Economic Policy Archives - Page 30 of 39 - An Economic View of the Environment

A Key Moment is Coming for the IPCC’s Future

About six month ago, I posted an essay at this blog (The IPCC at a Crossroads, February 26, 2015) highlighting some of the challenges faced by the Intergovernmental Panel on Climate Change (IPCC), which plays an important role in global climate change policy around the world. [In previous essays at this blog, I wrote about problems with the IPCC process (Is the IPCC Government Approval Process Broken?, April 25, 2014) and about its significant merits (Understanding the IPCC: An Important Follow-Up, May 3, 2014; The Final Stage of IPCC AR5 – Last Week’s Outcome in Copenhagen, November 4, 2014)].

A Key Moment to Think About the Future of the IPCC

Now is an important moment to think carefully about the path ahead for this much-maligned and much-celebrated organization, because in early October of this year, the 195 member countries of the IPCC (who together constitute this “intergovernmental panel”) will meet in plenary in Dubrovnik, Croatia, to elect a new Chair, who will lead the IPCC’s Sixth Assessment Report (AR6). There are some excellent candidates for the chairmanship. I hope they see (and read) today’s essay.

As I’ve said before, the IPCC is at a crossroads. Despite its many accomplishments, this institution, like many large institutions, has experienced severe growing pains. Its size has increased to the point that it has become cumbersome, it sometimes fails to address the most important issues, and – most striking of all – it is now at risk of losing the participation of the world’s best scientists, due to the massive burdens that participation entails.

In February of this year, we (Harvard) co-sponsored a three-day workshop on the future of international climate-assessment processes in Berlin, Germany, to take stock and reflect on lessons learned in past assessments – including those of the IPCC – as a means to identify options for improving future assessments. The workshop (titled “Assessment and Communication of the Social Science of Climate Change: Bridging Research and Policy”) was co-organized by: Fondazione Eni Enrico Mattei (FEEM, Italy), the Harvard Project on Climate Agreements (USA), the Mercator Research Institute on Global Commons and Climate Change (MCC, Germany), and the Stanford Environmental and Energy Policy Analysis Center (USA). The workshop was funded, in part, by the Alfred P. Sloan Foundation.

How Can the IPCC and its Procedures be Improved?

In an essay published in the Review of Environment, Energy and Economics (“Assessment and Communication of the Social Science of Climate Change: Bridging Research and Policy.”), Carlo Carraro (FEEM), Charles Kolstad (Stanford), and I offered our thoughts on the path ahead, drawing on our reflections on the Berlin workshop. We described a set of challenges and opportunities facing the IPCC, and provided options for future improvements. Here are some excerpts in five key areas.

1. The IPCC could better integrate and coordinate across IPCC Working Groups, as well as enhance interaction between scientists and governments.

The scoping process could include more interaction between governments and scientists, driven by policy questions governments want answered and issues scientists feel need addressing. More experts could be involved in the process leading up to scoping meetings so that draft outlines going into scoping meetings might better reflect broad scientific consensus.

Feedback among policymakers, scientists, and other stakeholders during the assessment process could be improved. A lack of coordination and discussion between policymakers and scientists during the scoping and writing process has sometimes led to controversies and misunderstanding at the Summary for Policymakers (SPM) government approval sessions, which might have been avoided through earlier consultation

The Chair of the IPCC could enhance coordination among Working Groups. The Chair could improve coordination between Working Groups at multiple stages of the assessment process, including in the preparation of the Synthesis Report (SYR).

Special Reports could be developed to more flexibly target emerging issues, develop closer interactions between Working Groups, and inform future Assessment Reports. Shorter reports would be easier to produce and involve shorter turnaround times.

2. The IPCC could enhance its interface with social scientific disciplines and communities.

Involving experts from a more diverse set of social-scientific communities in the scoping process, prior to scoping meetings, could enhance the quality of the Working-Group outlines and reports. Scholars from a wider range of fields might contribute to the scoping process by suggesting policy-relevant questions and by indicating which questions from policymakers are most amenable to response.

The IPCC leadership could strengthen engagement with relevant research communities that may initiate research projects and consortia to address gaps of knowledge identified in the IPCC scoping or assessment processes. Such recommended research might then be evaluated and incorporated as appropriate into Assessment Reports.

