Adam Smith, Methane Emissions, and Climate Change

Most of my guests in my podcast series, “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program,” have been academic economists, but I’ve also had the privilege of talking with some leading lights from other disciplines, including ones that seem adjacent to economics, such as political science and law, and also some that are further afield, such as physics and chemistry.  Most recently, I had the opportunity to delve into a realm that bridges the humanities (in particular, history) and social science (in particular, economics), by talking with a star in the field of economic history, Emma Rothschild, the Jeremy and Jane Knowles Professor of History at Harvard, and Fellow at Magdalene College and Honorary Professor of History and Economics at Cambridge University in the United Kingdom.  The podcast is produced by the Harvard Environmental Economics Program.  You can listen to our complete conversation here.

Professor Rothschild, who serves as director of the Harvard Joint Center for History and Economics and a faculty contributor to the Visualizing Climate and Loss project, has devoted much of her academic career to research and teaching at the intersection of history, economics, and the environment, where she sees growing opportunities to affect thinking about climate change.

“One of the things that makes me very optimistic now about my field is that so many people interested in economic history are now seeing that the environment and climate [are] part of economic history and vice versa,” she states. “I’ve been … struck by how many of the top [academic job] candidates this year actually have either environmental papers, climate papers, or history papers as part of their portfolios, and in many cases, both actually. I just think the PhD students are kind of understanding this much faster than perhaps the educational establishment.”

Rothschild has focused a considerable part of her scholarly work on the Scottish economist and philosopher Adam Smith, credited for helping originate the study of free market economies. Specifically, Rothschild says she became intrigued by why some people blame Smith for today’s global climate change problem.  

“I became interested in the question, ‘Well, did he say anything that could conceivably have led people to think this? And what did he, to the extent that we can discern this, think about the origins of the industrial revolution in relation to a more plausible, causal story about how industrial growth of the late 18th century actually did lead to contemporary climate change?,’” she says.  Rothschild has written a series of papers about Smith to gain a deeper understanding of “the ways in which Smith’s ideas can be of interest in thinking about the discordant times in which we now live.”

Emma is also deeply involved in the Methane In 1,800 Histories project, designed to promote discussion and research on the 1,800 local sites of severe methane emissions around the world.

“This project came about really opportunistically when I saw a very good article that was the cover piece in Science a little over a year ago by some French climate scientists who were actually able to map almost 1,800 sites of ultra methane emissions worldwide. A lot of this has been done for the U.S. and for other countries. They were able, using satellite data, to give a literally worldwide overview of where the largest methane emitters were,” she states.

“And this turned into a collaborative project,” she continues. “We’d done a big visualization of all the sites. And the aspiration is that young historians [and] young economists will actually investigate each of these sites and thereby contribute to an understanding of the history of why climate change is happening. And, of course, thereby in turn, start to think in a practical and local way about what can be done about the sites.”

Related to this is her research project with Steve Wofsy, Professor of Atmospheric and Environmental Science at Harvard, “Using Remote Sensing Data to Inform Micro-Histories of Methane-Release Sites,” which is part of the Harvard-wide Initiative on Reducing Global Methane Emissions, sponsored by the Salata Institute on Climate and Sustainability at Harvard.

Rothschild goes on to argue that local solutions to climate change may seem more plausible to people who are daunted by the enormity of the challenge.

“Part of what’s so difficult about climate change is that the instruments, mainly global policy change, seem so beyond the capacity of individuals or groups to affect,” she remarks “Climate change is really immediate to people in their early 20s or late teens thinking about their own lives and thinking about, ‘What can I do with all the knowledge I’m acquiring, all the skills that I have, to do something?’”

For this and much, much more, I encourage you to listen to this 53rd episode of 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:

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

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Electricity Sector Regulation, Carbon Pricing, and Climate Policy

In the United States, Europe, China, India, and many other parts of the world, when policymakers and others consider ways to reduce CO2 emissions to help address climate change, major attention is frequently given to the electric power sector, partly because of its standing as the first or second largest source of emissions, and partly because it frequently offers low-hanging fruit, that is, low-cost abatement opportunities.  In the most recent episode of my podcast series, “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program,” I host an economist with three decades of experience studying the electricity sector, and making important contributions to the design of new institutions and appropriate regulations. 

