Russia Archives - An Economic View of the Environment

An Experienced Economist Reflects on Government Service, Carbon Pricing, and Climate Policy

Having served as the Deputy Assistant Secretary for Climate & Energy Economics in the U.S. Department of the Treasury in 2021-2022, Catherine Wolfram has some particularly relevant insights to offer on the development and implementation of climate change policy in the most recent episode of my monthly podcast. Wolfram is the Cora Jane Flood Professor of Business Administration at the Haas School of Business at the University of California, Berkeley, currently on leave at the Harvard Kennedy School. In the podcast, we discuss her time in government service and her thoughts and hopes for a carbon pricing scheme. You’ll find this and much more in the newest episode of “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program,” a podcast produced by the Harvard Environmental Economics Program. I hope you will listen to our complete conversation here.

In this new podcast episode, Catherine Wolfram, who earned her PhD in Economics from MIT, begins by reflecting on her service in the Biden Administration, and she does so in very positive terms, saying that it was an “honor and thrill of a lifetime.”

“I would say the high point was definitely the work on the price cap on Russian oil. That was the main thing that I spent time on in the last 10 months of my time at Treasury, and was absolutely fascinating from so many different perspectives,” she says. “I learned a lot about foreign diplomacy, or I should say that I observed foreign diplomacy in action.”

During her time at the Treasury Department, Congress passed the Inflation Reduction Act, important legislation that authorizes $391 billion in spending on energy and climate change initiatives, making it the most important climate legislation ever enacted in the United States.

“A lot of the Inflation Reduction Act is being implemented through tax credits, and that’s Treasury’s purview, so [although] it was not my office within Treasury (it was another office, the Office of Tax Policy), I … [attended] many meetings about what started out as the Build Back Better Act and became the Inflation Reduction Act. So, that was really fun to see, and is certainly a momentous piece of legislation,” she remarks.

Despite the reliance on subsidies (tax credits) in the Inflation Reduction Act, Catherine says that she remains optimistic about the potential role of carbon pricing in climate change policy.

“I would not call carbon pricing dead,” she argues. “I could see it coming back in some form, maybe not the economy-wide carbon price that textbooks favor, but maybe something that starts, for instance, with the industrial sector … on a more limited scale.”

More broadly, Wolfram expresses optimism that the international community will figure out creative ways to adopt climate policies that will make a positive difference.

“I think if the G7 countries can get together and figure out how to put a price cap on Russian oil, [then] hopefully the G7 countries can get together and figure out good ways to use their presence in the international trade community to address climate change.”

However, Catherine also expresses concern about the possibility that an overreliance on tax credits and government subsidies in the design of climate policy could set back efforts to impose effective carbon pricing.

“I worry that there’s a future that evolves where the European Union gets pressure from its industry, and loses enthusiasm for its carbon price, and so the competitive pressures from industry that are seeing these subsidies over in the U.S., and thinking of moving to the U.S., that causes the EU to backtrack on climate policy, just because we have these different approaches to reducing emissions.”

For this and much, much more, I encourage you to listen to this 44^th episode of 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:

