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Narrator:

Welcome to the Wiener Conference Call series. These one hour on the record phone calls feature leading experts from Harvard Kennedy School who answered your questions on public policy and current events Wiener Conference Calls recognized Malcolm Wiener's role in proposing and supporting this series as well as the Wiener Center for social policy at Harvard Kennedy School.

Mari Megias:

Hello and good day everyone. I am Mari Megias in the office of alumni relations and resource development at Harvard Kennedy School. And I'm so pleased to welcome you to this Wiener Conference Call. Today, we are joined by Joe Aldy, who is professor of the practice of public policy at Harvard Kennedy School. He's also the faculty chair for the regulatory policy program at the school Mossavar-Rahmani Center for Business and Government. His research focuses on climate change, policy, energy policy and regulatory policy in the Obama administration. He served as special assistant to the president for energy and environment. He was also a fellow at resources for the future. We are so fortunate that he's agreed to share thoughts today with a Kennedy school's alumni and friends, professor Aldy.

Joe Aldy:

Thank you, Mari. It's a real pleasure to be here in the last going on now, six weeks, we've seen a dramatic change in the approach and the federal government to the issue of climate change from an administration that was in denial about the risks posed by climate change to one that sees it as one of the key animating issues of the policy agenda for 2021.

So I thought I'd spend a few minutes here today to address what it means to pursue a whole of government approach to climate policy a key theme for the Biden administration to think about all the different ways they can use the leavers and the tools or the federal government to advance the climate policy agenda. But first we sort of set the scene to recognize sort of how ambitious some of the goals are for climate policy both in the United States and around the world to know that in 2015, the international community came together at the climate change negotiations in Paris reached agreement on the UN Paris agreement which among other things call for limiting warming to well below two degrees C versus the pre-industrial level is a fairly ambitious goal. Considering that the world has already warmed by a little bit more than one degree C since the pre-industrial times and that both the inertia and the global climate system means we'll see continued warming and the existing capital stock factories, the power plants the cars and trucks we have all mean that we'll continue to see emissions in the foreseeable future that will contribute to more warming. So is afraid of the ambitious goal of given the extent of warming we'd realized to date and what's likely to occur in the coming years.

The Biden administration has set ambitious goals for the power sector for 2035. They're calling for our carbon pollution free electricity sector by that year and a net zero emissions goal economy-wide by the year 2050. So Net-zero means we may still see some positive emissions and parts of our economic activity where it may be very difficult to completely eliminate carbon dioxide and other greenhouse gas emissions. But there may be other parts of the economy where we actually are on negative and our contributions to carbon dioxide and other greenhouse gases to the atmosphere will be on it. So pooling and those parts of the economy and those activities pulling carbon dioxide out of the air, storing it in plants, soils or perhaps storing it in materials that we within user perhaps joining it even underground. There's kind of ambitious goal for 2050 is something that's becoming more and more common among major economies.

We've seen the EU also pledge to reach a Net-zero emissions goal by 2050 Japan just a few months ago also announced this and we had a similar carbon neutrality goal that the government of China announced for the year in 2016, also last year. What would Net-zero actually mean in practice? What does it mean to say we're going to go to Net-zero by the year 2050. Now this very ambitious decarbonization goal taking that fossil fuel foundation or the modern economy still around the world produce about 80% of our energy from fossil fuels. We're thinking about effectively removing that from the foundation of our energy system or dramatically changing the technologies that use fossil fuels so that they do not contribute to carbon dioxide in the atmosphere over the course of just 30 years which given the kind of economic lifetimes of many energy using technologies and equipment like power plants and buildings and factories that's actually a short period of time to transform that foundation of our economy this kind of aggressive and ambitious decarbonization goals. Something that the National Academy of Sciences recently studied and report that just came out earlier about four weeks ago early February showing sort of what a likely trajectory would have to do in terms of reducing emissions in the United States on Net-zero by the year 2050. And that means we would see a dramatic increase and the role of renewable power of wind and solar in the generation of electricity throughout the United States. Right now they're representing a little bit less than 10% of power generation. We would need to see a dramatic ramping up where they would be become by far the dominant sources of power in the U.S. electricity sector.

The electricity sector would also have to get bigger. We would see electrification of various energy services that in the past have relied more on liquid or gas fuels. So we'd see that further electrification of transportation electric vehicles that would then of course be powered by zero carbon, renewable sources of electricity. We'd also see, for example, the use of heat pump technology to replace natural gas and heating oil for heating buildings so that we can reduce the carbon footprint of our building stock as well. We might see for industrial uses the potential use of hydrogen produced. If it's so-called green hydrogen from a renewable source of electricity that hydrogen can then serve some key industrial uses as a substitute for natural gas or some petroleum products as they are currently used. And there's the prospect that hydrogen could also be used as a key player in the power sector may play a role in heavy duty transport as well. Now we're gonna see the significant ramping up of electricity load to meet these new sources of electricity and transportation and buildings. But that also means that we're gonna need to see continued improvements in energy efficiency and conservation, so that we can get more energy services per unit of energy. We need to enhance the energy productivity of the equipment and the capital that we use in order to reduce the amount of new bill in zero carbon energy sources in the economy. We're also gonna need to think about different kinds of infrastructure bill that may help compliment this new energy system. That's gonna be built much more on renewable power. We may need to build a lot more transmission.

Some of the best renewable resources in the country are actually located pretty far from where people live. So you've got great wind resources in places like South Dakota or great solar resources say in the desert Southwest we may need to build transmission to actually get that really rich renewable resource to where the people live. We may need to address some of the concerns that sometimes the wind doesn't blow the sun doesn't shine to have storage as a way to help us deal with those times when the output from wind and solar facilities is lower than what people are demanding. So we'll need to see continued investment in deployment of storage technologies there as well. Now that's what the energy system may look like as we try to strive for this Net-Zero goal for economy-wide emissions by the year 2050 it's useful to think about, well, what are the policy tools that the Biden administration could pursue or could pursue in concert, working with Congress to try to deliver on this objective. And there's basically three fundamental ways. When we think about public policy we can use to reduce emissions. The first is that we can subsidize investment in low and zero emission technologies. So we've provided historically tax credits for the production of electricity from wind farms. We've subsidized the upfront investment costs for new solar panels. We've subsidize the purchase of electric vehicles subsidized the production of biofuels. So there's various ways we can use tax credits. In some cases we've used grants would use grants.