Consider establishing more formal interfaces with professional societies and national academies of sciences to facilitate identification of authors from various scientific disciplines, including social sciences, during the author selection process. This could facilitate the task of the Bureau, Coordinating Lead Authors (CLAs), Technical Support Units (TSUs), and governments in identifying and recruiting the most appropriate disciplinary mix of scientists for the IPCC.

3. The IPCC could increase its efforts to facilitate the contributions of expertise from developing countries.

Selecting CLAs and LAs on the basis of scientific skills, capability, and reputation is paramount, but it is also important to reflect the perspectives of both developed and developing countries. Today, excellent scholars are available from all regions of the world.

The IPCC could invite authors from developing countries with less regard to where they are currently based. There are a significant number of scholars of international repute from the developing world living and working outside their countries of origin. These scholars could contribute significantly to IPCC reports

New partnerships, including with national, regional, and international academies of sciences, could support the author-nomination process. The academies might support CLAs, TSUs, and national focal points in identifying excellent researchers from a diverse set of geographic regions.

The IPCC could facilitate efforts of other organizations to build scientific expertise in developing countries. While the IPCC does not have the mandate to finance or execute such capacity-building efforts, the IPCC could recognize and support other international organizations that help develop stronger developing-country scientific expertise.

4. The IPCC could increase the efficiency of its operations and ensure scientific integrity through organizational improvements.

Preparing IPCC Reports is a complex management operation. Operational aspects of the Assessment-Report process could be improved significantly in a number of ways:

The IPCC should ensure that Chair and Co-Chairs of the Working Groups are selected early in the assessment cycle, and particularly before the scoping meetings, in order to enable careful preparation of the overall assessment process. Having the Chair and Co-Chairs engaged in the process from the beginning would also help foster a more deeply-shared vision between IPCC leadership and governments of the ultimate assessment products.

The IPCC could improve the efficiency of TSUs, which is essential for effectively managing the Assessment-Report process. The functioning of the TSUs requires frequent and intense face-to-face collaboration among staff and with the Co-Chairs. This requires maintaining a single TSU for each Working Group, physically located in a single geographic location under the authority of the Working Group Co-Chairs, with clearly assigned responsibilities. Geographic balance can be increased via global searches for qualified professionals, including from developing countries, to serve on the TSU staff.

Work organization, in particular of Lead Author (LA) meetings, could be greatly improved. Inefficient organization and high workload significantly reduce the incentives for researchers to contribute to the IPCC process. Frequent LA meetings are putting a high travel burden on authors, and the IPCC could reduce the number and length of LA Meetings (LAMs) and use means of remote collaboration, communication, and organization. Chapter Science Assistants (CSAs) provide critical support for chapter teams, facilitating the functioning and organization of work between and during LAMs. The IPCC could allow them to participate in all meetings and provide dedicated funding streams for CSAs for all chapters. The money saved by holding fewer and briefer LAMs could partly be dedicated to this purpose.

Consider expanding the definition of conflict of interest to include not only economic conflicts, but also conflicts due to institutional affiliation. For example, authors, Bureau members, Working Group leadership, and other IPCC personnel with dual roles as national negotiators could be identified as having a potential conflict of interest. Also, authors who work for an organization that aims to influence climate policy might be defined as having a potential conflict of interest. While this expanded definition need not preclude these individuals from working with the IPCC, public disclosure of the potential conflict of interest should help assure the integrity of the IPCC process. It could be valuable to have such an expanded definition in effect early in the AR6 process.

5. Outreach and communications could be strengthened.

The SPMs, as well as the Technical Summaries (TS), are widely considered by non-experts to be difficult to access and understand. It would be difficult to change the SPM process, given its negotiated character. However, the IPCC could consider engaging expert science communicators to help produce more concise TSs, making them more accessible to policymakers and the general public. In addition, re-naming the TS as “Executive Summary” could more accurately characterize this component of the Assessment Reports and draw the interest of a broader readership.

The impact of IPCC publications on the UNFCCC process may have suffered from not being more closely aligned in terms of timing. The IPCC could consider synchronizing the IPCC Assessment cycle with the UNFCCC negotiation schedule.

