The Future of European Climate Change Policy

In my previous blog post, on January 14th, I offered my personal views regarding “International Climate Change Policy & Action in the Biden Administration.”  Today, I’m pleased to turn to a parallel assessment of future European climate change policy by Ottmar Edenhofer, a greatly-accomplished German economist, admired by academics, as well as leaders in government, industry, and non-governmental organizations.

Professor Edenhofer’s presentation, “The European Green Deal – Reform or Regulatory Tsunami?” and our subsequent discussion is the most recent webinar in our series, Conversations on Climate Change and Energy Policy, sponsored by the Harvard Project on Climate Agreements (HPCA).  As you know, in this webinar series we feature leading authorities on climate change policy, whether from academia, the private sector, NGOs, or government.  A video recording (and transcript) of the entire webinar is available here.

Ottmar Edenhofer is Professor of Economics at the Technical University of Berlin, the Founding Director of the Mercator Research Institute on Global Commons and Climate Change, and Co-Director and Chief Economist of the Potsdam Institute for Climate Impact Research.  He has been a major contributor to scholarship on the economics of energy and climate change, and served as Co-Chair of Working Group III of Fifth Assessment Report of the Intergovernmental Panel on Climate Change, where I had the pleasure of working under his leadership.  He is a key advisor of the German Government, as well as the European Union.  He holds a Ph.D. in economics and a B.A. degree in philosophy (a pairing of degrees which –  I’m delighted to say – he and I share).

In his presentation and the discussion that follows, Ottmar Edenhofer offers a frank assessment of the European Green Deal’s potential to significantly address the impacts of global climate change. 

“It’s a very good time to talk about the European Green Deal because now the prospects that United States and Europe could work closer together on climate change or climate policy and energy policy are very good,” Ottmar notes, referring to the change in U.S. administrations and recent remarks by European Commission President Ursula von der Leyen reaffirming the European Union’s (EU’s) intent to reduce its target for emission reductions from 40 percent to 55 percent by the year 2030 and to achieve net carbon neutrality by the year 2050.

Calling it a “huge task,” Edenhofer outlines the actions that would need to occur to achieve such ambitious goals, including enhanced efforts to decarbonize the power sector, accelerated electrification for end-users, increased investments in bio-energy and semi-synthetic fuels, and advancements in carbon dioxide removal technologies. Using the EU’s climate policy impact assessment as a framework, he walks us through three different policy scenarios, ranging from one that relies heavily on regulation to one structured primarily around carbon pricing.

Characterizing the heavily regulatory approach as a “high-risk scenario,” he instead promotes the idea of an “intermediate step” in a which a mix of policy measures and carbon pricing are deployed to move toward the goal of a 55-percent carbon emissions reduction, and toward a longer-term strategy of using carbon pricing alone as the primary driver in CO2 reduction efforts.

“The crucial question therefore is, how can we design this intermediate step, and this is really the most important debate around this reform proposal,” he says, noting that several issues would need to be addressed.  “The intermediate step has to address the distributional issues and guarantee the stability and manage the political economy challenge between the sectors.”

Professor Edenhofer suggests that the intermediate step that may gain the political support necessary to succeed would be one that would allow for two separate emissions trading systems – one for the energy and industry sector, and the other for transportation and buildings.

“Meanwhile we could define gateways between these two systems. “Creating such gateways might have a two-fold effect – the first one is that market participants already anticipate that there are gateways and they anticipate these enterprise expectations, and this could lead to a convergence of the different prices across the sectors. And secondly, this is a starting point to manage the division of labor among the sectors, and this could be a credible pathway toward a carbon-price scenario when we have one ETS with one credible CO2 price scenario.”

In his presentation, Edenhofer also acknowledges the role that fiscal federalism could play in affecting the future direction of climate policy in Europe. While arguing that carbon pricing could generate roughly 800 billion euros between now and 2050, he notes that the funding base would shrink over time as emissions decrease, and therefore would not serve as a stable revenue source.  He has answers for this challenge as well.

After his presentation, Professor Edenhofer responds to questions from the virtual audience of more than 200 people. One question focuses on the impact of the new Biden-Harris Administration in Washington on global efforts to address climate change.

“The good thing is they are back in the Paris Agreement.  The announcement alone that the U.S. is committed has already helped.”

All of this and much more can be seen and heard in the full webinar here.  I hope you will check it out.

Previous webinars 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,” and Jason Bordoff commenting on “Prospects for Energy and Climate Change Policy under the New U.S. Administration.”

The next bi-monthly HPCA Conversation on Climate Change and Energy Policy will take place in March.  You can register in advance for that event at the HPCA website.

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Bringing Ambition and Pragmatism to Climate Change Policy

In the world of environmental policy, it is frequently the case that pragmatism and effectiveness are framed as being at odds with passion and ambition.  Even more so, in the realm of climate change, it is the rare individual who can successfully merge ambition and pragmatism in the pursuit of intelligent and effective public policy.  Richard Schmalensee, my guest in the newest episode of our podcast, “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program,” is just such a person.