For example, for the Cashflow Congress Program to reduce the use of high polluting vehicles. Back in 2009 we use rebates to help subsidize the investment in energy star rated appliances by different ways that help lower the cost of these new low and zero carbon technologies. The second approach that we can think about using regulations to prescribe low and zero emission technologies. So this may be through EPA is use of the clean air act to reduce the emissions of carbon dioxide in the power sector. Something that I think the Biden administration will take up. This is an issue that's been going back and forth across administrations dating back to 2015. When the EPA under president Obama originally promulgated the clean power plan to reduce power sector emissions by one-third the Trump administration propose and then finalize a rule that would be an alternative to that, what they call the affordable clean energy rule which was recently struck down by the court. So it creates a new opportunity for the Biden administration to think through how they could pursue regulations in the power sector. But you can also think about regulations to reduce emissions and methane and oil and gas operations. You can think about the role of regulation to promote fuel economy at the department of transportation so that the cars would drive a more fuel efficient or to reduce the energy consumed and appliances through department of energy appliance efficiency standards.

The third major way we can use policy to try to drive reductions in emissions is to raise the price of fossil energy is the fact that we want a carbon tax does is what a so-called Cap and Trade Program that limits the total amount of carbon dioxide emissions by covered sources but gives those sources the right to admit that they can buy and sell among each other. And so they can find the lowest cost ways of reducing the pollution. We've seen carbon tax policy used in Northern Europe, in British Columbia and even now in some emerging economies around the world we've seen Cap and Trade which was originally an innovation under the Clean Air Act here in the United States to address lead and gasoline as well as to address acid rain from our power plants. It's now being pursued and implemented in the European union and the world's largest Cap and Trade program for carbon dioxide and will soon be launched in China as a major policy tool for reducing emissions in their power sector. So we can think about this as a way as we raise the price of fossil energy to reflect the carbon content of fossil fuels that will promote investments in energy efficiency and conservation. It will promote switching over to lower carbon and zero carbon sources of energy and help then create incentives for innovation and bringing additional and more cost-effective and more efficacious technologies that are producing energy services but zero impact on the global climate.

Now, these are the basic policy tools that are at the disposal, and we can look back and previous administrations, for example, on 2009 the American Recovery and Reinvestment Act the major economic stimulus bill had a number of subsidies for renewable power or energy efficiency technologies for advanced grid technologies, et cetera. We could see how the Clean Air Act has been used. And the Energy Policy Act for fuel economy centers have been used across administrations to reduce emissions of carbon dioxide in various power plant and transportation sectors. And to think about ways we can use carbon pricing perhaps building on some of the experience among the States that have used Cap and Trade in California as well as in the Northeast and Mid-Atlantic States to reduce carbon dioxide emissions. So these are tools that have been used in practice here in the United States historically but as important thing through both the policy. And I think the politics of decarbonisation to think about what the prospects are in the administration of driving these kinds of changes. The first is for the Biden administration to think through ways that they can reorient federal policy right now they don't have to wait on the development of a new regulation that typically takes time where you propose a regulation and take public comment and then finalize it. We don't have to wait on working with Congress but you can do things through executive orders through decisions made by the president and those working for the president and various agencies to start making change right now to combat climate change. So I think that sort of initial effort is happening as we see various personnel focus on climate change being brought into the federal government as they are now pushing forward on a number of different policy fronts to take an integrate climate change as a key consideration in the implementation of public policy through out the executive branch. The segments think through ways in which we can work with our partners around the world. For example the president can work in a bilateral fashion with his counterparts to think about ways we can work together how that can help our domestic politics. When we say, look, our major partners like China is moving forward on climate change. They are putting a price on carbon in the power sector. That means that we can actually move forward with climate policy here in the United States and not be concerned about or suffer the adverse consequences of competitiveness pressures. If some of our major trade partners are not moving in concert with us, I think it's also important when we recognize the challenge that climate change poses for us, that we'll need to make significant advances here in the United States with policy but also with efforts to reduce emissions in countries around the world. And so how we work and engage with our partners around the world will be very important. And it's something that the president had his team have already started to do. Of course then the third question is how we think about working with Congress. Is it something that is very ambitious, like a green new deal has been supported by progresses as there's something that has to be compromised because of the prospect of how you navigate a filibuster in the Senate.

There are a lot of questions about what ended up being the right kinds of policies and how they may work. Given the politics in the institutions of Congress. We're already seeing some discussion about what might fit within a so-called budget reconciliation package because that would only need 51 votes as opposed to 60 to gain passage in the set. What are the kinds of programs? Perhaps spending programs to the tax code is subsidized low carbon technologies could work through a vehicle like that, but it's unlikely to you. We would be able to get new regulatory authorities through session approach. There's also questions about how we think about addressing the related concerns associated with climate change. How we think about some of the social justice and equity concerns. We think about how certain low-income communities and underrepresented minorities in our policy and political process have been suffering disproportionately the harms of environmental threats for decades and are more likely to face the initial risk posed by climate change in years to come. But I think this is an area where the Biden administration is trying to think through how they may be able to work, whether it's in a large spending package, whether it's an infrastructure whether it's a new climate policy agenda that would create new authorities for the executive branch to move forward on climate change how they can sort of navigate the politics and the institutions of Congress to get those bills successfully moved. Now, I wanna turn our attention a little bit to how to think about a whole of government approach in the treasury department. And I say this because when we think about climate change it's gonna pose risks to every corner of our economy. And the response to climate change is gonna really need to leverage activities and efforts through every player and every industry in every business in our economy as well.

