What Do the 2020 U.S. Election Results Portend for Climate Change Policy?

In the November 3rd U.S. election, the Democratic team of Joe Biden and Kamala Harris defeated incumbent Republican President Donald Trump and Vice President Mike Pence, signaling a major change in the executive branch of the U.S. government.  At the same time, it now appears that Republicans are likely to maintain their majority control of the Senate, pending a pair of January 5th runoff elections for the two Georgia Senate seats.  If the Democrats take both seats, the Senate would be tied 50-50, with the Democratic Vice President (who serves as president of the Senate) breaking the tie, thereby turning Senate control over to Democrats.  In the House of Representatives, Republicans are likely to gain a relatively small number of seats, but Democrats will maintain their control of that body.  More important for the long term, Republicans managed to maintain or flip enough state legislatures to continue to dominate the once-a-decade redistricting process.

There will be numerous changes — many rather significant, and some quite dramatic — in U.S. climate change policy under the Biden administration. But in a variety of ways it will be an uphill battle, just to return to the pre-Trump status at the time President Obama departed the White House, let alone to move beyond that point. The details matter, so please read on.

Significant Changes in Policy Priorities and Norms of Conduct

            Mr. Biden and Ms. Harris will be inaugurated on January 20th, 2021, and will immediately face an unprecedented set of national challenges.  As the Biden-Harris transition website indicates, the greatest challenges – and presumably top policy priorities ­– are:  the pandemic, the economic recession, racial justice, and climate change (listed in that order).

            The failure of Mr. Trump to be re-elected to a second term brings a dramatic change in leadership at the very top.  For the first time in four years, honesty and civility will be hallmarks of behavior, as will fundamental trust in expertise, including in the realm of science.  The dozens of political and behavioral norms that have been abandoned by President Trump and his administration will be respected once again.  Democratic norms will be restored, racism denounced, and diplomatic relationships will be reestablished with allies.  There will be a turn away from xenophobia and hostility toward immigrants, and perhaps some movement toward free trade.

            Others have greater expertise than I do to comment on anticipated changes in norms, as well as broader legal and policy issues.  I focus in this essay on anticipated changes in public policies regarding climate change, both in the international and domestic domains.  Four years ago, it was rather straightforward for me to predict what the newly-elected Trump administration would bring in the climate change realm, as I discussed in the New York Timesand in this blog in November, 2016.  This time, however, it is a bit less obvious, because of the moving parts. 

            I caution readers to beware of advocates on either side making predictions at this very early date about the new administration’s future climate policy initiatives.  Predictions from those who advocate particular policies are likely to be infected with some degree of wishful thinking.  That may be true not only of professional environmental advocates, but also of academics, like myself, who would like to claim some degree of objectivity.  The best I can offer is that I have “no skin in the game,” and so I will try to offer what I hope is an objective assessment of what I honestly believe is most likely to emerge over the next two to four years.

International Dimensions of Climate Change Policy

            Readers of this blog probably do not need to be reminded that because climate change is a global commons problem, international cooperation is necessary in order constrain (if not suppress) free-rider incentives.  On January 20th (inauguration day) or shortly thereafter, Mr. Biden is likely to initiate the process of rejoining the Paris Agreement (from which Mr. Trump withdrew the United States on November 4th, the earliest date permitted by the Agreement).  Thirty days after the necessary paper work is filed with the United Nations, the United States will again be a Party to the Agreement.  That’s the easy part.  The hard part is coming up with a quantitative statement of how and how much U.S. emissions of greenhouse gases (GHGs) will be reduced over time. 

            This “Nationally Determined Contribution” (NDC) will need to be sufficiently ambitious to satisfy (at least to some degree) both domestic green groups and some of the key countries of the international community.  This essentially means that the NDC will need to be at least as ambitious as the Obama administration target of a 26-28 percent reduction in GHG emissions by 2025, compared with 2005.  And it will need to compare favorably with the targets now being announced by other major emitters.  For example, the European Union is coming close to enacting a new target to cut its emissions 55% below their 1990 level by 2030.  And China recently said it will achieve carbon neutrality (zero net emissions) by 2060.

            If significant ambition is one necessary condition for the new Biden NDC, the other necessary condition is that it be credible, that is, truly achievable given existing and reasonably anticipated policy actions.  The only way that both of these necessary conditions can be achieved is with aggressive new domestic climate legislation.

Of course, the Paris Agreement is not the only possible avenue for international action on climate change, and the administration’s participation in that key agreement may be complemented by bilateral agreements, as well as plurilateral efforts via the G7 or G20. 

