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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Reflections on Economics and Policy Making in the Environmental Domain

This past week, I was privileged to participate in a workshop, “Climate Science in a Time of Political Disruption,” sponsored by the Harvard Program on Science, Technology and Society.  The workshop began with a keynote address by former U.S. Environmental Protection Agency Administrator Gina McCarthy, now Professor of Practice at the Harvard T. H. Chan School of Public Health.  Following Gina McCarthy’s down-to-earth but quite inspiring remarks (with her usual Yankee humor adding spice to the proceedings), the others on the panel were asked to comment on the topic at hand.  The panelists included Joe Goffman, Executive Director of the Environmental Law Program at Harvard Law School; Peter Huybers, Professor of Earth and Planetary Sciences; Sheila Jasanoff, Pforzheimer Professor of Science and Technology Studies at the Harvard Kennedy School; Lucas Stanczyk, Assistant Professor of Philosophy; and myself.

Given the subject of the workshop, most of the panelists focused their comments on the current political scene and the current U.S. administration’s apparent disdain for climate science.  I took a broader, somewhat historical view, and as the only economist on the panel, I commented on the relationship of economic research to policy making.  I did this via reflections on experiences I’ve had over the past three decades.  I tried to make three points:  first, economic research results can be used as a light bulb or a rock, and either can be effective; second, it is important to move quickly when windows of opportunity open in the policy world to implement research ideas; and third, politics matter, and should not be ignored.

  1. Research Results Can be Used as a Light Bulb or a Rock

I cannot speak for the natural sciences, but it is clearly the case that economic evidence can be used either as a “light bulb” – to illuminate an issue and possibly persuade policy makers of the wisdom of a particular course of action – or as a “rock,” that is, as ammunition to support a policy maker’s predisposed position.  Is this cynical?  I think not, because such economic ammunition can help win a policy battle.  I was just reminded by Paul Krugman in his New York Times column of a somewhat less charitable metaphor, where he characterized some politicians as using economists “the way a drunkard uses a lamppost:  for support, not illumination.”

Related to this reality was a session I chaired in 2001 at the annual meetings of the American Economic Association – a roundtable of former chairs and members of the U.S. Council of Economic Advisers (CEA), including George Eads (Charles River Associates), the late William Niskanen (then of the Cato Institute), William Nordhaus (Yale University), and Joseph Stiglitz (Columbia University).  A repeated theme from this set of economists was the reality that CEA typically had more influence by helping others in the Executive Office of the President in their efforts to stop bad ideas than by itself promoting good ideas.

  1. When Windows of Opportunity Open, Move Quickly

Two examples stand out for me of the importance of moving quickly when windows of opportunity open in the policy world to implement research ideas.  One is the work I carried out in the late 1980s under the sponsorship of the late Republican Senator John Heinz of Pennsylvania and former Democratic Senator Timothy Wirth of Colorado in the form of research that led to a report, “Project 88:  Harnessing Market Forces to Protect the Environment.”  One of the proposals in the report was to address the then politically prominent problem of acid rain with what is now called a cap-and-trade system.  This idea resonated with the incoming administration of President George H. W. Bush, particularly with the Counsel to the President, Boyden Gray.  In parallel with work being carried out by Joe Goffman and Dan Dudek (both then at the Environmental Defense Fund), I followed up the Project 88 report with numerous White House and other Washington meetings (commuting weekly from my Harvard perch), which eventually contributed to the Bush Administration’s proposal (to an initially resistant Democratic Congress) of the Clean Air Act Amendments of 1990, including its path-breaking sulfur dioxide allowance trading program.

The other example I mentioned to highlight the importance of moving quickly when windows of opportunity open in the policy world is associated with the negotiations carried out annually under the United Nations Framework Convention on Climate Change (UNFCCC).  At the seventeenth Conference of the Parties of the UNFCCC in Durban, South Africa, in 2011, the delegates agreed to the “Durban Platform for Enhanced Action,” which broke with nearly twenty years of UNFCCC policy by mandating a new approach in which all countries, not just the richest nations, would participate in addressing the need for greenhouse gas (GHG) emissions reductions.  The key challenge for climate negotiators was how to meet this new mandate while still observing the fundamental UNFCCC principle of “common but differentiated responsibilities,” which had previously been interpreted to mean that rich countries alone would shoulder the burden of reducing emissions.