So you sort of think about the treasury department as the way the federal government can engage with the major players in the private sector to advance a whole of our economy approach for combating climate change. And I'll acknowledge that this is something that I worked on as a part of the climate 21 project. We were a 501C3 of individuals who previously worked in the government trying to think through ways to design an an agenda for implementing aggressive efforts for combating climate change throughout the federal government. We shared many of our ideas with the transition team back in the fall. And in fact many of my colleagues from that project are now moving into the by administration to help them implement their climate policy agenda. But I think it's useful to think about all the different ways that the treasury department can address climate change. Versus of course, the important role that the secretary of the treasury and her team play in engaging on major spending packages like stimulus bills like an infrastructure bill, how to think about the way we tailor various policies to deliver the kind of new build that we'll need in clean energy infrastructure. Certainly the treasury is in charge of tax policy both within the office of tax analysis and with the IRS. There's some discussion about whether or not a carbon tax could play a role. There's a recent discussion about whether or not major players in the oil and gas industry might support a price on carbon such as through a carbon tax. This is something that would be designed in concert with the leadership at treasury working with major committees in Congress like ways and means incentive finance. And they would have actually played a role then in implementing such a tax policy but they also play a key role. When we think about say tax credits for clean energy technologies. There's a lot of opportunity here to think about the role of financial regulation. We have many different financial regulators here in the United States. The secretary of the treasury actually chairs the financial stability oversight the committee and they can bring together all the major financial regulators to talk about systemic risk to the financial system. And there's a lot of discussion about what role we should think about climate change potentially playing in the financial system the kinds of risks. It may place that may be difficult to diversify within the financial system and how we may be able to encourage more thoughtful financial regulation. So those risks are better understood and managed by those who are running major corporations publicly traded companies but also how they inform the decisions by major investors going forward.

We think about the role all environmental regulation. Now you may think that this is what EPA does but the treasury department can play a role through the inter-agency process and ensuring that EPA in designing new regulations to address carbon dioxide and other greenhouse gases are doing so and thoughtful cost effective manners and bring something to the insights from the economic experts at treasury to help inform the budget of those laboratory actions. The secretary of the treasury typically represents the United States and international economic policy say at the G20 and another major economic forum and so she can help bring the role of climate into those discussions, perhaps breathe new life into discussions about how to eliminate subsidies for fossil fuels that has been subject of past G20 efforts but also think about ways in which we use our foreign aid and how we think about our engagement with multilateral development banks. That is typically the purview of the department of treasury to ensure that we are promoting economic development. That is in line with our climate objectives around the world. Give me think about perhaps here, social security and Medicare, the secretary, the treasury chairs the board that oversees the trust funds for social security and Medicare. They make annual reports on the financial situation and the long-term assets and liabilities of these trust funds. They may be impacted by climate change. They may affect the outlays and Medicare for health reasons. When we are suffering from a warmer climate we may see changes in worker productivity that may influence the revenues going into each of these trust funds. Is there a finance through payroll taxes? And there are opportunities here for these reports of the economic health the financial health of these trust funds to emphasize the potential risks that climate change places to a long-term retirement security through social security no long-term health care for those 65 and older. Whereas most important we can think about the role that the secretary of the treasury can play as a leader on economic policy as a communicator with the managers of major companies the investors in those companies to think about how to use the Bully Pulpit to communicate the importance of addressing climate change as a key component of a long-term economic growth strategy. Now, the challenge, of course, the climate change is such that even if we're very successful in a de-carbonization agenda, we deliver on the goals that president Biden has established. It's not just that he has, we have to deliver on the goals he's assumption for the United States but we have to see major progress around the world. We're still likely to suffer adverse consequences of climate change. In fact we're already suffering the consequences of climate change. We look in the upper left and we can think about the prospect that warmer waters are placing on adversely affecting the health of coral reef ecosystems that are important both for the livelihoods and the quality of the environment in the coastal regions. We think about the prospect that we may face more and more intense and frequent forest fires whether it's in the Western us or in Australia like in this upper middle picture here from the campfire in paradise, California, a couple of years ago the fact that we see high tides, so-called King tides in Southern Miami flooding streets regularly imposing greater risks to the infrastructure there. There concerns that vector-borne diseases may become more common and more prevalent around the world. When we look at the lower left-hand corner here because of a warmer climate and what that might mean to a global public health system how would they become more and more difficult and parts of the world because of warmer temperatures because of droughts to grow crops, to feed people, and to think about the prospect of even more severe weather events such as this typhoon that hit Japan. One of the most intense storms to ever hit Japan just a couple of years ago, but we can think about this here in the United States, where the hurricane season in the Atlantic basin has become more and more intense and longer likely amplified by climate change. All this though, we may think is also gonna amplify existing risk and challenges that we as a society around the world face such as with migration. There's a concern that as we have a warmer climates there may be some parts of the world that become effectively uninhabitable for peoples in that will and do some migration. And the question is whether or not that imposes stress on our political and social systems, when we see more and more movement induced by a changing climate.

