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.

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A Golden Opportunity to Please Conservatives and Liberals Alike

The U.S. Environmental Protection Agency (EPA) has a golden opportunity to opt for a smart, low-cost approach to fulfilling its mandate under a Supreme Court decision to reduce carbon dioxide (CO2) and other greenhouse gas (GHG) emissions linked with global climate change.

Such an approach would provide maximum compliance flexibility to private industry while meeting mandated emission reduction targets, would achieve these goals at the lowest possible cost, would work through the market rather than against it, would be consistent with the Obama Administration’s pragmatic approach to environmental regulation, and ought to receive broad political support, including from conservatives, who presumably want to minimize the cost burden of any policy on businesses and consumers.

Background and Context

By now, it is well known that the 2007 U.S. Supreme Court (5-4) decision in Massachusetts v. EPA found that EPA has the authority to regulate GHGs under the existing provisions of the Clean Air Act (CAA). This, combined with EPA’s “endangerment finding” in 2009 that GHGs threaten public health and the environment, led first in January, 2011, to new motor vehicle fuel efficiency standards, and soon will lead to regulations affecting new and modified stationary sources of emissions (under Section 111b of the CAA) via so-called New Source Performance Standards, and regulations for existing stationary sources (under Section 111d).

In quantitative terms, this last set of regulations – for existing stationary sources – will be key, and by far the most important affected sector will be electricity generation, which accounts for fully 40 percent of U.S. CO2 emissions (and a third of national GHG emissions). Within this sector, coal-fired power plants will be the most drastically affected.

EPA could, in principle, promulgate a regulatory approach that incorporates compliance flexibility, such as through various types of credit, offset, or cap-and-trade mechanisms. It could do this, but may it do so under the legal authority of the Clean Air Act?

Call the Lawyers!

Over the past year, there has been a considerable amount of discussion and no small degree of hand-wringing over whether the relevant parts of the Clean Air Act authorize the use of such flexibility mechanisms. In the midst of this, a new report from Resources for the Future by Gregory Wannier (Columbia Law School) and others makes a compelling, but nuanced case in the affirmative. (See “Prevailing Academic View on Compliance Flexibility under §111 of the Clean Air Act”).

Their conclusion, in a nutshell: “EPA has the tools under §111 of the CAA to implement relatively flexible and efficient GHG regulation. The agency could use a range of compliance flexibility options itself, or facilitate state implementation plans that adopt such measures at the state or regional level.” Included are the market-based, economic-incentive instruments mentioned above.

We should take note, by the way, that Section 111d gives states considerable latitude when choosing their actions to follow EPA guidelines, an approach that is consistent with conservatives’ promotion of the primacy of state authorities in tailoring rules for individual state-by-state circumstances.

Now, for Some Economics

Even if the EPA has the legal authority to adopt a progressive, market-based approach to fulfilling this regulatory mandate, would it really make sense to do this? That is, what would be the consequences of adopting a flexible approach, compared with a conventional, inflexible regulatory scheme? Key issues include the implications for environmental performance, aggregate social cost, and consumer impacts via electricity prices.

Another new study, this one by Dallas Burtraw, Anthony Paul, and Matt Woerman (all at RFF), provides the analysis that is needed, using RFF’s well-regarded Haiku model of the U.S. electricity market, to examine the effect of alternative CAA policies on investment and operation of the nation’s electricity system over a 25-year time horizon in 21 interlinked regions. (See: “Retail Electricity Price Savings from Compliance Flexibility in GHG Standards for Stationary Sources”)

Four scenarios which would achieve the same environmental benefits are examined:

(1) a conventional approach in which the operating efficiency of individual coal-fired power plants would be regulated (labeled an “inflexible performance standard”).

(2) a “flexible performance standard,” under which plants that exceeded the standard could transfer a credit (in exchange for payment) to plants that found it more difficult to achieve the standard. The researchers call these “generation efficiency credit offsets.”

(3) cap-and-trade with auctioned CO2 emission allowances, where the revenue generated for government simply displaces the need for other revenue sources on a one-for-one basis (that is, there is no assumption of a double-dividend through increased efficiency of the tax code).

(4) cap-and-trade with free allocation of allowances to Local Distribution Companies (LDCs), which are regulated and hence assumed to pass the benefits of the free allocation on to consumers.

The results are striking. In terms of aggregate social costs, the inflexible standard would bring with it total costs of about $5 billion per year, whereas – at the other extreme – cap-and-trade with free allocation would involve total costs of only $500 million annually, a 90 percent cost savings!

If – despite its legal authority – EPA believes it is politically unable to adopt a cap-and-trade approach (because of last year’s successful tarnishing of that phrase by Congressional conservatives), then it could opt for a second-best approach, the “flexible-performance standard,” above, which would involve total annual costs of about $1.4 billion, still a 70 percent cost savings compared with the conventional, inflexible standard.

Of course, political consideration of such policy alternatives is more frequently driven by estimates of consumer impacts than by overall social costs (which include consumer costs, industry costs, and costs to government). Here, the analysis is also striking. Consumer costs – due to higher electricity prices – under the inflexible standard would increase by 7 percent, while consumer costs under the flexible performance standard would increase by less than 2 percent. With the cap-and-trade regime with free allowances, consumer costs would actually fall by nearly 1 percent, due to lower electricity prices. [For complete numerical results with all of the scenarios, see the RFF discussion paper.]

The Bottom Line

Clearly, much is to be gained – and virtually nothing lost – by adopting a more flexible approach to meeting a court-ordered mandate that, one way or another, will have a regulation promulgated and eventually finalized. It would be foolish to turn away from a potential 90 percent cost savings for the country’s economy, particularly when the same approach yields lower electricity prices for consumers. All this, while meeting national obligations to reduce greenhouse gas emissions.

It’s too soon to forget that a year ago the Senate abandoned its attempt to pass climate legislation that would limit CO2 emissions. In the process, conservative Republicans dubbed cap-and-tradecap-and-tax.’’ But, as I’ve said before, regardless of what they think about climate change, conservatives should resist demonizing market-based approaches to environmental protection and reverting to pre-1980s thinking that saddled business and consumers with needless costs.

Market-based approaches to environmental protection should be lauded, not condemned, by political leaders, no matter what their party affiliation. Otherwise, there will be severe and perverse long-term consequences for the economy, for business, and for consumers.

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