A Leading Expert on International Trade Talks About Climate Change

In my podcast series, “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program,” I’ve had the opportunity of engaging in interesting conversations over the past five years with a significant number of outstanding academic economists who have carried out work that is relevant for environmental, energy, and resource policy, including by serving in important government positions.  My most recent guest is no exception.  Robert Lawrence, the Albert Williams Professor of International Trade and Investment at the John F. Kennedy School of Government at Harvard University, served as a Member of President Clinton’s Council of Economic Advisers from 1999 to 2001.  A prominent theme of our conversation is that the rise of political populism and economic protectionism are serious barriers impeding efforts to combat global climate change.  You can listen to our complete conversation here.

Robert Lawrence notes that public policies designed to protect the U.S. economy and labor force often have deleterious impacts on the economy and on climate policy, particularly in the case of tariffs initially imposed on China by the Trump administration and more recently by the Biden administration.

“As part of our trade war with China, Trump imposed a 25 percent tariff on electric vehicles. We already had a two and a half percent tariff on automobiles. So, that’s a 27 and a half percent tariff on electric vehicles. And that was before Biden has now raised those tariffs even further to 50 percent. So, in effect, we’ve closed the US market for electric vehicles, and have taken similar measures when it comes to solar panels,” he argues.

“We also have broad tariffs on steel and aluminum, which are key inputs if you want to make wind turbines. So, what we’ve done is in the name of … national security and also to achieve and protect our own domestic production of these products, but [an impact] is to severely, in my view, slow down the pace of decarbonization.”

Lawrence acknowledges that the Inflation Reduction Act (IRA), passed by Congress and signed into law in 2022, was a fairly successful attempt to address climate change in a bipartisan way.

“The IRA, in using subsidies, is essentially dealing with a political reality that the first best, in the minds of most economists, [which is] raising the price of CO2 emissions, proved to be impractical within the American political system. And so, we got what I think of as a second-best approach, but nonetheless, it is an approach moving us in the right direction,” he explaines. “And so, I think we see the constraints of politics leading us to do what’s feasible.”

Robert goes on to say that the recent domestic shift toward protectionist trade policies has coincided with the decline of American manufacturing, but it has not had the effect of restoring the sector to the significant stature it once held.

“I think both the Biden Administration and the Trump Administration for that matter, got it wrong because they don’t understand the reality … They think you can restore the middle class by restoring manufacturing’s role in the economy, and I think basically we’re way past the peak where this is feasible,” he says. “It’s not that manufacturing isn’t important. It has a role to play in providing us with the hardware for de-carbonization, for the digital economy, but it’s not a driver of the opportunity that it once was for people who are relatively less skilled.”

The author of several books on trade policy, including the soon-to-be-published Behind the Curve: Can Manufacturing Still Provide Inclusive Growth?, Lawrence explains that while he is a proponent of free trade, he believes such policies must be crafted carefully.

“There is a very strong argument for an open trading economy and an open trading system. At the same time, I also think, and increasingly we’re aware, that there are different kinds of risks,” he says. “There’s an optimal pace of change from a political standpoint. Even if eventually a country would be better off putting its workers in areas where it can compete, the transition requires paying attention to some of the political consequences of doing that. And so, a lot of my work has been devoted to thinking about how you can move towards freer trade, but also deal with the labor market consequences of doing that.”

For this and much more, please listen to my podcast conversation with Robert Lawrence, the 61st episode over the past five years 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 iTunesPocket CastsSpotify, and Stitcher.


A Behavioral Economist Thinks About Energy and Climate Change

When examining environmental, energy, and climate change policy, the methods and the topic of behavioral economics arise with some regularity.  In my podcast series, “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program,” we’ve talked about such behavioral research in regard to energy-efficiency policies with Michael Greenstone and others.  And, much more recently, in a podcast episode just released, I had the opportunity to talk with a behavioral economist who is now on the faculty of a school that’s focused on environmental studies.  I’m referring to Hunt Allcott, who is Professor of Global Environmental Policy at the Doerr School of Sustainability at Stanford University, and who – I’m proud to say – is a graduate of the PhD program in Public Policy at Harvard.  You can listen to our podcast conversation, produced by the Harvard Environmental Economics Program, here.

Allcott serves as Co-Director of the Stanford Environmental and Energy Policy Analysis Center, and is a Research Associate at the National Bureau of Economic Research, as well a member of the board of editors of the American Economic Journal: Economic Policy.

The crux of Allcott’s research focuses on the ways in which human behavior affects economic decisions and outcomes in a variety of contexts, and the lessons those have for policymaking. In our conversation, he cites several examples where government policy can influence consumer decisions in ways that will benefit both consumers and the environment.

“It’s like what behavioral economists call a shrouded attribute. It’s a future cost that’s kind of easy to forget when you’re making a purchase decision. So, if it’s… true that consumers aren’t thinking very hard about these future energy costs, then we’re probably erring on the side of buying too many gas guzzling cars and energy guzzling air conditioners and light bulbs. And so, as a result, the government can make us better off by pushing us in the direction of being more energy efficient,” Allcott remarked. “It was fun for me to… work with a group of others to develop actual empirical tests of, okay, how would you substantiate those consumer protection arguments in the data? So, that’s some of the work that I’m most proud of.”

Allcott also discusses the federal electric vehicle tax credits, which are designed to incentivize consumers to reduce carbon emissions.

