What Can Universities Do About Climate Change?

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

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

What Universities Can Do About Climate Change

Drew Gilpin Faust, President, Harvard University

John L. Hennessy, President, Stanford University

September 24, 2014

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

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

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

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

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

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

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

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


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

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

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

A New Development at the UN Climate Summit

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

New Research from Harvard

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

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

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

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

Looking Forward

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

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

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


What are the Benefits and Costs of EPA’s Proposed CO2 Regulation?

­On June 2nd, the Obama Administration’s Environmental Protection Agency (EPA) released its long-awaited proposed regulation to reduce carbon dioxide (CO2) emissions from existing sources in the electricity-generating sector.  The regulatory (rule) proposal calls for cutting CO2 emissions from the power sector by 30 percent below 2005 levels by 2030.  This is potentially significant, because electricity generation is responsible for about 38 percent of U.S. CO2 emissions (about 32 percent of U.S. greenhouse gas (GHG) emissions).

On June 18th, EPA published the proposed rule in the Federal Register, initiating a 120-day public comment period.  In my previous essay at this blog, I wrote about the fundamentals and the politics of this proposed rule (EPA’s Proposed Greenhouse Gas Regulation: Why are Conservatives Attacking its Market-Based Options?).  Today I take a look at the economics.

Cost-Effective, Perhaps – but Efficient?

The proposed rule grants freedom to implementing states to achieve their specified emissions-reduction targets in virtually any way they choose, including the use of market-based instruments (the White House has referenced cap-and-trade in this context, although somewhat obliquely as “market-based programs,” and state-level carbon taxes might also be acceptable – if any states were to include them in their plans to implement the regualtion).  Also, the proposal allows for multistate proposals and for states and regions to establish linkages among their state and multi-state market-based instruments.  Some questions remain regarding the temporal flexibility (banking and borrowing) that the proposed rule will allow, but it’s reasonable to conclude at this point that although EPA may not be guaranteeing cost-effectiveness, it is allowing for it, indeed facilitating it.  As Dallas Burtraw of Resources for the Future has said, the proposed rule ought to be judged to be potentially cost-effective.

Cost-effectiveness (achieving a given target at the lowest possible aggregate cost) is one thing, but economists – and possibly some other policy wonks – may wonder if the proposal is likely to be efficient (maximizing the difference between benefits and costs).  This is a much higher mountain to climb, and a particularly challenging one for a regional, national, or sub-national climate-change policy, given the global commons nature of the problem.

The Challenge of this Global Commons Problem

GHGs mix globally in the atmosphere, and so damages are spread around the world and are unaffected by the location of emissions.  This means that any jurisdiction taking action – a region, a country, a state, or a city – will incur the direct costs of its actions, but the direct benefits (averted climate change) will be distributed globally.  Hence, the direct climate benefits a jurisdiction reaps from its actions will inevitably be less than the costs it incurs, despite the fact that global climate benefits may be greater – possibly much greater – than global costs.

(An Aside:  This presents the classic free-rider problem of this ultimate global commons problem:  It is in the interest of no country to take action, but each can reap the benefits of any countries that do take action.  This is why international, if not global, cooperation is essential.  See the extensive work of the Harvard Project on Climate Agreements.)

On June 2nd, EPA released its 376-page Regulatory Impact Analysis (RIA) of the proposed “Clean Power Plan” rule, the same day it released the 645-page proposed rule itselfAn RIA is essentially a benefit-cost analysis, required for significant new Federal rules by a series of Executive Orders going back to the presidency of Jimmy Carter, and reaffirmed by every President since, including most recently President Obama.

Given the fundamental economic arithmetic of a global commons problem, it would be surprising – to say the least – if EPA were to find that the expected benefits of the proposed rule would exceed its expected costs, but this is precisely what EPA has found.  Indeed, its central estimate is of positive net benefits (benefits minus costs) of $67 billion annually in the year 2030 (employing a mid-range 3% discount rate).  How can this be?

Two Answers to the Conundrum

First, EPA does not limit its estimate of climate benefits to those received by the United States (or its citizens), but uses an estimate of global climate benefits.

Second, in addition to quantifying the benefits of climate change impacts associated with CO2 emissions reductions, EPA quantifies and includes (the much larger) benefits of human-health impacts associated with reductions in other (correlated) air pollutants.

