the so-called Rulebook on Article 6, in particular, Article 6.2, which can potentially facilitate international carbon markets and other forms of cross-border cooperation.

As I have said before, there are two necessary conditions for ultimate success of the Paris Agreement. First is adequate scope of participation. This has been achieved, with meaningful participation from countries representing some 98% of global emissions – or some 85% if the U.S. withdraws in November, 2020 (compared with the 14% of global emissions from countries committed to emissions reductions under the current, second commitment period of the Kyoto Protocol).

The other necessary condition is adequate ambition of the individual national contributions. But the very element of the Paris Agreement that fostered such broad scope of participation – namely, that the individual national “pledges” (Nationally Determined Contributions or NDCs) are anchored in national circumstances and domestic political realities – implies that individual contributions may not be sufficient, due to the global commons nature of the climate change problem, and the attendant free-rider issues.

So, the challenge has been to identify ways to enable and facilitate increased ambition over time (not just to issue calls for greater ambition, but to devise ways of actually facilitating it). Linkage of regional, national, and sub-national policies can be an important part of the answer – connections among policy systems that allow emission reduction efforts to be redistributed across systems. Such linkage can bring down costs tremendously (in theory, to as little as 25% of what those costs otherwise would be), and thereby provide the latitude for countries to increase their ambition.

If such bilateral linkages among countries are to be correctly reflected when tallying countries’ emissions relative to their NDCs under the Paris Agreement, then the Agreement needs to include a robust accounting mechanism. The obvious and clear home for this was (and is) Article 6.2, which provides for Internationally Transferred Mitigation Outcomes (ITMOs) and Corresponding Adjustments, which together can function as the international accounting mechanism to correctly reflect a multiplicity of international private-sector exchanges (under various international, intergovernmental linkages). The negotiators needed to outline some brief and simple rules for double-entry bookkeeping.

Unfortunately, due to the insistence by Brazil and a few other countries for accounting loopholes that “would weaken transparency and mask emissions in a way that would undermine the integrity of the accord,” it turned out be impossible to reach agreement on Article 6.2, even after more than two weeks of extensive discussions and intense negotiations, which pushed the COP-25 proceedings 40 hours past their scheduled conclusion.

The Not-So-Bad News

This may sound like a rather technical, albeit unmet objective of COP-25, and that is not an unfair characterization. But the press has focused on something else altogether, namely the demand from some countries – principally the smallest and some of the poorest nations – for an official decision at COP-25 endorsing significantly greater ambition than what is currently codified in the aggregation of the first round of NDCs under the Paris Agreement. Such a consensus decision was not forthcoming, and that has been labeled as the great failure of the Madrid talks.

But how important is such an aspirational (even inspirational) statement of ambition, compared with putting in place sound rules to achieve the ambition to which the parties have already agreed? As Nathaniel Keohane of the Environmental Defense Fund recently wrote, “If merely adding “ambition” to a UN decision made a difference to what nations do, we would have solved the climate crisis long before COP-25. What matters to actual ambition is the operational substance of the decision.”

The very strong press attention to the lack of an official decision regarding increased ambition at COP-25 was no doubt brought about, at least in part, by the forceful youth activists who have focused their energies on the urgency of what is characterized as the climate emergency, rather than on the hard and sometimes technical work of improving public policies, whether at the international, national, or sub-national level. Surely, Swedish high school student Greta Thunberg’s speeches have been inspirational, as were Al Gore’s exhortations not very many years ago, but the primary outputs in Madrid were disruptive protests inside the conference (which led to the expulsion of some of the youth activists, and the temporary barring of all members of civil society), and the dumping of manure outside the conference venue.

The Good News

It is very important to understand that although clear accounting rules under Article 6.2 would be very helpful, they are decidedly not necessary for the successful execution and operation of bilateral international linkages and consequent carbon markets. Let me explain.

There are three distinct but closely related levels of relevant policy action. First, national (or regional) governments can establish emission-reduction policies, including carbon taxes, cap-and-trade systems, and performance standards. Second, these jurisdictions can link their policy instruments through mutual recognition of permits, allowances, or credits via bilateral agreements. This allows trade among private-sector compliance entities of these units across international borders, which facilitates lower-cost achievement of the aggregate target. But such transfers of emission reduction responsibilities and actions ought to be correctly counted toward compliance with respective NDCs under the Paris Agreement. This is where Article 6 comes in!

In other words, the ITMOs of Article 6.2 would potentially be units of accounting for Corresponding Adjustments, not a medium of exchange for government-government purchase and sale. Thus, international linkages among heterogeneous policies in different countries can continue to be executed, as they already have, and international carbon markets can and will proceed to grow!

It is surely unfortunate that the Madrid negotiators did not capitalize on their opportunity to define clear and consistent guidance for accounting for emissions transfers under Article 6.2, because such a robust accounting framework would increase confidence in successful linkages of climate policies across jurisdictions. But if the guidance had extended much beyond basic accounting rules – such as implicit taxes on cooperation via what have been termed “share of proceeds” and “net global emission reduction” – then restrictive requirements would actually impede effective linkage, and thereby drive up compliance costs.

As Teresa Ribera, Minister for the Ecological Transition of Spain, observed at COP-25, “no deal is better than a bad deal” on carbon markets and Article 6. Countries can now proceed to develop their own rules for international linkages that can foster high-integrity carbon markets.