“You subsidize a new electric vehicle, that’s a new EV on the road, [and] that’s good for the environment in most places. You give somebody a tax credit to buy a used EV, that’s just trading an electric vehicle from one person to another, and so there’s no new net vehicle on the road, at least [not] directly,” he stated. “Is the incidence really on the used vehicle buyer, in which case there’s no environmental benefit, or maybe the prices of used electric vehicles are going up because they’re worth more upon resale. That’s not as good for the buyers, but then it might induce more new electric vehicle sales because when you buy a new EV, you then recognize that the resale value might be higher.”

Allcott officially joined the faculty at the Doerr School in September 2022, just as the school was being launched.

“There are 60 existing faculty members that were moved into that school as part of earth systems, energy systems, civil engineering, and some other departments. I was actually… the first external hire of this school to reach through the provost and actually show up on campus. And so, I’ve been here for, I guess, 15, 16 months so far, and it’s just been a great experience trying to help Stanford have an even bigger imprint in this space of impact on energy and environmental issues.”

Ironically, Allcott notes that much of the research taking place at the Doerr School and in which he’s now engaged is not focused on behavioral economics.

“This has been an opportunity to step back and rethink what is the right research direction for the next five to ten years. And perhaps interestingly, all the topics that our group is now working on are what I would call non-behavioral topics. There’s not really a behavioral economics angle to them,” he explained. “Upon arriving at Stanford [I asked] ‘okay, I’m in the sustainability school. What are the most important environmental economics topics?’ I think energy efficiency and behavioral economics is still on that list, but there’s so much other stuff. There’s the Inflation Reduction Act, there is electricity market design, and then within each one of those two, there’s a lot of different sub-areas that we’re actually focusing on.”

You can hear this and much more in my conversation with Hunt Allcott, which is the 59th episode over the past four years 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 iTunesPocket CastsSpotify, and Stitcher.


Thinking About Interactions of Taxes, Trade, and Climate Policy

Climate change policy proposals frequently take the form of tax policies, but other types of climate policies will also interact with tax law and policy, and for that matter with international trade law and policy.  In the latest episode of my podcast series, “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program,” I had the opportunity to explore such interactions with an economist with great expertise in taxation, particularly the international aspects of taxation.  Because my guest was Kimberly (Kim) Clausing, the Eric M. Zolt Professor of Tax Law and Policy at the School of Law of the University of California at Los Angeles.  In addition to her research and scholarly credentials, it’s important to note that she served in the Biden administration in the U.S. Department of the Treasury as the Deputy Assistant Secretary for Tax Analysis.  You can listen to our complete conversation here.

Before joining the UCLA Law School faculty (and before her time in government), Professor Clausing was on the faculty of Reed College and Wellesley College, having previously earned her BA degree in economics at Carleton College and her PhD in economics at Harvard.  I’m pleased to note that she is participating in the Harvard Salata Initiative on Reducing Global Methane Emissions (in a research/outreach project with Catherine Wolfram on (Methane Emissions and Trade”)

Kim Clausing was at the U.S. Department of the Treasury during the first two years of the Biden administration, and she maintains that climate policy has been a priority for President Biden and his administration since day one.

“In fact, on day one, they rejoined the Paris Climate Agreement. They worked with climate at the center of their work in every part of that administration, including the Treasury [Department],“ she says. “The legislative achievements… were substantial, even though they were very difficult and hard fought. The infrastructure bill has some climate provisions in it, but also the Inflation Reduction Act, which I think is probably the biggest contribution we’ve seen to emissions reduction in the legislative sphere, and certainly in my time following these [issues].”

Kim Clausing acknowledges that the Inflation Reduction Act was far from perfect, as it contained a disparate set of objectives (and was based almost exclusively on subsidies designed to reduce carbon emissions, a political necessity). 

“There are good arguments for subsidizing. We didn’t quite have the number of senators that are required to look at the cost side of this equation. It’s something that I’m hopeful that maybe we could do down the road, and I think there’s a moment coming ahead where that might happen. But the approach that we had is the approach that was feasible with a very delicate balance in Congress that was available.”

Clausing argues that trade policy and climate policy can be complementary, if done correctly.

“Some of the most hopeful progress that I can think of is using the carrot of trade and trade liberalization and market access to really encourage countries throughout the world to do more emissions reduction. And I think done correctly and done in a non-discriminatory fashion… I think that can be an incredible force for good,” she says. “An example of a non-discriminatory approach is the European approach where they are charging their firms for emissions allowances, and then they, in parallel, charge importers for that same amount of carbon content in particular industries [via the EU Carbon Border Adjustment Mechanism]. And so that basically incentivizes producers and governments in places like China and India and throughout the world to think about the carbon content of their production and goods like steel and aluminum because they know that if they want to send it to Europe, it’s going to face that carbon border adjustment.”

Clausing notes that many countries that haven’t priced carbon in the past are now considering doing so (and for good reason).

“They’d rather collect the revenue themselves than pay it to the Europeans if they’re exporting. But even those direct effects, while they may not be very big in many country cases, I think it’s a good time for a lot of countries to look at revenue sources that meet fiscal concerns that they might have that can enable them to shift their comparative advantage in a greener direction.”

More broadly, Kim talks about her 2020 book, “Open: The Progressive Case for Free Trade, Immigration, and Global Capital,” which she says was inspired by her desire to provide a fact-based defense of traditional American liberalism vis-à-vis trade and immigration policy.

“I wrote that book kind of in a flurry about a year after President Trump was elected as an attempt to sort of take basic economic intuition and understanding in the field of international economics and convey it to a popular audience,” she explains. “I’m really proud of [the book] in part because I think these arguments aren’t made enough these days. I think that there is this sort of move towards nationalism and America first kind of thinking. And so, I think we do need voices to sort of explain the economics in terms that people can understand, not just in the American Economic Review, but in a broader context.”

For this and much, much more, I encourage you to listen to this 58th 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.