And so I'll close on why I think it's important to think not just about an aggressive decarbonization agenda that president Biden has laid out but also to think about all the different ways we can mitigate climate change risk and why are they going forward? We're gonna see policy actions that are gonna reflect more of a portfolio approach to managing and mitigating climate change risk. So I'll close with a little bit of a, a graphic a year or two to illustrate ways we can do this just to start with we recognize the role that economic growth plays in providing resources for technological innovation. And of course, innovation is key to enhancing our productivity that continues to grow our economies. And it's the combination of those two that will contribute to emissions. We know that as economies grow given that that growth relies on energy, vast majority of the energy in the world is still relying on fossil fuels. Economic growth will contribute to emissions. Technological innovation may help or hurt. When we think about emissions some technological innovation helps us bring in lower or zero carbon sources of energy but some technological innovation may make it say cheaper to bring oil to the surface and make it easier for us to consume more petroleum products that made them contribute to climate change. We can think then that the emissions that are going into the atmosphere increase the stock of greenhouse gases in the atmosphere that are warming the planet and raising the temperature. And it's at warmer temperature that then it's causing myriad impacts around the world. I just illustrated in those images those impacts may adversely affect economic growth. And so it may over time slow our economic growth. When we think about bearing those impacts throughout the economic system. So the policy response could A try to promote more research and development. So we're able to have commercially available new technologies that can compete with the incumbents in the energy system that are lower or zero carbon or may help enable zero carbon technologies become more common in the energy system. We can think about preventing the problem from occurring by slowing our emissions of greenhouse gases through mitigation policies. This, as I've already known, it could be through subsidizing of these technologies or requiring them through regulation or by taxing or pricing fossil fuels based on the carbon content that induces mitigation technologies. We may also see the prospect here that would give reverts that flow of emissions and actually pull the carbon dioxide out of the atmosphere through carbon dioxide removal technologies. Some of which have been around for a long time they're called plants and biomass but some which are actually quite novel in how we could use machines to try to pump air through those machines, pull out the carbon dioxide so that we can store it and produce this whole stock of carbon that's in the air. Second approach could be amelioration that for a given stock of greenhouse gases in the atmosphere we may actually reduce the temperature that we they are here on the surface. Some ideas for solar geoengineering or solar radiation management involve putting particles into the upper atmosphere. So at mimicking the effect that we've seen historically from large volcanic eruptions deflect, a little bit of the incoming sunlight that helps them cool and offset some of the warming associated with the increase of greenhouse gases in the atmosphere. This is truly a novel technology. We've only seen a very modest experiments to date. It's one that our colleague David Keith has been leading a major research program on here at Harvard. But it's one that I think as temperatures get warmer and warmer and we start suffering more and more adverse consequences of climate change. We may see more interest in this kind of approach to amelioration. And then for a given a level of warming we can try to reduce the adverse consequences of those impacts through adaptation how we invest in our infrastructure to be more resilient to warmer climates, to more extreme weather events to the shocks that are associated with a changing climate to reduce the adverse public health consequences of climate change. There's ways we can make those kinds of investments that can them reduce the adverse consequences of climate change. And I think given the risks that climate change poses to our economy and economies around the world to populations throughout the world, we'll need to actually make progress on each of these margins to offset some of the worst consequences associated with climate change. So appreciate you joining us here today. You feel free to follow up with me if you have any questions after today but right now I'm excited for the discussion we have. And let me turn it back over to Mari for questions and comments from our attendees.

Mari Megias:

Great, thank you very much, professor Aldy. So just a quick note that the recording of this call which includes the slides will be posted on the school's website at hks.harvard.edu/wiener hyphen conference, hyphen calls. So now let's get to your questions. If you'd like to ask a question please do so by using the virtual hand-raising feature of zoom and our staff will notify you via the chat feature when it's your turn to speak . Note that you may experience a short lag time. So be sure to unmute yourself when it's your turn. And finally, if you could just let us know your class and your can be school affiliation before you ask your question, that would be great but I'll start off by asking you a question that was submitted by Harold Habsman. Mid-career MBA 1992. And that is that the Commonwealth of Massachusetts is in the process of passing significant climate change legislation that mandates, we moved to Net-zero emissions by 2050 and to 50% of that target by 2035, the legislation, however it doesn't provide concrete mechanisms or incentives for people in businesses to individually work towards that goal. One possible option is to incentivize people to buy electric vehicles and to convert their home heating from oil or gas to solar and hydro by offering state tax credits that cover a significant portion of the cost. Do you think this would be a good next step? And what else might you suggest?

Joe Aldy:

So this reflects I think a larger challenge we see, which is that political leaders have established ambitious goals whether it's for 2035 or 2050 here and in other countries around the world. And now we need to, I think implement the policies that are consistent with those goals. They can actually deliver on the ambition reflected in those objectives. And I think that is the challenge is to think through what's the right mix of policies to make this happen. There's no single policy that's going to solve all of these problems. I am an enthusiast for a carbon tax. I think a carbon tax could be an effective tool for creating the right kinds of incentives across the economy, both for deploying low carbon technologies for supporting and enabling more innovation, but also rewarding. I think the entrepreneurship and the creativity throughout our economy to find those lowest cost ways of reducing emissions, because if you could reduce your emissions, that's a lower tax bill. And as I've been told many times in speaking with individuals in the private sector they typically like paying less in taxes. So the challenge though is when we think about that is we've had a kind of vacuum in Washington for the last four years when it comes to climate policy. So we've seen States like the Commonwealth of Massachusetts filling that void and being quite aggressive in how they think about state policies. And I think there are ways we could use tax credits to help enable some build out of solar of electric vehicles. The one challenge with using these kinds of subsidies is that it's difficult sometimes to really target those subsidies to individuals who, without the subsidy you would not have actually made that investment. And that's where we get the big bang for the buck is when we actually give someone a subsidy that changes their behavior for the better. And this is the challenge, when we think about this, I think about this stuff a lot. I do work on this. I helped craft in the recovery after 2009, some of the subsidies we have clean energy technologies a few years ago our furnace went out and I purchasing energy efficient furnace. And I knew I would get a tax credit through a federal program that I'd actually worked on back in 2009. And to be honest I was gonna buy the energy efficient furnace anyway. I was told by one of my friends that I'm an example of that sort of free rider of the subsidies but if they're made available, you say, well I'm going to claim them. And so that's the challenge. And we've seen that, for example some of the rebates for energy efficient appliances a program that Massachusetts implemented back as a part of the recovery act of 2009 but 90% of the people who claimed rebates for buying an energy star rated refrigerator were going to buy an energy star rated refrigerator anyway. So I think this is why we need to think about these kinds of subsidies. If we can target either really novel technologies where they are just coming into the marketplace, we may need that for heat pumps here in Massachusetts, we may think about that help, perhaps they help build out more in the EV charging system. So we have a better network of electric vehicle chargers but we also need to think about what are gonna be I think not just the subsidies that help the supply of these technologies in the market, but how we create the demand for people to want to go out and buy these technologies on their own without getting a subsidy from the government. And that's why we need to think about I think short-term subsidies to get things moving and help drive down further some of the costs of these technologies, but then think about what are the either a price on carbon or the regulations that create the demand for those technologies so that people will adopt those more and more in the future. Given how ambitious both Massachusetts schools are and president Biden's goals are

Mari Megias:

Great, thank you very much. Our next question Susan Irving if you could please let us know your class at ÌÇÐÄvlog¹ÙÍø and ask your question.