I’m referring to Karen Palmer, a Senior Fellow at Resources for the Future in Washington, D.C., where she directs the Future of Power Initiative.  Karen continues to carry out valuable research, participate in government panels, and recently served as President of the Association of Environmental and Resource Economists.  The podcast is produced by the Harvard Environmental Economics Program.  You can listen to our complete conversation here.

Dr. Palmer, who is renowned for her research on the U.S. electric power sector, shares her insights on electricity regulation and deregulation, carbon pricing, and climate change policy.  She has spent almost 34 years at Resources for the Future (RFF), having initially been drawn to it at a time when governments were taking early steps to deregulate the electric power sector.

“I came here because the overlaps in terms of regulation in my prior research in graduate school and what happens in electricity and also to a certain extent natural gas were evident, but things were definitely changing in both natural gas and electricity sector early during my [early] time here,” she says.

In 1996, Palmer and several colleagues wrote a book titled “A Shock to the System: Restructuring America’s Electric Industry,” which served to inform policy debates then taking place about the sector’s transformation.

“As the electricity sector started to introduce more competition in terms of who was going to actually deliver electricity, it became clear that there are a lot of challenges in terms of policy and pricing and how markets function that remained open and could use some informing,” she remarks.

Turning to the present day, Palmer observes that the Biden Administration’s energy and climate policy relies primarily on subsidies to encourage the use of clean electricity and other clean power sources, but hasn’t yet given up on efforts to use other policy tools to stimulate positive change.

“The fact that they weren’t able to fully price carbon doesn’t mean that there’s not going to be efforts to address emissions from emitting sources, which aren’t really targeted under the subsidies directly,” she argues. “We have seen the proposed form of the third try at using the Clean Air Act to regulate emissions from existing and new fossil fuel generators. There’s not only the carrot, but there is a bit of a stick.”

“Going beyond the federal level … there’s a lot of activity happening in the states on both fronts, again, in terms of subsidizing clean sources of power [and] also imposing increasingly prices on power producers. As economists, we like carbon pricing because it’s efficient. We often pose this dichotomy between … we either price carbon or we subsidize clean energy. I think that’s kind of a false dichotomy, and that policies are going to build both ways from both ends,” she continues.

Finally, acknowledging the increasingly important role played by the concept of environmental justice in climate policy considerations and debates, Palmer says that policymakers must be sensitive to addressing past harms and mitigating future harms born by those least able to afford them.

“As we look to decarbonize the economy more broadly, the costs of electricity are going to play an important role in terms of people’s incentives to adopt or to do things that will likely be necessary to get rid of fossil fuel use in buildings, like adopting heat pumps and electrifying other energy end uses such as vehicles,” she says.

“Keeping electricity prices low in general or the role that electricity prices will play in general will be part of that. But also, there are important upfront costs associated with doing these things and adopting these new technologies, which really substitute more capital costs and less energy costs. Because not only are they electrified, but they’re often extremely efficient,” Karen Palmer explains. “Finding ways to make that work across the board for all types of consumers, including low-income consumers and historically disadvantaged communities, is going to be an important part of the policy puzzle.”

For this and much, much more, I encourage you to listen to this 50th episode of 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:

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

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Studying the Real Impacts of Climate Change Policies

Over the past three years, in my podcast series, “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program,” I’ve held conversations with many long-time leaders in the world of environmental economics and policy.  But that has meant, quite naturally, that I have most frequently engaged with people – like me – in the grey-haired set.  So, I was particularly pleased to welcome to my most recent podcast someone who is decidedly younger than most of the people I’ve previously interviewed, but who – I hasten to add – is nevertheless a highly accomplished scholar, a full professor at the University of California, Berkeley, and continues to carry out important research.  I’m referring to Meredith Fowlie, Professor of Agricultural and Resource Economics and Co-Director of the Energy Institute at Haas, at U.C. Berkeley.  In addition, Meredith is a Research Associate at the National Bureau of Economic Research.  The podcast is produced by the Harvard Environmental Economics Program.  You can listen to our complete conversation here.