In my conversation with Dick Schmalensee, the Howard W. Johnson Professor of Management, and Professor of Economics Emeritus at the Massachusetts Institute of Technology, he reflects on his many years working on environmental policy in public service and in academia.  Abundant insights arise, including important lessons for current climate policy deliberations in the United States, Europe, China, and other countries.

Professor Schmalensee was Dean of the MIT Sloan School of Management for 10 years, and Director of the MIT Center for Energy and Environmental Policy Research for 12 years.  Before and during those years, his research and teaching were in multiple areas of application of industrial organization, including antitrust, regulatory, energy, and environmental policies.

He is a Fellow of the Econometric Society and the American Academy of Arts and Sciences, a Director of the National Bureau of Economic Research, and Chairman Emeritus of the Board of Directors of Resources for the Future.  And I’m pleased to say that Dick is also an Associate Scholar of the Harvard Environmental Economics Program, and in recent years, has been my frequent co-author (for example, here, here, and here).

In addition to all of this, during a leave of absence from MIT, he served as a Member of the President’s Council of Economic Advisers in the George H.W. Bush administration.

Professor Schmalensee in his home study in Boston, 2020

In this latest Podcast episode, our conversation begins with Dick’s upbringing in a small town in southern Illinois, his move east to college and graduate school at MIT, his dissertation research, and the professional path that took him after receipt of his Ph.D. degree, first to California, and then back east to MIT’s Sloan School of Management.  We turn to his career in regulatory economics and policy – both his scholarly research and his close involvement in policy development and implementation, where he was “in the words of ‘Hamilton,” in the room where it happened.” 

Speaking at the Harvard Kennedy School, 2020

You won’t be surprised that we take time to focus on:  the pathbreaking cap-and-trade program launched by the Clean Air Act Amendments of 1990; and political changes in the United States that have moved environmental policy from being a truly bipartisan issue to a partisan one in today’s highly polarized politics.  Much of our conversation is about the current state of climate change policy – and policy research – both domestically and globally.

Delivering Keynote Address at the Toulouse School of Economics, 2017

Throughout the interview, Dick is at home in his disarming style of candid conversation, with no punches pulled.  He terms current U.S. climate change policy “a disaster,” saying it was a mistake “walking away from Paris, walking away from any sense that it’s important that we deal with our emissions and indeed walking away from the potential federal role in helping states and localities adapt to change.”

All of this and 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 you can also find a complete transcript of our conversation.

My conversation with Dick Schmalensee is the eleventh 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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A Blast from the Past: U.S. Climate Policy Then and Now

We have just released the newest episode of our podcast, “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program.”  In this latest episode, I engage in a conversation with Joseph Aldy, my Harvard colleague, and an individual with considerable experience at multiple levels and capacities in the U.S. government, including in the White House during the Obama Administration, with the common theme in Joe’s government service being substantial focus on the economic dimensions of energy and environmental policy.

 

 

 

 

 

 

 

 

 

 

Joe is a Professor of the Practice of Public Policy at the Harvard Kennedy School, a University Fellow of Resources for the Future, and a Faculty Research Fellow of the National Bureau of Economic Research.  At Harvard, he is also the Faculty Chair of the Regulatory Policy Program in the Mossavar-Rahmani Center for Business and Government, a Faculty Fellow of the Harvard Environmental Economics Program, and co-founder with me – when he was working full-time at Resources for the Future – of the Harvard Project on Climate Agreements.

Professor Aldy worked in the White House during the first two years of the Obama Administration, helping direct the administration’s climate change policy while serving as Special Assistant to the President for Energy and Environment.  In this new podcast – which I very much hope you’ll check out – he remarks that, “the most challenging aspect of the job was recognizing that your to-do list at 7:30 or 8:00 in the morning may get wiped out by something unexpected that happens later that day.” As an example, he references the Deep Water Horizon oil spill in April 2010, which eventually resulted in new government regulations designed to reduce the risk of such accidents in future years.

In addition to reflecting on Joe’s experiences in the Clinton and Obama administrations, much of our conversation also touched on what can be expected from today’s international climate negotiations under the United Nations Framework Convention on Climate Change (UNFCCC) and its Paris Agreement, and from the U.S. government today and in future years.

In the international domain, Aldy characterizes the Paris Climate Agreement of 2016 as providing a solid framework for significant international cooperation and progress.  “It says something that we have every country in the world or virtually every country in the world pledging to do something to reduce their emissions,” he says. “I think that is a great first step.”

Turning to domestic U.S. efforts to address climate change, Joe is considerably more skeptical, given the current political context:  “Until there are members of Congress or Senators who fear that by being silent on the issue or actively opposing taking action to combat climate change, until they see real political cost at the polls, I think it’s hard to imagine there being a bipartisan future.”

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 Joe Aldy is the seventh 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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