Next Steps

My co-authors and I are continuing to develop our thinking on these and other issues associated with the functioning of the IPCC. Whereas some commentators have argued that the IPCC has outlived its usefulness (or is irreparably broken), I prefer to resist the temptation to “throw out the baby with the bathwater.” Instead, I welcome your thoughts on how the IPCC and its procedures can be improved.

Assessing the Energy-Efficiency Gap

Global energy consumption is on a path to grow 30-50 percent over the next 25 years, bringing with it, in many countries, increased local air pollution, greenhouse gas (GHG) emissions, and oil consumption, as well as higher energy prices. Energy-efficient technologies offer considerable promise for reducing the costs and environmental damages associated with energy use, but these technologies appear not to be used by consumers and businesses to the degree that would apparently be justified, even on the basis of their own (private) financial net benefits.

For some thirty years, there have been discussions and debates about this phenomenon among researchers and others in academia, government, non-profits, and private industry, typically couched in terms of potential explanations of the so-called “energy efficiency gap” or “energy paradox.”

Thinking About the Energy-Efficiency Gap

I wrote about this some two years ago at this blog (Thinking About the Energy-Efficiency Gap). I noted then that Professor Richard Newell of Duke University and I had just launched an initiative – sponsored by the Alfred P. Sloan Foundation — to synthesize past work on potential explanations of the energy paradox and identify key gaps in knowledge. We subsequently conducted a comprehensive review and assessment of social-science research on the adoption of energy-efficient technologies.

We worked with leading social scientists — including scholars from economics, psychology, and other disciplines, at a workshop held at Harvard — to examine the various possible explanations of the energy paradox and thereby to help identify the frontiers of knowledge on the diffusion of energy-efficient technologies. As materials became available, we posted them at the project’s Harvard website and the project’s Duke website.

Releasing a New Monograph

I’m pleased to inform readers of this blog that we have now released a major monograph, Assessing the Energy Efficiency Gap, co-authored with Todd Gerarden, a Harvard Ph.D. student in Public Policy and a Pre-Doctoral Fellow of the Harvard Environmental Economics Program (HEEP). The monograph draws in part from the research workshop held at Harvard (in October 2013), in which most of the U.S.-based scholars (primarily, but not exclusively, economists) then conducting research on the energy-efficiency gap participated. HEEP co-sponsored a second such research workshop with the Centre for European Economic Research (ZEW) in Mannheim, Germany in March 2014, where European economists explored the same topic. Closely-related research was presented by panelists at the annual conference of the Allied Social Science Association in January 2015.

In the new monograph, Gerarden, Newell, and I examine both the “energy paradox,” the apparent reality that some energy-efficiency technologies that would pay off for adopters are nevertheless not adopted, and the broader phenomenon we characterize as the “energy-efficiency gap,” the apparent reality that some energy-efficiency technologies that would be socially efficient are not adopted. The contrast is between private and social optimality, which ultimately has important implications for the role of various policies, as well as their expected net benefits.

Four Key Questions

We begin by decomposing cost-minimizing energy-efficiency decisions into their fundamental elements, which allows us to identify four major questions, the answers to which are germane to sorting out the causes (and reality or lack thereof) of the paradox and gap.

First, we ask whether the energy efficiency and associated pricing of products on the market are economically efficient. To answer this question, we examine the variety of energy-efficient products on the market, their energy-efficiency levels, and their pricing. Although the theory is clear, empirical evidence is—in general—quite limited. More data that could facilitate potential future empirical research are becoming available, although firm-level data are much less plentiful than data on consumers. We do not see this area as meriting high priority for future research, however, with the exception of research that evaluates the effectiveness and efficiency of existing energy-efficiency information policies and examines options for improving these policies.

Second, we ask whether energy operating costs are inefficiently priced and/or understood. Even if consumers make privately optimal decisions, energy-saving technology may diffuse more slowly than the socially optimal rate, because of negative externalities. So, even if the energy paradox is not present, the energy-efficiency gap may be. As in the first realm, the theoretical arguments are strong. Empirical evidence is considerable, and in many cases data are likely to be available for additional research. Existing policies appear not to be sufficient from an economic perspective, suggesting that further research is warranted. Indeed, we ascribe high priority to the pursuit of research in this realm.