Of course, even if benefits exceed costs at the given level of stringency of the proposed rule, it does not mean that the rule is economically efficient, because it could be the case that benefits would exceed costs by an even greater amount with a more stringent or with a less stringent rule.  However, if benefits are not greater than costs (negative net benefits), then the rule cannot possibly be efficient, so I will stick with the all-too-common Washington practice and simply ask whether the analysis indicates a winner or a loser at the proposed rule’s given level of stringency.  In other words, the question becomes, “Is the proposed rule welfare-enhancing (even if it is not welfare-maximizing)?”

Now, let’s take a look at the numbers from these two key aspects of EPA’s economic analysis and the issues surrounding the calculations.

U.S. versus Global Damages

There are surely ethical arguments (and possibly legal arguments) for employing a global damage estimate, as opposed to a U.S. damage estimate, in a benefit-cost analysis of a U.S. climate policy, but until recently all Regulatory Impact Analyses over several decades had focused exclusively on U.S. impacts.

In a recent working paper, “Determining the Proper Scope of Climate Change Benefits,” Ted Gayer, Vice President and Director of Economic Studies at the Brookings Institution, and Kip Viscusi, University Distinguished Professor of Law, Economics, and Management at Vanderbilt University, review the history of RIAs, including their virtually exclusive focus on national impacts (defined by geography or U.S. citizenship) in benefit and cost estimates of regulations.

In the context of a conventional RIA, it does seem strange – at least at first blush – to use a global measure of benefits of a U.S. regulation.  If this practice were applied in a consistent manner – that is, uniformly in all RIAs – it would result in some quite bizarre findings.  For example, a Federal labor policy that increases U.S. employment while cutting employment in competitor economies might be judged to have zero benefits!

Another example, this one courtesy of Tim Taylor via Ted Gayer:  Under global accounting, if a domestic climate policy had the unintended consequence of causing emissions and economic leakage (through relocation of some manufacturing to other countries), that would not be considered a cost of the regulation (and with diminishing marginal utility of income, it might be counted as a benefit)!

On the other hand, a counter-argument to this line of thinking is that the usual narrow U.S.-only geographic scope of an RIA is simply not appropriate for a global commons problem.  Otherwise, we would simply restate in economic terms the free-rider consequences of a global commons challenge.  In other words, a domestic-only RIA of a climate policy could have the effect of “institutionalizing free riding,” to quote my Harvard Kennedy School colleague, Professor Joseph Aldy.  Of course, if global benefits are to be included in a regulatory assessment, it can be argued that global costs (such as leakage) should also be considered.

I leave it to legal scholars and lawyers to debate the law, and I defer to the philosophers among us to debate the ethics, but let’s at least ask what the consequences would be for EPA’s analysis if a U.S climate benefits number were used, rather than a global number.  For this purpose, we can start with EPA’s estimates (from Table ES-7 on page ES-19 and Table ES-10 on page ES-23 of its Regulatory Impact Analysis of the proposed rule) for 2030 benefits and costs, using a mid-range 3% real discount rate.  The estimated (global) climate benefits of the rule are $31 billion.

In order to think about what the domestic climate benefits might be, we can turn to the Obama administration’s original calculation of the Social Cost of Carbon in 2010, where the Interagency Working Group estimated a central global value for 2010 of $19 per ton of CO2, and noted (and explained in more detail in a subsequent scholarly paper by several members of the Working Group) that U.S. benefits from reducing GHG emissions would be, on average, about 7 to 10 percent of global benefits across the scenarios analyzed with the one model that permitted such geographic disaggregation.

(The Interagency Working Group also suggested that if climate damages are simply proportional to GDP, then the U.S. share would be about 23%.  However, given the IPCC’s prediction of highly unequal geographic distribution of climate change effects worldwide, combined with the exceptionally heterogeneous nature of climate sensitivity among the world’s economies, which vary from those with trivial reliance on agriculture to those dominated by their agricultural sectors, I find the argument behind this second approach unconvincing.)

Taking the midpoint of the Obama Working Group’s 7-10% range, U.S. damages (benefits) may be estimated to be 8.5% of global damages, which would reduce the $31 billion reported in the new RIA to about $2.6 billion, which is considerably less than the RIA’s estimated total annual compliance costs of $8.8 billion (assuming that the states facilitate cost-effective actions).  This validates the intuition, explained above, that for virtually any jurisdiction, the direct climate benefits it reaps from its actions will be less than the costs it incurs (again, despite the fact that global climate benefits may be much greater than global costs).