Susan Irving:

Well, I've been everything at ÌÇÐÄvlog¹ÙÍø except I'm an administrator. I was in the fourth or fifth class at the public policy program. I was the first woman to get a PhD in public policy. I was a fellow at the Institute of politics and I was a faculty of the lecture on public policy at the school in the late eighties. So I've been there since it was really tiny to where it got out of control, but, and when I went they weren't very supportive of people who were interested in elective politics or political campaigns. It was all sort of, I had a couple of I met at GA on Atlanta. It's just not a GAO official question but it's based a lot on the work we do on a lot of things. And it seems to me that one challenge is looking across tools. I mean, we've written a lot on this which is that we have tax provisions we have credit programs, we have regulatory regulation but even if you just stay within the budget we have credit programs, direct spending programs discretionary spending programs and tax expenditures. And we don't make sure they're consistent. We watch theater work looking at things they've had a whole and of course the tax provisions are not reviewed regularly the way this question but I wanted to show you were talking about the incentives and how so one is any ideas you'd have on that on how to facilitate that, which I think we'll be bringing on be into this two, is I think if you're talking about politics, what about labels? The green new deal is sort of it's already become a negative buzzword. And then the other thing is how do we think about the trade-off between what alcohol panel to use meaning make what we don't like more expensive versus incentives. I mean, you said yourself incentives are hard to target but if you think about it part of why Europe has more fuel efficient cars is they didn't pretend gasoline was cheaper. And I know that has distributional issues especially in the beginning, but how do we think about that? Because it strikes me, as in some cases penalties are going to be easier to offset if you're worried about the distributional effect and more effective but I could be wrong.

Joe Aldy:

So thank you, Susan, that is a series of-

Susan Irving:

I managed to get lot in there.

Joe Aldy:

You've got a lot of questions in it and none of them are easy. So but let me try to address each of them, at least briefly. I think there's in a sense sort of three major kinds of tools that we've got at our disposal and kind of get it a little bit differently than what I did in the presentation. As you noted we could do tax expenditures to subsidize technologies. We can think about government spending or we could think about regulations. And to be honest the only one that we really evaluated in a rigorous way or we have to do that on an ex-ante basis is on regulations. We do formal benefit cost analysis. When the executive branch implements a regulation we have very little transparency by design in the tax code. And so it's difficult to even assess how much is actually being used in of a given kind of tax expenditure. We do have some data aggregated in recent years to think about what's being used, say for renewables but there's very little as you noted evaluation of that performance. And for that matter on spending we have varying across the government different kinds of ways to try to evaluate spending, but not in the ways that I think are really recognized as best practice now in academia. But I think what is emerging as an understanding especially with the evidence-based policymaking act from it two years ago, about what really is best practice for evaluating the performance of these programs. And in fact, I had a conversation earlier today with someone at a major environmental NGO about ways we might be able to help inform policy the share both with members or the staff of Members of Congress as well as in the executive branch on how to think about planning for evaluation for what may be a major build out say in an infrastructure package on clean energy we're gonna need to make a lot of investments over the years to come and I think an act learn act approach would actually be quite effective, but we need to plan in advance. I don't think we did a good enough job of that during the recovery act of 2009 to really evaluate what worked well and what did it. But I think we have an understanding about how to do that and we just need to make a commitment. And I think we're gonna try to highlight ways to drive that kind of evaluation.

Susan Irving:

Yeah, I think that's right. We're very big on that. One thing before you pull back on the penalties versus incentives I also was gonna ask you about sort of a timeline. Do you wanna use incentives for some groups to depend on each other or trade back sorry?

Joe Aldy:

Right, so I think it's a question about sort of how do we think about what is politically possible that affects the timing of these? And it seems easier politically to always push out subsidies. It seems more likely that we would have this in some kind of stimulus package or infrastructure package and then have either new regulations or price on carbon down the road that creates a kind of demand for those technologies. And that's actually a similar kind of have one two step process of what was envisioned back in 0 nine and tens that you'd have a major spin in the stimulus bill the recovery act of 0 nine and then try to create cap and trade as a way to draw in and create the demand for these new technologies throughout the economy. But I also wanna emphasize something here when we think about the distributional consequences, which is whether we're doing a price on carbon through a tax or cap and trade, whether we're doing regulations these are all going to raise the price of energy or raise the price of the equipment and goods and technologies that use energy. So we need to recognize the potential adverse consequences excuse me, across, say for low-income households and how we might be able to use some of the value created from these programs such as if you were to use a carbon tax you'd raise a lot of revenues, you're gonna address some of the distributional consequences there, but there's also distributional consequences with tax credits. There's clear evidence though, that over the past what we're able to see from tax coded who's what kind of households are claiming tax credits for EVs or energy efficient insulation in homes, et cetera solar panels that that is skewing to higher income households. They're the ones benefiting the most from these subsidies. So I think it's important for us to think through how what are the distributional consequences of all these programs and how to design them so that the benefits of de-carbonization can be shared more broadly throughout the economy.

Mari Megias:

Great, thanks for that question and answer. We're now going to Diego Osorio. If you could let us know your ÌÇÐÄvlog¹ÙÍø class and ask your question.