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
Scott Barrett, professor of natural resource economics at Columbia University, and an authority on infectious disease policy
Rebecca Henderson, John and Natty McArthur University Professor at Harvard University, and founding co-director of the Business and Environment Initiative at Harvard Business School.
Sue Biniaz, who was the lead climate lawyer and a lead climate negotiator for the United States from 1989 until early 2017.
Richard Schmalensee, the Howard W. Johnson Professor of Management, and Professor of Economics Emeritus at the Massachusetts Institute of Technology.
Kelley Kizier, Associate Vice President for International Climate at the Environmental Defense Fund.
David Hone, Chief Climate Change Adviser, Shell International.
Vicky Bailey, 30 years of experience in corporate and government positions in the energy sector.
David Victor, professor of international relations at the University of California, San Diego.
Lisa Friedman, reporter on the climate desk at the The New York Times.
Coral Davenport, who covers energy and environmental policy for The New York Times from Washington.
Spencer Dale, BP Group Chief Economist.
Richard Revesz, professor at the NYU School of Law.
Daniel Esty, Hillhouse Professor of Environment and Law at Yale University.
William Hogan, Raymond Plank Research Professor of Global Energy Policy at Harvard.
Jody Freeman, Archibald Cox Professor of Law at Harvard Law School.
John Graham, Dean Emeritus, Paul O’Neill School of Public and Environmental Affairs, Indiana University.
Gernot Wagner, Clinical Associate Professor at New York University.
John Holdren, Research Professor, Harvard Kennedy School.
Larry Goulder, Shuzo Nishihara Professor of Environmental and Resource Economics, Stanford University.
Suzi Kerr, Chief Economist, Environmental Defense Fund.
Sheila Olmstead, Professor of Public Affairs, LBJ School of Public Affairs, University of Texas, Austin.
Robert Pindyck, Bank of Tokyo-Mitsubishi Professor of Economics and Finance, MIT Sloan School of Management.
Gilbert Metcalf, Professor of Economics, Tufts University.
Navroz Dubash, Professor, Centre for Policy Research, New Delhi.
Paul Joskow, Elizabeth and James Killian Professor of Economics emeritus, MIT.
Maureen Cropper, Distinguished University Professor, University of Maryland.
Orley Ashenfelter, the Joseph Douglas Green 1895 Professor of Economics, Princeton University.
Jonathan Wiener, the William and Thomas Perkins Professor of Law, Duke Law School.
Lori Bennear, the Juli Plant Grainger Associate Professor of Energy Economics and Policy, Nicholas School of the Environment, Duke University.
Daniel Yergin, founder of Cambridge Energy Research Associates, and now Vice Chair of S&P Global.
Jeffrey Holmstead, who leads the Environmental Strategies Group at Bracewell in Washington, DC.
Daniel Jacob, Vasco McCoy Family Professor of Atmospheric Chemistry & Environmental Engineering at Harvard.
Michael Greenstone, Milton Friedman Distinguished Service Professor of Economics, University of Chicago.
Billy Pizer, Vice President for Research & Policy Engagement, Resources for the Future.
Daniel Bodansky, Regents’ Professor, Sandra Day O’Connor College of Law, Arizona State University.

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

Can Europe Decarbonize in the Midst of a Geopolitical Crisis?

Is the geopolitical crisis due to the Russian invasion of Ukraine likely to accelerate or retard the energy transformation in the European Union? This and related topics on decarbonizing Europe were central to the most recent webinar in our series, Conversations on Climate Change and Energy Policy, sponsored by the Harvard Project on Climate Agreements (HPCA). This time, we featured a conversation with Dan Jørgensen, the Danish Minister of Climate, Energy, and Utilities, who expressed his hope (if not expectation) that the tragic war in Ukraine will help accelerate the clean energy transformation by weaning Europe off Russian gas. A video recording (and transcript) of the entire webinar is available here.

As many readers of this blog know, in this webinar series I 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 had solid and important experience in government.

Dan Jørgensen, who played a significant role in maintaining the focus on reducing the rise of global temperatures during the 26^th Conference of the Parties (COP-26) to the United Nations Framework Convention on Climate Change (UNFCCC) in Glasgow last November, lauded the efforts of European countries like Greece that are proclaiming their intent to reduce their use of Russian gas in favor of other energy sources, although Greece has simultaneously announced that it will therefore have to increase its use of coal for electricity generation.

“One of the few positive things that might come out of a terrible situation is that we will now be forced to speed up the green transformation away from fossils in Europe,” Jørgensen says. “It has opened the eyes… I think, for decision makers all over Europe to ramp up the replacement of fossils – that’s gas, that’s oil, that’s coal, with renewables. And we have a lot of potential for that in Europe.”

Jørgensen talks about important legislation being negotiated in the European Union which would create new directives on energy efficiency and renewable energy that could, he states, help EU countries greatly reduce their dependency on Russian fossil fuel.