Third, we ask whether product choices are cost-minimizing in present-value terms, or whether various market failures and/or behavioral phenomena inhibit such cost-minimization. We find that the empirical evidence ranges from strong (split incentives/agency issues and inattention/salience phenomena) to moderate (heuristic decision-making/bounded rationality, systematic risk, and option value) to weak (learning-by-using, loss aversion, myopia, and capital market failures). Importantly, here, as elsewhere in our review, the bulk of previous work has focused on the residential sector and much less attention has been given to the commercial and industrial sectors. Some areas merit priority for future research, such as empirical analysis of split incentives/agency issues in areas where efficiency standards are not present, and much more work can be done in the behavioral realm.

Fourth, we ask whether other unobserved costs may inhibit energy-efficient decisions. We find that the empirical evidence is generally sound, and that data needed for more research are available. We assign a relatively high priority to future research, particularly to aid understanding of consumer demand for product attributes that are correlated with energy efficiency, thereby informing policy and product development decisions.

Three Categories of Potential Explanations of the Gap

Finally, we ask what these findings have to say about the three categories of explanations (reviewed in detail in my 2013 essay at this blog) for the apparent underinvestment in energy-efficient technologies relative to the predictions of some engineering and economic models: (1) market failures, (2) behavioral effects, and (3) modeling flaws. In brief, potential market-failure explanations include information problems, energy market failures, capital market failures, and innovation market failures. Potential behavioral explanations include inattentiveness and salience, myopia and short sightedness, bounded rationality and heuristic decision-making, prospect theory and reference-point phenomena, and systematically biased beliefs. Finally, potential modeling flaws include unobserved or understated costs of adoption; ignored product attributes; heterogeneity in benefits and costs of adoption across potential adopters; use of incorrect discount rates; and uncertainty, irreversibility, and option value.

It turns out that all three categories of explanations are theoretically sound and that limited empirical evidence exists for every category as well, although the empirical research is by no means consistently strong across all of the specific explanations. The validity of each of these explanations—and the degree to which each contributes to the energy-efficiency gap—are relevant for crafting sensible policies, so Gerarden, Newell, and I hope that our new monograph can help inform both future research and policy. Given the many energy-efficiency policies and programs that are already in place, high priority should be given to research that evaluates the effectiveness, cost-effectiveness, and overall economic efficiency of existing energy-efficiency policies, as well as options for their improvement.

When Reasonable Policy Discussions Become Unreasonable Personal Attacks

Recently I was reminded of the controversy that erupted late in 2014 about remarks made by the distinguished health economist, Jonathan Gruber, professor at MIT for two decades. Professor Gruber, one of the country’s leading experts on health policy, had played an important role in the construction of the Obama administration’s Patient Protection and Affordable Care Act, subsequently derided by its political opponents as “Obamacare.”

A brief but intense political controversy and media feeding-frenzy erupted when videos surfaced in which Professor Gruber – largely in a series of academic seminars and conferences – explained how the Act was crafted and marketed in ways that would make it easier to develop political support. For example, he noted that insurance companies were taxed instead of patients, fundamentally the same thing economically, but vastly more palatable politically. He went on to note that this was possible because of “the lack of economic understanding of the American voter.” His key point was that the program’s “lack of transparency is a huge political advantage.” Is that a controversial or even unique observation?

A Truism of Political Economy

Any economist who has worked on the development or analysis of public policy – in areas ranging from health care policy to environmental policy to financial regulation – recognizes the truth of the key insight Gruber was communicating to his audiences. It is inevitably in the interests of the advocates of a policy to make the policy’s benefits transparent and to make its costs vague, even unobservable; just as it is in the interests of the opponents of a policy to make that policy’s benefits obscure and its costs as clear as the light of day.

The specific construction of hundreds of public policies are explained by this truism. In the United States, Corporate Average Fuel Economy Standards (or “CAFE standards”) have been a bipartisan Congressional success, despite the fact that the costs they place on the American public per unit of fuel savings are vastly greater than the costs of a commensurate increase in gasoline taxes. Likewise, when conservative opponents of CO₂ cap-and-trade wanted to stop the House-passed bill in its tracks, they resorted to demonizing it as “cap-and-tax.”