Diego Osorio:

Yes, hello, Diego Osorio here. I'm a meat Curry. I'm a MPA from 2009 and that was part of the board of alumni until last year. I'm also the senior advisor for climate security at the CGR, the large think tank well set of thing times worldwide in terms of agriculture and food security and climate change. My question is a little bit in terms of the two elements about what we see in terms of climate change policy. One is that everything is related to the discussions in terms of how things are gonna be done or not done. Vis-a-vis the energy elements and that's clear and that needs to happen. But the other one is about the implications. And I think the clear implications that will be related to climate and security, and my question is about that. How can we create an encompassing narrative in which we consider these two major elements? Because one thing is fixing what is the Paris agreement? And maybe we will, maybe we won't but another one is the major effects that these climate change is having on elements of security. And these has a lot of costs, vis-a-vis public policy. And we are very curious about what is gonna be the final standing of especially when we carry on this area and just wanna see how the whole thing is gonna make sense as far as the U.S. warming is concerned and the major actors that are in the timeline to cop 26. Thank you.

Joe Aldy:

Great, thank you, Diego. I think this is very important because climate change has the potential to amplify risk in many different dimensions of our national security agenda. There are concerns at the Pentagon about the vulnerability of Naval bases for example, when we see the prospect of boats sea level rise and more storm surge and damage from more intense weather events like hurricanes and typhoons I think there's a recognition that climate inducing migration can create additional stresses in our political systems I noted in my remarks earlier. I think it's also important to recognize that how we work together on climate change has important implications for just the strength of our relationships with other countries around the world. While the climate change has been identified by president Biden as a first year policy issue that's not historically been the case but climate change has been a first-year priority issue for many other countries around the world whether it's say various members of the European union or some least developed countries, I think that they are gonna be the first ones to bear the most adverse impacts of climate change. And there's ways we work with them on climate that I think helps us build trust and re-establish the strength of our relationships with those countries that actually can have positive spillovers into other national security areas. And I think it's important to recognize it in the context of the Biden administration as they move forward in developing new national security strategy they've emphasized the importance that climate change will play and thinking about that strategy. I think it says something that with having secretary Kerry now serving the president in the white house, you have someone as a former secretary of state who understands the importance of climate change and diplomacy, but also understands the relationships that climate change plays in many other kinds of issues. I mean this is one of the things about climate change is that it can have its fingers everywhere. It can influence relationships in many different kinds of relationships in, for around the world in our economic transactions with each other around the world, how we address that is gonna be, I think very critical. But I think it's also a sign that this is something where as president, as the representative of our country in international negotiation that both bilateral multilateral venues the president can make a strong statement early on about why climate change is important for the United States why it's important to the United States to work with other countries around the world on this. And I think it says something that president Biden is hosting on Earth Day at climate leader summit. The plan I think is by then to announce what will be the new mitigation pledge for the United States. This is the thing that's called for under the Paris framework, the 2015 UN climate accord where countries put forward their pledges for how they will reduce their emissions over time. I think that the intent is to put forward a rather ambitious pledge and use that as a way for engaging other countries around the world to ramp up the ambition to what they're pledging to do and how they will then deliver on those pledges going forward. And I think we've already heard a little bit in the reporting lately about how secretary Kerry's already talking to some of his counterparts around the world to see if they can ramp up that kind of ambition going forward even though the United States hasn't even really stepped forward yet to say, here's what we're doing. And I think that's gonna be critical for us to be effective and engaging partners around the world is to demonstrate both an ambition and a credible vision for delivering on that ambition and our own domestic climate change program.

Mari Megias:

Great, thanks very much. Next up, we have Diane Cherry if you could let us know your ÌÇÐÄvlog¹ÙÍø affiliation and ask your question.

Diane Cherry:

Yes, my name is Diane Cherry. I went to the Kennedy School for my master's in Public Policy. Graduated in 1993. I worked at RFF before I came to the Kennedy School. I worked with Rob Stevens when I was at the Kennedy School. I worked with Alma Gartland IDPA following the Kennedy School et cetera, et cetera. And now I'm in North Carolina and I have my own energy consulting firm. Most of my clients are in the Southeast. And so my question to you is we're seeing a lot of impact on changing the utility business model in the Southeast and concerns about whether or not we should join Reggie and that kind of stuff. And it makes me a little bit frustrated because we still don't have national climate policy. What is your thoughts for people who live outside the Southeast, I think they don't think about this a whole lot but we have most of the coal plants in the country. We still have an economic assets in trying to pay for them and try to get them retired. And it's just an ongoing struggle. So my question for you is do you think this time around we'll get a cap and trade bill like we tried to do when Obama was president so that we can put something on the books that then we're forced into rather than trying to figure out at the state level.

Joe Aldy:

