Get Energy Smart! NOW!

Larry Summers is now officially part of the senior Obama Administration team on economic issues. Let us be clear, energy and global warming are cross-cutting issues, so cross-cutting that stances on views on these issues should be examined against essentially all appointees. While Summers has the shadow of a controversial early 1990s World Bank memo about ‘exporting’ pollution to the developing world, he has written far more recently about these issues. In 2007, Summers published two pieces directly on the question of Global Warming as part of his ft.com ‘blogging’ gig.

• We need to bring climate idealism down to earth, 29 April 2007
• Practical steps to climate control, 29 May 2007

What do these pieces seem to tell us about Summers’? (1) That he believes the science and (2) he believes a properly incentivized free market structure is the right way to tackle the challenge.

And, more recent comments have reinforced those views, such as this published just this fall in Harvard magazine (pdf):

Right now, of course, the focus is on the spike in energy prices. But greenhouse-gas emissions are closely related. Each year, the science on global warming becomes more sobering. Each year, our ability to hit the Kyoto or other targets targets for controlling those emissions recedes. So that is a large part of any energy policy the next president has to pursue.

Let’s take a look at Summers’ two-part discussion of climate change.

The first was We need to bring climate idealism down to earth. To be honest, the title isn’t necessarily a winner with this pessimistic-optimist (or optimistic pessimist) climate “idealist”, but titles aren’t everything.

With the accumulation of scientific evidence and its persuasive presentation to the public, the global warming debate has reached a new stage. Those who still deny that human activity is warming the planet, or claim that “business as usual” can continue indefinitely without profoundly adverse consequences, are increasingly seen as the moral and intellectual equivalent of those who deny that tobacco has adverse consequences for human health.

Did Summers take a look at the Union of Concerned Scientists’ report Smoke, Mirrors & Hot Air: How ExxonMobil Uses Big Tobacco’s Tactics to “Manufacture Uncertainty” on Climate Change as his words could be drawn from it. Good (and strong words) with the straight statement that Global Warming deniers and delayers are “moral and intellectual equivalent[s]” of those who chose to obscure science about how tobacco kills.

While there is probably excessive euphoria in some quarters over the economic benefit of green policies, it is now beyond debate that there are huge opportunities to reduce emissions with economic benefit or negligible economic cost. It has been estimated that worldwide subsidies to energy use approach $250bn.

This is an interesting comment, especially as President-Elect Obama (with many others) is pointing to “green” as core to stimulus in come 2009. Summers’ is questioning of the direct benefits of ‘greening’ but points out that there is another side of the equation, that it is not just direct benefits from “green” but also the reduction of benefits for “dirty”: subsidies reducing gasoline, (coal-fired) electricity, or natural gas prices below (at least) the market value foster greater waste much in the same way that increased prices (such as through carbon fees) would, all things being equal, encourage greater efficiency. Summers is pointing to market inefficiencies when it comes to energy distorting market (and individual) decisions.

The real question for debate is not whether something should be done – that debate is over among the rational. The crucial question now is what should be done so as to leave our descendants with the highest possible quality of life. Answering it effectively requires vision and ambition. But, as the example of Woodrow Wilson’s League of Nations teaches painfully, utopian vision and ambition unmoored from political, economic and social reality can be counterproductive.

Debate over whether is over, debate is now what to do. Check. Reasonable.

And, here Summers is calling for ‘reality-based’ policy-making rather than utopianism. Check … maybe … dependent on what fall into Summers definition of utopia.

Now, Summers turns to a question of Kyoto as perhaps “ineffective or even counterpoductive by substituting for more realistic approaches to the problem.” Summers states that “there is to date little evidence that Kyoto is driving behaviour” and that “carbon markets are invitations to engage in pork-barrel corporate subsidy politics on a massive scale.” Writ large, these seem to be true statements. Finally, Summers turns to the absence of developing countries from the Kyoto framework. And, this is of high concern becasue

The truth about climate change policy is that developing countries are where most of the future action has to be. They will account for 75 per cent of the increase in emissions over the next quarter century and are now making the infrastructure investments that will shape their future economies. Moreover, any international regime that does not include them will not work because emissions reductions in the industrial world will be offset as energy intensive activities relocate to the developing world.

Summers concludes this introductory piece suggesting that perhaps “goodwill and extensive thought” can solve Kyoto’s problems but promissing an outlining of a more pragmatic approach.

Note that this piece and Summers’ talks about this issue seem to have been well received in the developing world.

His next piece, Practical steps to climate control, focused the issue on how to provide productive paths toward reducing (if not reversing) emissions growth in the developing world. Summers opens with a short statement as to why the developing world is critical and why he sees Kyoto-type restrictions a likely non-starter. He then lays out his views for “concrete measures that will have meaningful impact.” For Summers, this must start at home.