Fowlie has worked extensively on the economics of energy markets and the environment, with investigations of the real-world applications of market-based environmental regulations, the economics of energy efficiency, the demand-side of energy markets, and energy use in emerging economies. Her work has appeared in the American Economic Review, the Journal of Political Economy, Quarterly Journal of Economics, the Review of Economics and Statistics, and other leading academic periodicals.

She received her B.Sc. degree in International Agriculture and Development from Cornell University in 1997, an M.Sc. in Environmental Economics from Cornell in 2000, and her PhD in Agricultural and Resource Economics from U.C. Berkeley in 2006.  Before joining the faculty at U.C. Berkeley, she was an Assistant Professor of Economics and Public Policy at the University of Michigan.

Meredith is well known for her research on how environmental regulations have worked in practice.  One prominent example is her 2018 QJE paper co-authored with Michael Greenstone and Catherine Wolfram (both previous podcast guests), “Do Energy Efficiency Investments Deliver?: Evidence from the Weatherization Assistance Program,” which examined the efficacy of the federal Weatherization Assistance Program, which works with local energy services providers installing energy efficiency measures.  The research was both important and controversial.

“What we found was that the energy savings were less than half of what engineering projections had anticipated. So, that was a disappointing finding. It just meant that we weren’t getting the savings that the models projected and that the program wasn’t delivering as hoped,” Fowlie remarks. The reason the paper was controversial, she notes, is that the findings did not align with what lawmakers had expected.

Fowlie celebrates the work of her research assistant on that project, Erica Myers, who demonstrated in subsequent research how some relatively simple weatherization program adjustments could have significant upsides.

“[In her research, Myers found] that if you incentivize the workers who are making these improvements on the home, such that their compensation depends partly on the performance, you can significantly increase the effectiveness of those investments. And she has also been able to identify those investments that perform the best in order to help target some of these weatherization investments,” Meredith notes.

As I noted above, the impacts of such government regulation have been the focus of much of Fowlie’s research. In the podcast, she emphasizes that market outcomes often deviate from what is anticipated, because of the unexpected impacts of economic incentives, something policymakers need to pay close attention to when seeking and designing policy solutions to climate change.

“When we think about the industries that are on the front lines of climate change – that’s electricity; it’s natural gas; it’s insurance – a lot of these sectors and firms are subject to [previous] economic regulation. Regulators determine what investments get made, how costs get recovered, what prices get set. And I’m increasingly seeing that less as a bug and more as a feature. We have these economic regulatory tools at our disposal, and if we start thinking about them like climate policy tools, we can actually get a fair bit of leverage out of those tools,” she says. “I’m thinking about how public utility commissions set electricity rates in particular, and thinking about how those regulatory decisions have pretty profound implications for how we mitigate climate change and who pays the price.”

I also asked Meredith Fowlie for her thoughts on the topics of “environmental justice” and “just transition.”

“I’ve been thinking about these elevated concerns in a number of respects. One is, who is paying for climate mitigation and adaptation? These are needed investments, but how we make these investments has some implications for who ends up paying, and sometimes that’s unintentional,” she notes. “Part of my research is thinking about how we’re paying for climate mitigation and adaptation, and who ends up paying the cost. A second concern is cap-and-trade programs and the environmental justice concerns about those programs, particularly in California, and program design changes we could consider making in light of those concerns.”

At the end of our conversation, when we turn to the current youth movements of climate activism, Meredith expresses her admiration for the ways in which they are focusing attention on important issues.

“There’s a sense of urgency among the students I teach that I think is important and I want to encourage.  I have learned a lot talking to them about their concerns and their impatience and their frustration. And I hope they’ve also learned from me about some of my concerns with how they want to move forward and what approaches they want to take,” she stated. “There’s certainly a youthful energy in terms of the level of commitment they’re bringing, but I think it’s going to change the trajectory of many, many youth who are going to have a really profound impact on how we tackle the [climate change] problem in future generations.”

For this and much, much more, I encourage you to listen to this 49th episode of 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:

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

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