Much of the discussion also focuses on COP-26 and the decision by participating countries to agree on language calling for a “phase down” of unabated coal and to reduce inefficient fossil fuel subsidies.

“On one hand, I’m disappointed that the text is not stronger than it is on those issues. On the other hand, it is really huge progress that it’s now in the text, meaning that…[it will be] the starting point for the next negotiations [at COP-27 in Sharm el-Sheikh, Egypt],” Jørgensen remarks. “The overall result was a positive one. There was some real progress. But first and foremost, the aim of the COP-26 meeting was to keep 1.5 alive, so to speak. What does that mean? It means that if we hadn’t made the decisions that we actually made then…it would be almost impossible for us to keep the promise of staying below 1.5 alive, and it wouldn’t be credible.”

Looking ahead to COP-27, Jørgensen says negotiators will focus on the promise of more ambitious nationally determined contributions (NDCs) as well as questions surrounding finance for developing countries requiring short-term assistance to reduce their dependency on fossil fuels and adapt to climate change.

“I do understand how some of the growing economies of this planet that are also now amongst the biggest emitters, why they think it’s only fair that the richer countries of the planet help them in the transformation,” he states. “We have a climate problem because rich countries have been polluting for more than 100 years. Now, some countries are raising their standard of living and…starting to pollute more. But I don’t really think it would be fair for us to say, ‘You cannot have the same standard of living as we do.’ That would not be legitimate, in my point of view. And it wouldn’t be fair if we didn’t also offer help to mitigate the problem. So, we need to have a clear focus on the financing part.”

Jørgensen also shares his thoughts on the potential for carbon trading systems to reduce global emissions, arguing that pricing can be complicated but is absolutely necessary.

“We need clear price signals in the market,” he says. “It needs to be more expensive to produce in a way where you’re dependent on fossil fuels and less expensive to do the opposite.”

I ask Jørgensen about the European Union’s Emissions Trading System (EU ETS), established in 2005 as the first large greenhouse gas emissions trading scheme in the world, and which now covers more than 11,000 factories, power stations, and other installations in 31 countries, including all 27 EU countries.

“It is actually pretty incredible that we have this well-functioning system with 27 countries that is economically rational, that works, that cuts emissions, even in times of crisis where normally many countries will probably say, ‘Okay, well, we want to save the climate, but we need to get through this crisis first,’” he says. “In times of crisis like that, it’s extremely important that we have these systems. And what I like especially about it is that it’s a win-win. I mean, it is the cheapest, most efficient way of making a transformation.”

During the forum, Jørgensen also responds to questions from attendees from around the world, including questions focusing on carbon capture and sequestration, solar radiation management, methane, nuclear power, and the youth climate movement.

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,” Nathaniel Keohane reflecting on “The Path Ahead for Climate Change Policy,” Valerie Karplus talking about “The Future of China’s National Carbon Market,” Laurence Tubiana reflecting on “A European Perspective on COP26,” and Congressman Garret Graves on “U.S. Climate Change Policy in an Era of Political Polarization.”

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.

Canada’s Step Away From the Kyoto Protocol Can Be a Constructive Step Forward

Canada confirmed this week that it will not take on a target under an extension of the Kyoto Protocol following the completion of the first commitment period, 2008-2012. Given that Canada is likely to miss by a wide margin its current target under the first commitment period, this decision may not be surprising, but it is nevertheless important. More striking, it may actually turn out to be a positive and constructive step forward in the drive to address global climate change through meaningful international cooperation. Why do I say that?

The Current Situation

The Kyoto Protocol, which essentially expires at the end of 2012, divides the world into two competing economic camps. Emission reductions are required for only the small set of “Annex I countries” (essentially those nations that used to be thought of as comprising the industrialized world). Such reductions will not reduce global emissions, and whatever is achieved would be at excessive cost, because of having left so many countries and so many low-cost emissions-reduction opportunities off the table. Furthermore, that dichotomous distinction is by no means fair: more than 50 non-Annex I countries now have higher per capita incomes than the poorest of the Annex I countries. (I have written about this and other issues surrounding the Kyoto Protocol in the past: Defining Success for Climate Negotiations in Cancun; Defining Success for Climate Negotiations in Copenhagen; Three Pillars of a New Climate Pact).

