Economists (including myself) have long recommended carbon-pricing policy instruments – principally carbon taxes or carbon cap-and-trade systems – for achieving meaningful reductions of carbon dioxide (CO2) emissions in large and complex economies. However, such economy-wide policies are not in favor in the United States within the Biden administration, despite some interest in the Congress. Rather, a set of alternative (second-best) options – such as a Clean Electricity Standard (CES) – are receiving more attention.
Fortunately, economists have developed models with which both economy-wide carbon-pricing systems and sectoral policies, including a CES and increased gasoline taxes, can be consistently analyzed and compared. Stanford University Professor Lawrence Goulder has analyzed a relatively broad set of such climate policy options available to government, and he discusses his analysis and its implications in the newest episode of “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program,” a podcast produced by the Harvard Environmental Economics Program. Listen to our conversation here.
In these podcasts, I converse with leading experts from academia, government, industry, and NGOs. Larry Goulder, the Shuzo Nishihara Professor of Environmental and Resource Economics at Stanford University, is well qualified to talk about the economics of climate change policy. Also, I’m pleased to note that he is my long-time colleague, co-author, and good friend.
Goulder, who graduated from Harvard College with an A.B. in philosophy in 1973 and from Stanford University with a Ph.D. in economics in 1982, served on the faculty of the Department of Economics at Harvard before returning to Stanford’s economics department in 1989. Along the way, he spent a year studying music composition at Ecole Normale de Musique de Paris with the late, great Nadia Boulanger.
Larry Goulder’s research has spanned a range of energy, environmental, and other issues, including green tax reform, the design of environmental tax systems, and climate change policy. He is co-author with Mark Hafstead of Resources for the Future of a book I highly recommend, “Confronting the Climate Challenge: US Policy Options,” published by Columbia University Press in 2018.
In this book, Goulder and Hafstead examine alternative climate change policy options available for lawmakers through the lens of a general equilibrium framework, considering both the aggregate benefits and costs of various policies as well as the distribution of policy impacts across industries, income groups, and generations. Included in the set of policy instruments they examine are carbon taxes, CO2 cap-and-trade, a clean energy (electricity) standard, and increased gasoline taxes.
In our conversation, Goulder explains that the research shows that price-based approaches such as carbon taxes or cap-and-trade would be the most cost-effective methods to achieve desired changes, but also that a clean energy standard could have significant impacts.
“The reasons it does pretty well … have to do with interactions between this policy and preexisting taxes in the U.S. economy,” Goulder says. “I think this result is quite relevant to current policy discussions, since today there’s a lot of focus on the CES, the Clean Energy Standard, as a way of addressing climate change. And even though our results tend to favor a carbon tax, we find that the CES could do pretty well, as well.”
When I ask Larry to assess the Trump Administration’s environmental policy portfolio, he says that he can find little to be positive about, noting that the administration caused substantial damage, some of which will be long-term.
“The reversal or elimination of some of the Obama efforts was very problematic, in particular a signature effort by the Obama administration, its Clean Power Plan, which would have put limits on the emissions of CO2 per unit of electricity generated by power plants throughout the U.S. I think dismantling that is a real problem,” Goulder remarks. “I must say also just the general tenor of the Trump Administration to deny the science and to deny, in particular, the idea that there is serious human-caused climate change is very problematic to the extent that it reinforces political opposition to dealing with this immense problem.”
Some of Goulder’s recent research has examined the impacts of China’s new emissions trading system, in which trading was launched just last month (and which was discussed in some detail in a recent webinar by Valerie Karplus, and featured in my previous blog post). I ask Larry to provide a brief assessment.
“This is going to be the largest emissions trading system in the world; it will more than double the amount of carbon dioxide covered by emissions pricing. And it is also using an approach that has some attractions in terms of keeping costs down,” he says. “The tradable performance standard approach used in China is somewhat less cost effective than would be an equivalently scaled cap-and-trade system, but it’s a tremendous step forward that China is taking this national level effort, that it’s employing a tradable system, and that it’s intent on achieving very significant reductions.”
My complete conversation with Larry Goulder is the 26th episode in the Environmental Insights series, with future episodes scheduled to drop each month. You can find a transcript of our conversation at the website of the Harvard Environmental Economics Program. Previous episodes have featured conversations with:
- Gina McCarthy, former Administrator of the U.S. Environmental Protection Agency
- Nick Stern of the London School of Economics discussing his career, British politics, and efforts to combat climate change
- Andrei Marcu, founder and executive director of the European Roundtable on Climate Change and Sustainable Transition
- Paul Watkinson, Chair of the Subsidiary Body for Scientific and Technological Advice (SBSTA) within the United Nations Framework Convention on Climate Change
- Jos Delbeke, professor at the European University Institute in Florence and at the KU Leuven in Belgium, and formerly Director-General of the European Commission’s DG Climate Action
- David Keith, professor at Harvard and a leading authority on geoengineering
- Joe Aldy, professor of the practice of public policy at Harvard Kennedy School, with considerable experience working on climate change policy issues in the U.S. government
- Scott Barrett, professor of natural resource economics at Columbia University, and an authority on infectious disease policy
- Rebecca Henderson, John and Natty McArthur University Professor at Harvard University, and founding co-director of the Business and Environment Initiative at Harvard Business School.
- Sue Biniaz, who was the lead climate lawyer and a lead climate negotiator for the United States from 1989 until early 2017.
- Richard Schmalensee, the Howard W. Johnson Professor of Management, and Professor of Economics Emeritus at the Massachusetts Institute of Technology.
- Kelley Kizier, Associate Vice President for International Climate at the Environmental Defense Fund.
- David Hone, Chief Climate Change Adviser, Shell International.
- Vicky Bailey, 30 years of experience in corporate and government positions in the energy sector.
- David Victor, professor of international relations at the University of California, San Diego.
- Lisa Friedman, reporter on the climate desk at the The New York Times.
- Coral Davenport, who covers energy and environmental policy for The New York Times from Washington.
- Spencer Dale, BP Group Chief Economist.
- Richard Revesz, professor at the NYU School of Law.
- Daniel Esty, Hillhouse Professor of Environment and Law at Yale University.
- William Hogan, Raymond Plank Research Professor of Global Energy Policy at Harvard.
- Jody Freeman, Archibald Cox Professor of Law at Harvard Law School.
- John Graham, Dean Emeritus, Paul O’Neill School of Public and Environmental Affairs, Indiana University.
- Gernot Wagner, Clinical Associate Professor at New York University.
- John Holdren, Research Professor, Harvard Kennedy School.