Thank you, Diane. I think this is the big question that a lot of States have been asking and some have decided not to be patient like California like the States in the Northeast with Reggie where they've just moved forward with a carbon cap and trade program. But that matter where you are in North Carolina we've seen where North Carolina has been quite effective at leveraging existing federal policies on utilities to support and subsidize the investment in solar. And in fact, I think North Carolina is ranked maybe second in the country now in the amount of installed solar capacity cap Massachusetts has a lot of solar capacity even though it's not always sunny here as my students have occasionally remarked to me in my energy class. So the thing is I think going forward, there's clearly I think a lot of value in having a I think a predictable policy framework to establish something like a carbon price that is technology neutral that's industry neutral. And I'll explain in a moment why I think both of those are really important, but also then we have to sit in a price signal for a long period of time for the planning horizons that characterize a the decisions that utilities make when they're thinking about new generating assets or they think or people who are the manufacturing industries. And they think about how best to the next generation of manufacturing plants, how households think about what kind of car to buy in the future and whether or not they should be making that transition over to an electric technology vehicle as opposed to an internal combustion engine. So I think there is some discussion about what might be an approach to pricing carbon. I've heard less interest in cap and trade now than I did certainly more than a decade ago when I worked in the government there is some discussion about a carbon tax. There are rumors. I was talking with a reporter about this yesterday about whether or not the American petroleum Institute the major trade association for the oil and gas industry will come out in favor of an economy wide carbon pricing policy. There was a discussion about whether or not to use something like a clean energy standard in the power sector that may build on some of the experience we've seen in many States around the country, but not necessarily in the Southeast mandating a shared power that comes from renewable sources like clean energy standard maybe a slightly more flexible version of that. That'll have a lot of similar properties, I think to a cap and trade program, but with the intent of reducing the carbon intensity of power generation over time across the country but give the generators of power the flexibility to effectively trade among themselves to seek out the lowest cost ways of complying with that standard. But I think it's important for us to really be serious about longterm durable and broad climate policy that sends the right kinds of signals throughout the economy. That's technology, neutral and industry neutral. And part of that I think is because we may not know today all the technologies we're really going to need to deliver on longterm decarbonization goals. And when we're technology specific saying our subsidies are not regulations we may foreclose some of those opportunities for innovators to bring a new lower zero carbon technology or a piece of equipment to the market. I think we need to be industry neutral because to be honest the walls between industries that have typically guided the way we've crafted regulations or guided the way we've crafted tax expenditures to subsidize technologies have really those walls have really fallen. I mean, it used to be that you wouldn't think about the prospect that you would electrify transportation but now that is seen as a major Avenue towards decarbonizing our economy. And so the fact that we might have one set of regulations applying to the power sector and a different set of regulations applying to transportation, we need to recognize that there are potential interactive effects there that we need to account for so that we are thoughtful in designing those policies. We need to recognize now that the opportunity for electrifying heat and buildings means that we shouldn't be treating buildings and natural gas or oil based heating as fundamentally different than what we're doing in the power sector as well. So I think the idea of being technology neutral and industry neutral is a way to create, I think the right kinds of incentives for low cost attainment of these goals. These are ambitious goals. I think for the political economy, we need to demonstrate that we can make progress on these goals in ways that do not dramatically impose costs upon consumers of energy or on specific industries. And there's gonna be a lot of political pushback by some of the incumbents that are gonna be harmed by this change in the energy foundation of our economy. So I think we need to be really smart in how we craft the policy so that we can sustain a long-term durable political coalition in support of these policies. Otherwise that 2035 goal on that 2050 goal will become all the more difficult. And while we might still need to rely on the States to move forward. But I think there are opportunities here to learn from some of the actions of various States to craft a more effective federal program going forward.

Mari Megias:

Great, thanks. Next up is Monika Aring. If you could please ask your question.

Monika Aring:

Hi, thank you so much for your talk. I'm so glad you're working on this. I'm a mid-career 1989 as ancient history, a graduate. And my question has to do with the link between climate change policy and inequality, growing inequality. So we could do this very very beautifully there's climate change or we can get it very wrong. And what I'm thinking about is, if we trust in technology and coming up with solutions that don't provide livelihoods and income for people, then what if it's gonna get worse? And I'm particularly concerned about the developing countries. So that's my question is about what, how can we look at climate change policies in ways that include ways to deal with inequality or improve it?

Joe Aldy:

Thank you, Monika. This is I think a key theme for the Biden administration. It is one of the key challenges we face it's in a sense, the defining challenge for multilateral negotiations on climate change which is what do the developed countries that are historically, I've been responsible for the majority of carbon dioxide and other greenhouse gases that have gone into the atmosphere. It served as the engine of their growth and their economic development. And when developing countries look at the developed world and say you were the primary contributor to this problem throughout the 20th century. We want to grow now, we want to raise people out of poverty. We wanna improve the public health of our people and we needed to make investments in energy to make that happen. And so the question is whether or not we ended up limiting their economic development in a way of addressing climate change. And I think if we're thoughtful about policies and we're thoughtful about ways countries can work together on this, we can address those concerns ensure that economic development can continue without contributing to more climate change. I think there's a couple of ways in which we can think about this internationally with other countries and with developing countries, but also how we think about it here at home in the United States. One there's certainly ways in which we can use say, as I noted briefly the department of treasury department of state USAID as a way to use federal resources through foreign aid to help countries build up their own capacity, to adapt to climate change to think about ways they can attract investment in lower carbon technologies so that when they do build out their economies and their power demand increases they're actually delivering on that demand with low zero carbon sources of electricity. I actually think there's ways in which what we do here and subsidizing our technologies and helping contribute to driving down those costs can actually help make it more likely that developing countries can adopt these technologies. One of our former doctoral students, Todd Gerard and did a really nice dissertation looking at how subsidies for solar helped to build out a market so that the suppliers, the manufacturers of solar panels could invest, have the resources to invest in driving down the cost of that technology. So very generous subsidies in Germany and for solar power in their electricity sector, generous subsidies we've had in the United States over the past decade plus for solar have helped contribute to the dramatic reduction in the cost of solar. So now we see a country like India would that very ambitious solar capacity goal wanting to dramatically ramp up the roll of their electricity that comes from solar panels. That probably wouldn't have been possible. The big reductions in the cost of these technologies. So there's ways in which I think certain countries that have the resources have the technological know-how. And for that matter, share more of the responsibility for the change in climate. If we are able to move forward with policies and help drive the development of those technologies we may help demonstrate the commercial viability of those technologies and drive down their cost. So they can be adopted more generally. But I am concerned about climate change and inequality both in terms of the risks posed by climate change and the impacts that our climate change policies may have where we think about the opportunities for adapting to climate change. Those with more resources are gonna be able to reduce their exposure to some of the worst climate shocks. So we think about how to deal with sort of wildfires in California. Well, PGD was shut down electricity for a while to try to keep a while far from even happening. Some people who have resources could invest in generators and they would generate electricity at their home but a lot of people don't have those resources to be able to adapt like that. We can go back and look up like what happened with Hurricane Katrina and where the worst impacts of Hurricane Katrina in New Orleans were felt were in the lowest income neighborhoods of that city and where the greatest loss of life were also concentrated in those low income communities in New Orleans. So, so I think as we address climate change, we're helping I think to close potentially some of the inequality in terms of who will bear the worst of a changing climate. But I am concerned that our response to climate to climate change through climate policy may also exacerbate inequality. There are certainly concerns that if were to price fossil fuels one of the policy approaches I described earlier that that may disproportionately harm low income households, a larger fraction of their budgets go towards energy. I think there's ways we can design policy so that we are not regressive but we can actually be progressive. There are some who've argued. What we should do is tax carbon take all the revenues raise and it would be considerable, be hundreds of billions of dollars a year, and actually just write checks to every household in the country. And if we just wrote everybody the same check that came out of that carbon tax program we would probably make the bottom three quarters of the income distribution better off. They would actually get more back in those rebates then what they would be paying in terms of higher electricity and fuel prices under that program. So that'd be one way we could try to address some of these concerns about distribution, but I think in order to actually be effective in designing these programs in order to ensure that we actually have broad political support for these programs in order to make sure that we have the broad participation of countries around the world, we're gonna need to be explicit in addressing the inequalities that characterize climate change and the climate change policy response if we're gonna be successful.