The United States did not ratify the Kyoto Protocol, and has made it clear that it will not take on a target under a second commitment period. The U.S. position continues to be that a considerably broader agreement is necessary – one that includes commitments not only from the Annex I (industrialized) countries, but also from the key emerging economies, such as China, India, Brazil, Korea, Mexico, and South Africa.

For much the same reason, Russia and Japan announced last year that they would not take on post-2012 commitments under the Kyoto Protocol. Further, it is unlikely that Australia will take on such a commitment under Kyoto, essentially leaving the European Union on its own.

On the other hand, the Kyoto Protocol is enthusiastically embraced by the non-Annex I countries (sometimes inaccurately characterized as the “developing countries”), because it holds out the promise of emissions reductions by the wealthiest nations without any responsibilities (costs) borne by others, including the emerging economies.

The Path from Copenhagen to Cancun to Durban

Year after year, the Conference of the Parties to the United Nations Framework Convention on Climate Change has failed to reach agreement on a second commitment period for the Kyoto Protocol. Most recently, in December, 2010, the issue was punted from the annual conference held in Cancun, Mexico, to the next conference, scheduled for December, 2011, in Durban, South Africa.

Because Durban provides the last opportunity to set up post-2012 targets (with time remaining for national ratification actions), it has been anticipated that the negotiations in Durban will re-ignite the divisiveness and recriminations that highlighted the Copenhagen negotiations in 2009 – with verbal hostilities between Annex I countries and non-Annex I countries dominating the discussions at the expense of any other considerations or meaningful actions.

A Positive and Constructive Step Forward

The decision just announced at meetings in Bonn, Germany, by the Canadian delegation that Canada will not take on a target in a second commitment period of the Kyoto Protocol can be a very constructive step forward. This is because it greatly reduces the risk that this year’s annual meeting of the Conference of the Parties in Durban will be dominated by acrimonious debates about a second commitment period for the Kyoto Protocol.

On the contrary, this announcement should encourage the non-Annex I (“developing”) countries, which have been insisting on a second commitment period, to begin to accept the reality that with the United States, Japan, Russia, and now Canada on record as not endorsing a second commitment period for the Kyoto Protocol, it is infeasible for the European Union to go it alone. (Indeed, one might suspect that Australia and most European nations are privately pleased by Canada’s announcement.)

The reality is that the world will be better off by focusing on sensible alternatives under the Long-Term Cooperative Action track of the UN negotiations and by “getting real” about post-Kyoto international climate policy architecture for the long term, such as by putting some additional meat on the Cancun Agreements and by considering any supplemental and sensible architectures the various parties wish to discuss. (For previous posts on the Cancun Agreements, see: Why Cancun Trumped Copenhagen; What Happened (and Why): An Assessment of the Cancun Agreements; Defining Success for Climate Negotiations in Cancun. For descriptions of a wide range of potential global climate policy architectures — ranging from top-down to bottom-up — see the diverse publications of the Harvard Project on Climate Agreements.)

Next Steps

At Cancun, it was encouraging to hear fewer people holding out for a commitment to another phase of the Kyoto Protocol, but it was politically impossible to spike the idea of extending the Kyoto agreement entirely. Instead, it was punted to the next gathering in Durban. Otherwise, the Cancun meeting could have collapsed amid acrimony and recriminations reminiscent of Copenhagen.

Usefully, the Cancun Agreements recognize directly and explicitly two key principles: (1) all countries must recognize their historic emissions (read, the industrialized world); and (2) all countries are responsible for their future emissions (think of those with fast-growing emerging economies). In important ways, this helps move beyond the old Kyoto divide.

The acceptance of the Cancun Agreements last December suggested that the international community may have begun to recognize that incremental steps in the right direction are better than acrimonious debates over unachievable targets. Canada’s announcement should help advance that recognition, and can thereby lead to vastly more productive talks this year in Durban.