First, the US must engage in an energy efficiency programme that takes effect without delay and has meaningful bite. As long as developing countries can point to the US as a free rider there will not be serious dialogue about what they are willing to do. I prefer carbon and/or gasoline tax measures to permit systems or heavy regulatory approaches because the latter are more likely to be economically inefficient and to be regressive. The key point is that after Kyoto, where there was US vision in setting goals but no on-the-ground action, there must be real policy commitments.

Note that he states a preference for “carbon and/or gasoline tax measures” rather than stating approaches that would directly address energy efficiency. Create the market structure, Summers seems to be saying, and the solutions will come to US.

Second, the major industrial countries should commit to a very large increase in funding for research in technologies that offer the prospect of reducing the concentration of greenhouse gases, such as renewable energy, carbon sequestration and energy efficient engines. They should also learn a lesson from the pharmaceutical experience and commit to making intellectual property relating to clean energy available to developing countries on preferential terms. It may be that ambitious emissions- reduction targets can be achieved with existing technology, yet new technologies could help.

This, too, is a fair statement (partially), with emphasis first on what we can already do (energy efficiency) along with a serious commitment to developing better options for tomorrow.

Third, the World Bank, and probably the regional development banks, should be reconstituted by their shareholders as “Banks for Development and the Global Environment” and take on as a major mission the provision of subsidised capital for projects that have environmental benefits that go beyond national borders. There is much that can be done to encourage energy efficiency in almost every sector within developing countries, yet national governments have inadequate incentives to take account of global impacts. Moreover, the institutions need a new role with respect to countries other than the poorest ones at a time when the leading developing countries are actually exporting rather than importing capital.

Let’s be clear, the World Bank has been far from a good actor when it comes to sensible development in light of Global Warming’s looming realities. Evidently, Summers is calling on that to change in terms of priorities and foci.

Fourth, a goal should be set of eliminating by 2025 the more than $200bn the world spends each year on energy subsidies, and enforced through strategies such as those used for inappropriate subsidies in trade. This is a clear case where environmental and economic imperatives coincide and it is one where external political commitment is likely to be desirable in many countries, just as in the trade area. This will require considerable work on the definition of and measurement of total energy subsidies. Such work will lay a foundation for the more ambitious efforts that may be needed in harmonising world energy prices above market levels in the future.

This is a free-market lay-out of the challenge and opportunity. Now, we should not underestimate the difficulty that nations around the globe would/will have in eliminating such subsidies as they have such clear pocket-book impact. Many fossil-fuel producing nations, for example, use below-market subsidized prices as a key tool for maintaining stability and control.

There is a final critical process element in the policy response. Given that viable solutions depend on significant changes in developing country policies and that these countries are unlikely to make them unless they see their own interests as at stake, it is essential that they be full participants in setting the global direction. They are surely likely to do more if they can help shape policy than if it is simply the Group of Seven leading industrialised nations seeking to bring them along.

Emphasis here on inclusion and common agreement, rather than dictated solutions from the G-8 or G-20.

To be honest, however, it seems as elites around the world are gaining a growing understanding of the states and are increasingly ready to take action … even if classic game theory applies and few (if any) wish to be first in line to take action out of fear that others will strengthen their economies through pollution of the commons.

Is all of this a sufficiently ambitious agenda? Perhaps not; and perhaps political efforts to generate commitments to ambitious if remote targets can be worthwhile as powerful forces for change, as with human rights in eastern Europe. But they must be married to more immediate if less dramatic steps that have real and practical effect.

Without question, this is not a “sufficiently ambitious agenda” for achieving necessary GHG emissions reductions. And, of course, a 500 word OPED (not even two of them) does not provide enough space to lay out a full and detailed agenda space. While not ‘in agreement’ with Summers, these are reasoned pieces which clearly the case for a need for action and strive to provide a reasoned path for engagement with the developing world.

More recently, we see a shift in Summers views as to the best approach. This fall, Summers stated a strong support of “the role of markets” within the need to deal with global warming as a reason for his support for a cap and trade system vs a carbon tax.

I think we’ve all come to a much greater appreciation of the role of prices, the role of incentives, and the role of markets. I mean, to take just one example, now the pro-environmental alternative is a cap and trade system or a tax on carbon emissions. I tend to support a cap and trade system, and I think if we ever make progress against global warming,—as I hope we will, as we need to—it will come through some kind of cap and trade system. Well, that’s relying on markets, and that’s a very different place than where the country was, and where thought was, when I went to college or graduate school, when the assumption was, to address a problem like that, you would use command and control regulation.

Where will, in fact, Summers fall in the internal Obama Administration debates on carbon cap and trade or a carbon tax? Unclear. What seems clear, however, is that Summers is a voice for action — and action engaged with the Developing World — to reduce emissions and mitigate climate change.

NOTE: This piece is not intended to address many other issues with Summers’ views and career, but simply to point to and discuss his stated views re Global Warming.