Domestic Climate Legislation

            With a Republican-controlled Senate – or even with a Democratic-controlled Senate with the one-vote margin, which is the best Democrats can hope for – meaningful and ambitious climate legislation will be difficult, if not impossible.  The “budget-reconciliation process,” whereby only a simple majority is needed to pass legislation, rather than the 60 votes required to cut off Senate debate, will be available only if every Democrat supports the given legislation.  On this, see my comments below regarding the fate of climate legislation in the Senate during the Obama administration when Democrats held 59 seats.

            Under these circumstances, it will be challenging, to say the least, for Democrats to enact President-Elect Biden’s climate plan, including its $2 trillion in spending over four years with the goal of making all U.S. electricity carbon free in 15 years.  Keep in mind that the Obama administration’s major climate legislation – the American Clean Energy and Security Act of 2009 (the so-called Waxman-Markey bill) – failed to receive a vote in the Senate, despite the fact that Democrats (and independents who caucused with Democrats) then held a total of 59 seats.  On the other hand, climate change is now taken more seriously by the public and receives considerably greater attention in political circles than it did twelve years ago.  That said, it is fair to say that the prospects over the next two to four years for comprehensive climate legislation – such as a truly meaningful carbon-pricing system – are not very good.

            But other legislation that would help reduce GHG emissions in the long term appears more possible.  That includes a post-COVID economic stimulus bill, which might have a green tinge, if not a fully green hue.  The Obama administration’s stimulus package enacted twelve years ago in response to the Great Recession included some $90 billion in clean energy investments and tax incentives.  Another candidate will be a future infrastructure bill, something both parties seem to recognize is important to upgrade aging U.S. infrastructure.  This could include funding for improvements in the national electricity grid, which will be necessary to facilitate greater reliance on renewable sources of electricity generation.

            Finally, there are possibilities for bipartisan climate legislation, although with stringency and scope much less than what Biden’s climate plan calls for.  The key approaches here might involve tax incentives, that is, nearly every politician’s favorite instrument – subsidies.  This may fit well with President-Elect Biden’s moderate approach to governing and his stated desire to work with both parties in Congress.  Specific bipartisan options could include policies targeting wind and solar power, carbon capture and storage/utilization, and technology initiatives, possibly via the government laboratories.

            But such modest, bipartisan initiatives are unlikely to satisfy either the demands of domestic climate policy advocates or international calls for action.  Because of this, the new administration – like the previous Obama administration – may have to opt for regulatory as opposed to statutory approaches.

Regulatory Approaches

            The new President, under existing authority, could “quickly” take actions through executive orders (Oval Office directives) in a number of areas to reverse many of Trump’s regulatory rollbacks.  For example, new oil and gas leasing on federal lands could again be prohibited, and the White House could attempt to block the Keystone XL pipeline from being completed.  More promising, the President could direct that the Social Cost of Carbon (SCC) be revised, presumably returning it the Obama administration’s use of global (not just domestic) damages and a 3% (rather than 7%) discount rate in the calculations, thereby increasing the SCC from about $1 to about $50 per ton, and directing federal agencies to use the revised SCC in their own decision making. 

            Presumably the new administration will move to reinstate and move beyond the Obama administration’s ambitious Corporate Average Fuel Economy (CAFE) standards.  In addition, EPA could reverse the Trump administration’s attempts to deny California its waiver under the Clean Air Act to put in place more stringent air-quality regulations than are required under federal law.

            Also, there is the possibility of using the authority of the Securities and Exchange Commission (SEC) to use financial regulation of publicly-traded companies to raise the cost of capital for fossil energy development, or to set standards for disclosure of climate-related corporate information.  Likewise, the Commodity Futures Trading Commission (CFTC) has itself begun to explore options via its Market Risk Advisory Committee.  

            Regulatory approaches under existing statutory authority through rulemaking often appear to be an attractive approach, but using new regulations under existing legislation rather than enacting new laws raises another problem – the courts. Rulemaking entails lengthy notice and comment periods, extensive records, and inter-agency consultation, and the rules are subject to potential litigation.  The Obama administration promulgated its Clean Power Plan after the Senate failed to deliver on the administration’s comprehensive climate legislation.  Note that the Clean Power Plan was subject to a stay from the U.S. Supreme Court even before Trump entered office.  Then Trump arrived, and killed the regulation outright.