There are plenty of caveats on both sides of this simple analysis.  One of the most important is that if the proposed U.S. policy were to increase the probability of other countries taking climate policy actions (which I believe is probably the case), then the impacts on U.S. territory of such foreign policy actions would merit inclusion even in a traditional U.S.-only benefit-cost analysis.  More broadly, although it has been traditional to use a U.S.-only benefits measure in RIAs, the current guidelines for carrying out these analyses from the Office of Information and Regulatory Affairs of the U.S. Office of Management and Budget (Circular A-4) requires that geographic U.S. benefit and cost estimates be provided, but also allows for the optional inclusion of global estimates.

Pending resolution (or more likely, discussion and debate) from lawyers and philosophers regarding the legal and ethical issue of employing domestic benefits versus global benefits in a climate regulation RIA, it is essential to recognize that there is an even more important factor that explains how EPA came up with estimates of significant positive net benefits (benefits exceeding costs) for the proposed rule (and would have even if a domestic climate benefits number had been employed), namely, the inclusion of (domestic) health impacts of other air pollutants, the emissions of which are correlated with those of CO2.

Correlated Pollutants and Co-Benefits

The Obama Administration’s proposed regulation to reduce CO2 emissions from the electric power sector is intended to achieve its objectives through a combination of less electricity generated (compared with a business-as-usual trajectory), greater dispatch of electricity from less CO2-intensive sources (natural gas, nuclear, and renewable sources, instead of coal), and more investment in low CO2-intensive sources.  Hence, it is anticipated that less coal will be burned than in the absence of the regulation (and more use of natural gas, nuclear, and renewable sources of electricity).  This means not only less CO2 being emitted into the atmosphere, but also decreased emissions of correlated local air pollutants that have direct impacts on human health, including sulfur dioxide (SO2), nitrogen oxides (NOx), particulate matter (PM), and mercury (Hg).

It is well known that higher concentrations of these pollutants in the ambient air we breathe – particularly smaller particles of particulate matter (PM2.5) – have very significant human health impacts in terms of increased risk of both morbidity and mortality.  The numbers dwarf the climate impacts themselves.  Whereas the U.S. climate change impacts of CO2 reductions due to the proposed rule in 2030 are probably less than $3 billion per year (see above), the health impacts (co-benefits) of reduced concentrations of correlated (non-CO2) air pollutants are estimated by EPA to be some $45 billion/year (central estimate)!  (By the way, I assume that the co-benefits estimated by EPA are based upon a comparison with a business-as-usual baseline that includes the effects of all existing EPA and state regulations for these same local air pollutants.  If not, the RIA will need to be revised.)

The Bottom Line

The combined U.S.-only estimates of annual climate impacts of CO2 ($3 billion) and health impacts of correlated pollutants ($45 billion) greatly exceed the estimated regulatory compliance costs of $9 billion/year, for positive net benefits amounting to $39 billion/year in 2030.  This is the key argument related to the possible economic efficiency of the proposed rule from the perspective of U.S. welfare.  If EPA’s global estimate of climate benefits ($31 billion/year) is employed instead, then, of course, the rule looks even better, with total annual benefits of $76 billion, leading to EPA’s bottom-line estimate of positive net benefits of $67 billion per year.  See the summary table below.

The Obama Administration’s proposed regulation of existing power-sector sources of CO2 has the potential to be cost-effective, and if you accept these numbers, it can also be welfare-enhancing, if not welfare-maximizing.

That said, I assume that proponents of the Obama Administration’s proposed rule will take this assessment of EPA’s Regulatory Impact Analysis as evidence of the sensibility of the rule, and opponents of the Administration’s proposed actions will claim that my assessment of the RIA provides evidence of the foolishness of EPA’s proposal.  So it is in our pluralistic system (not to mention, in the context of the political polarization that has gripped Washington on this and so many other issues).


Benefits and Costs of EPA’s Proposed Clean Power Plan Rule in 2030

(Mid-Point Estimates, Billions of Dollars)

Climate Change Impacts

Health Impacts (Co-Benefits) of Correlated Pollutants plus …



Domestic Climate Impacts

Global Climate Impacts

  Climate Change

$ 3

$ 31



  Health Co-Benefits



Total Benefits

$ 3

$ 31



Total Compliance Costs

$ 9

$ 9

$ 9

$ 9

Net Benefits (Benefits – Costs)

– $ 6

$ 22

$ 39

$ 67