At the Harvard Project on Climate Agreements, we recognized that negotiators around the world were suddenly open to outside-the-box thinking.  Indeed, in Science magazine, my colleague, Joe Aldy, and I wrote an article, “Climate Negotiators Create an Opportunity for Scholars.”  Over the following months (and years) we worked hard to help key negotiating countries develop a new policy architecture that could meet the challenge before them.  The result was a hybrid approach that combined elements of top-down architecture with a healthy dose of bottom-up “pledge-and-review,” which led eventually, of course, to the Paris Agreement of 2015.

  1. Politics Matter

For the Intergovernmental Panel on Climate Change’s (IPCC) Fifth Assessment Report (AR5), I served as Coordinating Lead Author (with Dr. Zou Ji of China) of the chapter on “International Cooperation:  Agreements and Instruments.”  I was surprised to find that the process was highly politicized – in two distinct ways.  First, whereas I had assumed that the Lead Authors (LAs) serving on our writing team were there only to represent their respective scientific expertise (in economics, legal scholarship, international relations, etc.), some of the LAs seemed to represent the interests of their respective countries.

Second, I was very naive about the final step of the process, when the governments of the world are asked to approve the IPCC’s Summary for Policy Makers line by line.  The controversy associated with our chapter on international climate agreements resulted in that entire section of the SPM being eviscerated of all meaningful substance at the Government Approval Sessions for Working Group III (WG III) in Berlin in April, 2014.  I was disappointed and dismayed by the process and its outcome.

Fortunately, I learned from that experience and my attitude (and behavior) was quite different just six months later, when I found myself in Copenhagen for what was essentially the final stage of the entire five-year enterprise of research, writing, and government approval of the various reports of IPCC AR5, namely the government approval sessions for the Synthesis Report (SYR), which summarizes and synthesizes the key findings from all three Working Group reports.  I had learned my lesson.  Rather than disdaining the politics of the occasion, I embraced it and spent the week in Copenhagen in careful negotiations with the key national governments, the result of which was that all of the essential text on international cooperation and agreements was preserved in the Synthesis Report.

Ironically, by recognizing, accepting, and indeed participating in the fundamentally political aspects of the IPCC government approval process, I was able to keep the report of research from itself being politicized.

Summing Up

So, the three points I made regarding the relationship between economic research and policy making at last week’s Harvard workshop were these:  first, economic research results can be used as a light bulb or a rock, and either or both can be effective; second, it is important to move quickly when windows of opportunity open in the policy world to implement research ideas; and third, politics matter, and should not be ignored.

I left it to others at the workshop – and I leave it to readers of this essay – to judge whether any of this applies more broadly to “Climate Science in a Time of Political Disruption.”

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The Future Role of Economics in the IPCC

Despite attacks from “climate skeptics” and other opponents of action on climate change, as well as its own missteps, the Intergovernmental Panel on Climate Change (IPCC) is broadly viewed as the world’s most legitimate scientific body that periodically assesses the economics of climate change for policy audiences.  But growing inefficiencies and other limitations have made the IPCC an increasingly problematic forum for qualified scholars.  This has been particularly true with regard to expertise from economics.

In an article that has appeared in the journal, Climate Change Economics, “Reforming the IPCC’s Assessment of Climate Change Economics,” my colleagues and I draw on our personal experiences writing the most recent IPCC report to identify some of the main problems faced by this institution and to propose some possible solutions.  My co-authors are, in alphabetical order:  Gabriel Chan (University of Minnesota), Carlo Carraro (Ca’ Foscari University of Venice), Ottmar Edenhofer (Technische Universität Berlin), and Charles Kolstad (Stanford University).

Background and Context

The IPCC was established in 1988 by the World Meteorological Organization and the United Nations Environment Program to assess and synthesize scientific research on climate change, its impacts, and response options. The IPCC is governed by its Plenary (composed of representatives of member governments), Bureau, Executive Committee, and Secretariat, which have distinct roles to provide oversight, develop procedures, and facilitate operation.