            The real challenge to the regulatory approach is that new regulations are much more likely to be successfully challenged in federal courts in 2021 than they were during the Obama years.  This is partly because there are now more than 200 Trump-appointed federal judges.  But more importantly, the Supreme Court now has a 6-3 conservative majority, which is very likely to favor literal reading of statutes, giving executive departments and agencies much less flexibility to go beyond the letter of the law or to interpret it in new “innovative ways.”  In particular, it is possible that the newly-constituted Supreme Court will move to modify or even overrule the critical Chevron Doctrine (1984), under which federal courts defer to administrative agencies when Congress was less than explicit in a statute on some issue (such as whether carbon dioxide can be regulated under particular sections of the Clean Air Act of 1970, as amended in 1990).

            There is also talk of a “whole of government” approach to climate change, in which the White House pushes virtually all departments and agencies to put in place changes that are supportive of decarbonizing the economy.  This would be beyond or instead of the focused statutory and regulatory policies described above.  Of course, the critical question is what such an approach could actually produce in terms of short-term emissions reductions and/or long-term decarbonizing of the economy.

Sub-National Climate Policy

            Even if less than what is hoped for can be accomplished with climate policies at the Federal level over the next two to four years, surely the new administration will not be hostile to states and municipalities taking more aggressive action.  Indeed, as I have written about previously in this blog and elsewhere, climate policies at the state level (California) and regional level (the Regional Greenhouse Gas Initiative in the northeast) have become increasingly important, particularly during the four years of the Trump administration.  Bottom-up evolution of national climate policy may continue to evolve from the Democratic-leaning states in the recent election – the Northeast, Middle Atlantic, Upper Midwest, Southwest, and West Coast (and possibly Georgia!) – which together represent more than half of the U.S. population and an even larger share of economic activity and GHG emissions.

The Path Ahead

            The new administration may find creative ways to break the logjam that has so far prevented ambitious national climate change policies from being enacted (or, if enacted, sustainable).  My greatest source of optimism is that the Biden-Harris team, in sharp contrast with the Trump-Pence administration, gives every indication that it will embrace scientific and other expertise across the board – whether that means the best epidemiologists and infectious disease experts designing an effective strategy for COVID-19, or the best scientists and economists designing sound climate policies that are also politically feasible.

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How Have Companies Responded to the Coronavirus Pandemic and Climate Change?

We have just released the latest 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 Rebecca Henderson, the John and Natty McArthur University Professor at Harvard University.  She shares her perspectives on how large organizations are changing in response to the coronavirus pandemic and global climate change.  A full transcript of our conversation is available here.

Rebecca makes her home at Harvard Business School, where she was the founding co-director with Professor Forest Reinhardt of the Business and Environment Initiative.  She is also a Research Fellow of the National Bureau of Economic Research, and a Faculty Fellow of the Harvard Environmental Economics Program.

In this podcast episode, we first discuss how the attention given to environmental matters has changed at business schools in the three decades since she received her Ph.D. in Business Economics at Harvard and joined the faculty at the MIT Sloan School of Management, prior to moving on to Harvard Business School.

Henderson’s research and writing explore how organizations respond to large-scale technological shifts, most recently in regard to energy and the environment.  This has also given her a special perspective to think about the role of the private sector in responding to the Covid-19 crisis.  In this regard, she notes that she is reminded that “when organizations decide they must change, they can change,” pointing to the quick shift to remote work across many sectors, the effort by biomedical firms to speed up supply changes, and the ways in which retail and grocery distribution channels are mobilizing their resources. “You’re seeing profound changes in methods of operation across the economy,” she remarks.

“The potential upside is that this emergency is making it very clear that the stability of the entire community is critical to the success of business,” Rebecca states. “I think the emergency is also highlighting that one needs a strong, effective federal government to deal with problems like this. I think both of those insights could conceivably translate into business pressure for coherent climate policy in ways that could be very helpful.”

“Climate change can seem distant; it can seem invisible. Why should I worry about it? To see the whole economy mobilized when the threat becomes very, very concrete reminds me that, as we think about climate change, we have to find a way to make that threat as concrete as possible. So that’s one thing I take away from the current moment.”

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 Rebecca Henderson is the ninth episode in the Environmental Insights series.  Previous episodes have featured conversations with:

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

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What Can Economics Really Have to Say About COVID-19 Policies?