So, the central lesson Professor Gruber was offering is hardly controversial, and its enunciation ought not lead to the terrible attacks that he suffered. He doesn’t need me to defend him, but he was unfairly demonized, simply because people disagreed with him politically regarding the merits of the public policy he had helped develop and support.

Unfortunately, I was reminded of this recently when I found myself subject to attempted demonization, because someone did not agree with a policy I supported. What happened to me is trivial compared with what Professor Gruber has gone through, but it prompts me to write about it today.

Can We Agree to Disagree?

I have written before at this blog about the reasons why I support my university’s decision not to divest its endowment of its fossil-fuel company holdings. I won’t repeat those arguments here, but will note that I have gone out of my way not to draw conclusions or make recommendations about what other universities or other institutions ought to do in this regard, including when I agreed to write an essay on the subject for Yale Environment 360. My analysis and conclusions were not developed in spite of my decades of research, teaching, and outreach on global climate change policy; rather, they were developed because of my years of work in this area.

There are people, some of whom I greatly respect, who have different perspectives on this issue, and have come to very different conclusions than have I. We have essentially agreed to disagree. They haven’t cast aspersions on me, nor I on them. As my writings on this topic have illustrated, there are many facets to the issue, including economics, politics, ethics, and even religion. No one has cornered the market on wisdom.

And What About the Keystone XL Pipeline?

Likewise, on a quite different topic, on January 8, 2015, Coral Davenport wrote a story in the New York Times about the political debates in Washington regarding the proposed Keystone XL pipeline, and stated that “… most energy and policy experts say the battle over Keystone overshadows the importance of the project as an environmental threat or an engine of the economy. The pipeline will have little effect, they say, on climate change, production of the Canadian oil sands, gasoline prices and the overall job market in the United States.” She went on to quote me (accurately) as having said, “The political fight about Keystone is vastly greater than the economic, environmental or energy impact of the pipeline itself. It doesn’t make a big difference in energy prices, employment or climate change either way.” What I said was consistent with the evidence at the time (note, however, that as oil prices fall, the possibility increases that the Canadian oil sands would be uneconomic to develop without the pipeline). Once again, the analysis is not one-dimensional, and reasonable people can respectfully disagree.

When Policy Debates Become Personal Attacks

But these two topics – the Keystone XL pipeline and fossil-fuel divestment – have increasingly become engulfed in highly-charged campaigns and exceptionally heated political debates. As part of this, my integrity was recently attacked, because of my views. A young and – I’m sure – well-intentioned climate activist and journalist, writing in the Huffington Post, implied that my assessment in the New York Times of the Washington political debates regarding Keystone XL and my support for Harvard’s divestment policy, are because “Stavins has done consulting work for Chevron, Exelon, Duke Energy and the Western States Petroleum Association.”

The author of the Huffington Post piece selected those three companies and one trade association from a list of 92 “Outside Activities” that I voluntarily provide as a means of public disclosure. The author chose not to note that the vast majority of my outside engagements are with universities, think tanks, environmental advocacy NGOs, foundations, the U.S. Environmental Protection Agency, other federal agencies and departments, international organizations, and environment ministries around the world (not to mention a set of Major League Baseball teams, but that’s another story altogether).

But what about the four he did choose to highlight? First, I am very proud of my work supported by Chevron and the closely-related Western States Petroleum Association, in which I have carried out a series of analyses studying how to strengthen and improve California’s climate policy under AB-32. That’s right – developing and assessing ways to make the AB-32 cap-and-trade system and the related suite of “complementary policies” more environmentally effective, more cost-effective, and more equitable (I’ve written about this work several times at this blog).

Likewise, my work supported by Duke Energy began a decade ago when I helped the former CEO bring home to his senior management the importance of climate change and the importance of well-designed public policies (in particular, carbon cap-and-trade) to address it. All of my subsequent work supported by Duke Energy likewise has focused on the design of better market-based instruments – cap-and-trade – to reduce CO₂ emissions.