Coverage of the scientific literature is divided into three Working Groups that respectively assess climate change science, impacts and adaptation, and mitigation. Authors are nominated by national governments, and selected by the IPCC Bureau.  Authors serve as Coordinating Lead Authors (CLAs), with responsibility for leading the writing of a chapter, or as Lead Authors (LAs), who serve on a chapter team and participate in the writing process.  CLAs and LAs participate in numerous meetings held at diverse locations around the world.  Other experts serve as Contributing Authors (CAs), but the process for nominating these contributors is less formal, and the CAs typically do not participate in meetings and deliberations.

The assessment cycle for each round of the IPCC begins with a scoping process, with government representatives, together with a large group of scholars and other interested parties, drafting outlines of each chapter of the IPCC. Following the scoping process, the IPCC Plenary approves the outlines, sometimes after some modification.

CLAs and LAs are then nominated and subsequently approved by the IPCC Bureau.  CLAs and LAs serve as volunteer labor (although some have their travel expenses reimbursed).  In the Fifth Assessment Report Working Group III process, Lead Author Meetings (LAMs) were convened four times from July, 2011, to July, 2013.  These meetings took place in Changwon, Korea; Wellington, New Zealand; Vigo, Spain; and Addis Ababa, Ethiopia.  Over the course of the LAMs, CLAs led their chapter teams to review relevant literature and prepare chapter text, tables, and figures.

At three points during this process, external Expert Reviewers and government representatives submit detailed comments on subsequent draft. These comments, numbering in the many thousands in AR5, are made public following the assessment cycle, and, are checked by appointed Review Editors, who confirm that authors have replied adequately to comments. After four drafting rounds, the Working Group reports are preliminarily finalized.

Towards the end of the assessment cycles, authors of each Working Group, primarily CLAs, engage in writing two summary documents for each report, a Technical Summary (TS) and a Summary for Policymakers (SPM).   The Summary for Policymakers is subject to line-by-line approval by the IPCC Plenary (that is, the governments).  By the way, in case you’re interested, I have written about these government approval processes at length in previous essays at this blog:  Is the IPCC Government Approval Process Broken? (April 25, 2014); Understanding the IPCC: An Important Follow-Up (May 3, 2014); and The Final Stage of IPCC AR5 – Last Week’s Outcome in Copenhagen (November 4, 2014).

Finally, concurrent with much of the chapter-drafting process, a subset of CLAs and LAs from all three Working Groups convene to draft a Synthesis Report (SYR) and its own Summary for Policymakers.

I’m exhausted, just having written that summary of the multi-year process in which we were engaged in the IPCC’s Fifth Assessment Report.

Categories of Key Reforms

I hope you’ll turn to our article in Climate Change Economics to read about the procedural and substantive reforms we propose.  So, here I’ll provide just a list as a guide to what you can find in the article.

We propose four potential procedural reforms that could lower the cost for volunteering as an IPCC author:

  • Improving interactions between governments and academics
  • Making IPCC operations more efficient
  • Clarifying and strengthening conflict of interest rules
  • Expanding outreach

In addition, we propose three reforms to the IPCC’s substantive coverage to clarify the IPCC’s role and to make participation as an author more intellectually rewarding:

  • Complementing the IPCC with other initiatives
  • Improving the integration of economics with other disciplines
  • Providing complete data for policymakers to make decisions

Looking Forward

My co-authors and I all found that working for the IPCC was at times enormously frustrating. As an IPCC author, particularly as a CLA, scholars can at times feel as if they are inside a political process, forced to respond to critical government comments based on political sensitivity, and even directly negotiating text with professional climate negotiators during the SPM Approval Sessions.

Despite such distractions and frustrations, however, the group of us believe that the IPCC remains a critical institution for the communication of scholarly knowledge about climate change. Engaging governments in often detailed deliberations over climate science, economics, and policy helps build a knowledge base that is broadly based. And the process of consensus-building around the SPM and the work of the underlying chapters play key motivating roles in driving international climate negotiations under the United Nations Framework Convention on Climate Change (UNFCCC).

Going forward, the greatest risk is that scholars with sound and balanced understanding of the relevant literature may be deterred from participating as IPCC authors, and thereby surrender the process to quasi-academics with political motivations.  The potential harm to the policy process (and the reputation of academia) would be very great.

To prevent this from happening, the IPCC needs to reform its operational procedures and substantive scope so that qualified scholars perceive the time investment as authors to be worthwhile. At the same time, scholars of climate change economics should not dismiss the opportunity to provide a significant public service by volunteering for the IPCC in its future assessments.

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