Recently, economists and other policy analysts have called for the use of benefit-cost analysis to assess existing and proposed public policies to address the novel coronavirus pandemic, the incidence of COVID-19, and the deaths that may follow.  These calls for a benefit-cost perspective have unfortunately generated both confusion and controversy; and – most important – are unlikely to be persuasive to key decision makers.  But ignoring economics when considering alternative policy responses to the pandemic would be a mistake.

Fortunately, a different type of economic analysis is available, which is much more likely to be acceptable to policy makers, and would enable government authorities to identify policy instruments that minimize costs to achieve given objectives.  I’m referring to cost-effectiveness analysis, which differs in important ways from the benefit-cost analysis now being recommended by my fellow economists, as well as others.

First, I should note that in principle, sensible arguments can and have been made in favor of the use of benefit-cost analysis.  I endorse the use of such analysis to assess the wisdom (efficiency) of a wide range of government policies (through what is known as Regulatory Impact Analysis in the U.S. government), and I have been teaching these methods, under the rubric of “net present value analysis,” in my environmental economics course at Harvard for some 30 years.  This type of analysis facilitates the identification of efficient policies that generate the greatest net benefits, that is, benefits minus costs.

So, to be perfectly clear, I enthusiastically endorse the work being carried out by economists and others to execute such benefit-cost analyses of COVID-19 policies.  My concern, however, is that in the current context, policy makers are likely to be highly resistant to embracing this type of analysis for assessing existing and potential pandemic responses.  Rather than throwing out the (economic analysis) baby with the (benefit-cost) bath water, I am suggesting that other forms of economic analysis — namely cost-effectiveness analysis — can be useful, and the results of such analysis should be seriously considered by policy makers.

The problem is that executing benefit-cost analysis requires evaluating not only the costs, but also the benefits of policies in economic terms.  In the COVID-19 context, that is difficult enough on the cost side because of the great uncertainties involved, but at least those costs – largely the loss of GDP due to slowdown in economic activity – are fundamentally financial.

The benefit side – primarily the reduced risk of mortality – requires estimates of the value of a statistical life (VSL), which typically draw upon empirical evidence from markets in which people receive higher wages for taking on more risky jobs (in sectors such as mining, forestry, and commercial fishing).  The concept and use of VSL – estimated by the U.S. Environmental Protection Agency to be about $10 million per life saved – is well accepted by economists, but is highly controversial among nearly everyone else.

For these reasons, politicians are reluctant, to say the least, to adopt the benefit-cost paradigm to help them formulate better policies to address the current pandemic.  But much of the confusion and nearly all of the controversy could be avoided by employing cost-effectiveness analysis, in which economics is brought to bear only on the cost-side of an issue.

I need not tell readers of this blog that this is an approach that is frequently employed in the environmental realm to examine alternative policies that would bring about a given degree of environmental benefits, that is, a given reduction in environmental damages.  For example, in the case of carbon dioxide (CO2) emissions, a variety of analyses have found that cost-effective approaches would cost just 25% of what the costs would be with some other approaches.

In the current, COVID-19 context, take some policy objective as given (presumably not a reckless one such as reopening “large sections of the country” by Easter Sunday with “packed churches,” as President Trump had recently promised).  Rather, a policy objective to be used in such analysis might be a specified maximum mortality number, a specified mortality risk reduction, or – more simply – a specified case transmission rate.  Then, the economic costs of achieving that objective by using various alternative policy instruments can be estimated and compared.  At a minimum, these policy instruments would include – among others – the current approach of social distancing of nearly the entire population to suppress the curve of new incidence; and a targeted approach to reduce transmission – more testing, more contact tracing, and more and better facilities for those who need to be separated from others or treated.

For example, one recent study estimated that the current practice of widespread social distancing may be expected to save some 1.2 million lives at an economic cost of $6.8 trillion.  Without resorting to trying to value human lives, the question is “simply” how much would it cost with an alternative, more targeted policy to save a similar number of lives?

By the way, the uncertainty that plagues various aspects of these and other policy approaches can be taken into account in the cost-effectiveness calculations.  Likewise, constraints – whether physical (such as limited availability of ventilators or cotton swabs), economic, institutional, or political – can all be included in the analysis.  In my work as an environmental economist (focused on climate change policies), we do this regularly.  My professional cousins – health economists, principally in schools of public health – are equally or more familiar with these approaches, and are well equipped to make the cost comparisons.

In this way, without the confusion and controversy that arises with trying to quantify the economic benefits of mortality risk reduction, economic analysis can still play an exceptionally important role by identifying policies through cost-effectiveness analysis that can help achieve sensible objectives with as little sacrifice as possible of the many other things we value.

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