And, finally, what about Exelon? This was interesting and important work I carried out with my friend and colleague, MIT Professor Richard Schmalensee, Dean Emeritus of the Sloan School of Management (I wrote about this work at this blog and at the Huffington Post). In 2011, with support from Exelon, Professor Schmalensee and I analyzed EPA’s proposals for new rules to regulate the interstate transport of sulfur dioxide and nitrogen oxides emitted from electric power generation facilities. You can read in detail about our multi-faceted assessment, but the bottom-line is that we provided strong support for a stringent rule. Our brief summary at the University of Pennsylvania’s RegBlog concludes: “In sum, while imposing incremental costs to achieve reductions in SO2 and NOX emissions, the Transport Rule would produce significant benefits in terms of improved health outcomes, and better environmental amenities and services, which studies estimate significantly outweigh the costs.”

Sadness and Empathy

It is nothing less than absurd – and, frankly, quite sad – that someone would suggest that my views on divestment and my New York Times quote on the politics of Keystone XL were somehow due to my having received previous support for analytical work for an oil company, a trade association, and two electric utilities. This was an unfortunate move to question my credibility and damage my reputation in a misguided attempt to demonize me, rather than engage in reasonable discussion and debate. Unfortunately, most of those who have read the activist/journalist’s original commentary and have possibly repeated his claims to others will not see the essay you have just read.

This is surely nothing compared with what Professor Gruber has gone through, but it has certainly increased my empathy for him, as well as my admiration.

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Personal Attacks: An Even Sadder Epilogue

It’s nearly two months since I wrote the essay above, but a series of recent events prompts me to add this sad epilogue. My family and I have recently been subject to cyber-bullying, harassment, and threats, because of my public stance in support of Harvard’s decision not to divest from its endowment portfolio its holdings of fossil-fuel company stocks.

In particular, the most recent message sent to me said in part: “You may be assured that I will have a lot to say about your vocal public support of Harvard’s fossil fuel investments, … and that I have a particular interest in making sure that [your] financial connections to the fossil fuel industry are made fully public …” This threat to tarnish my reputation by publicizing a supposed conflict of interest is striking for a number of reasons:

In several essays at this blog and elsewhere, I have carefully explained my reasons for supporting Harvard’s decision not to divest;
In several essays at this blog and elsewhere, I have been completely up front about receiving support for (publically available) analytical work I’ve carried out for private-sector companies (and have long provided a list of all outside engagements at my website);
In the essay above, I documented the fundamentally pro-environment, policy-analytic work I had done for the specific companies mentioned; and
The claim that my position regarding Harvard divestment has somehow been influenced by my work with an oil company and an industry trade association defies logic.

The last item on this list – the fundamental illogic of such a claim – merits explanation. People on all sides of the divestment issue (including leaders of the student movement, and including the person who wrote the threat I quoted above) acknowledge that divestment will have no direct financial impacts on the respective companies. Rather, the merit of divestment that is most frequently cited by supporters is its symbolic value. Because divestment has no financial impacts on the fossil-fuel companies, those companies don’t care much about it. They would not care one way or the other what I might have to say on the topic. Hence, even if I did want to curry favor with those companies, that would not lead me (or anyone else) to take a particular position on the divestment issue.

The more important question to ask is whether my research, teaching, and outreach initiatives on climate change economics and policy have been biased by my having carried out consulting assignments for an oil company and trade association (two of a hundred outside engagements over the past several years)? That is, if there really was a conflict of interest, then in an effort to make those companies happy, I would presumably pull my punches regarding recommendations of what does matter to those companies – public policies that will reduce their profits by increasing their costs of doing business and/or by reducing demand for their products. But nothing could be further from the truth!

For a decade or more, my research, teaching, and outreach have focused on more enlightened, stronger, and better climate change policies. I have been outspoken in regard to the pressing need for well-designed carbon-price instruments at the national and sub-national levels, and for the need for better, more effective international climate policies, both under the United Nations Framework Convention on Climate Change and through other venues. This is reflected in my published research, my teaching, and my outreach efforts, including through this blog.

It is ironic, offensive, and sad that anyone would suggest that my support of Harvard’s divestment position is somehow tied to my outside engagements. That suggestion – and the recent threats I have received – defies logic and is contradicted by the record.