Mari Megias:

Great, thanks very much. Our next questioner and our last questionnaire for today will be Maynard Holt. You're up. Hello Maynard.

Maynard Holt:

Hi guys, can you hear me?

Mari Megias:

We can hear you go ahead.

Hello we can hear you Well technical difficulties there. So let's go to Bruno Neto. Go ahead Bruno.

Bruno Neto:

Hello, so my name is Bruno. I studied in the Executive Education in 2012. Well, first of all, thank you so much for this class and for all your commitment sir and work of course. So on the last 18 years I've been leading humanitarian and development missions all over the world. And the question on the electric cars are the batteries and the impacts on humans and the nature of course, well from the beginning of the cycle related with the cobalt and all the minerals to the recycling in the end of life. So I worked in the East to DRC where there's a huge of lack of accountability on all the processes and that leads obviously to work toward to child labor, to international conflict. And the problem which is a bit funny is that in the end of the cycle of batteries so I worked in Mongolia and more than 50% of all important cars are Toyota Prius. And you can see them in the steps of Mongolia and all of them. They come for a reason because they come from Japan and they come in the end of the cycle of the batteries. And these is, these are just a few examples but then the impacts are huge in terms of all the environment. And then once again, in terms of the people can or is it possible to cut some corners and to pressure for example, the manufacturers to go straight to hydrogen or to find other solutions. Thank you so much once again

Joe Aldy:

Thank you, Bruno. I think this illustrates a tension we see in a number of dimensions of the clean energy program where there are potential offs, variety of environmental trade-offs when we're trying to advance a climate change policy. I remember early in my career when I was a young staff or the council of economic advisors the very first principal's meeting, I went to a company then chair Janet Yon to this meeting to think about a national what our position would be on a national electricity restructuring bill. So the idea of where we see a number of States do this this is in the late 1990s, whether or not we had support a national piece of legislation. The question is whether or not there'd be a renewable portfolio standard so called mandate that so much of our power comes from renewable sources would be part of this piece of legislation before the meeting could even begin. The secretary of the interior was very concerned about what new wind farms would mean for migratory waterfowl. We've seen this when I was in the Obama administration concerns about some of the large concentrated solar electric generating facilities in the desert Southwest are actually in areas that are critical habitat for an endangered desert tortoise. So we see these kinds of trade-offs come up. There's certainly concerns. When we think about, say the visibility impacts of wind farms is one thing that's been a challenge for siding off shore wind here off Cape Cod is the impact this would have on the local environment and the visibility of those who live out on the Cape. And certainly when we think about some of these new clean energy technologies like batteries for electric vehicles or battery storage and more generally, we think about say large-scale storage for the electric utility industry do dry off of draw from minerals. And we may be concerned about some of the mining practices and the associated labor practices where those are mined as well as how we dispose at the end of the cycle. Of course we are worried how we dispose at the end of the cycle when we think about the prospects or the role of nuclear power and electricity generation as well. I think these are all things that we have to deal with that we actually gotta be upfront and address them and recognize that they are important considerations that we need to manage. We can manage, we have managed in the past we should do so in the future. I think we need to be upfront and addressing them and being constructive and proactive and addressing them. Because if we wait until someone raises the issue it runs the risk of slowing down the clean energy transition we need, if we're gonna be adequate to the challenge of climate change. So I don't wanna say the climate change to Trump all these things, but then we actually need to be, I think quite forthright about how there are important considerations that go beyond just climate that we need to take into account. And I think Bruno is quite effective at itemizing those considerations that should be informing both policy, but also informing how we think about the kinds of decisions those in the business community make in these technologies, that in the development of these new clean energy sources of power that we're gonna need if we're gonna be able to address climate change I'm not sure if this is enough to say we should go to hydrogen as opposed to electric vehicles. I think there are some who have concerns and reservations on the hydrogen front as well. But I think at the end of the day we're gonna need to recognize that what we do on climate change has important system implications for energy, for the economy for how we think about inequality in society how we think about other environmental issues that really climate change affects everything in terms of the impacts across the world it's gonna affect everyday lives. Our policy response is gonna need to also change the way we produce and consume energy in ways that we're gonna have to take into account across every corner of our economy and across the world as well. And so let me close with that Mari. I know we're a minute or two over time. I appreciate all the questions at today and really enjoyed this opportunity to be with alumni and friends of the Kennedy School.

Mari Megias:

Yes, thank you very much for calling in and participating this Wiener Conference Call apologies to everyone whose questions we did not get to. Just like to ask you to watch your email for the invitation to our next call, which will be with professor Pippa Norris on populism and democracy. Thank you all very much and have a great rest of the day.