GREEN CENTRAL BANKING

In the wake of recent financial convulsions, central banks have emerged yet again as the first responders to crisis. But to confront the crisis of anthropogenic climate change, there is growing acknowledgement that central banks should go further, beyond their limited remit of maintaining price stability.

Central banks should be more cognizant of their own role in creating credit-fueled growth; monetary policy already features distributing the benefits and burdens of decarbonization. Crucially, stepping up ambitions for active climate change mitigation would involve abandoning spurious notions of "market neutrality."

In a recent e-book, PATRICK BOLTON , MORGAN DESPRES, LUIZ AWAZU PEREIRA DA SILVA, FRÉDÉRIC SAMAMA, and ROMAIN SVARTZMAN argue that facilitating decarbonization is in fact consistent with concerns over financial and price stability:

"An additional ambitious and controversial proposal is to apply climate-related considerations to central banks’ collateral framework. The goal of this proposal is not that central banks should step out of their traditional role when implementing monetary policies, but rather to recognise that the current implementation of market neutrality, because of its implicit bias in favour of carbon-intensive industries [...] could end up affecting central banks’ very own mandates in the medium to long term. Honohan (2019) argues that central banks’ independence will be more threatened by staying away from greening their interventions than by carefully paying attention to their secondary mandates such as climate change. Thus, and subject to safeguarding the ability to implement monetary policy, a sustainable tilt in the collateral framework could actually contribute to reducing financial risk."

Link to the book.

GREEN INDUSTRY

The compound risks of climate catastrophe and Covid-19 have defined the year thus far. As the world continues to reel from the effects of the pandemic, and storms and wildfires dot the map, calls for marshaling a green recovery have proliferated.

The history of green investment thus far has been infamously more modest. In a comparison of the Japanese and American solar panel industries from 1973 – 2005, MAX JERNECK elucidates the rocky paths to financing low-carbon industry. From the paper:

"The United States was the birthplace of the solar cell, and American firms dominated the industry in the 1970s. Beginning in the early 1980s, the American photovoltaic (PV) industry lost ground to foreign, and particularly Japanese, competitors. By 2005, the American share of the global market had declined to under ten per cent.

In Japan, technologically innovative PV firms had ample financing and were sheltered from the turbulence of financial markets. In the United States, the financial system was unwilling to finance small entrepreneurial firms, causing the industry to become concentrated among large corporations. By identifying and evaluating 'difference makers,' it is possible to draw conclusions about which aspects of the low-carbon development process were amenable to human action, and therefore relevant to the task of devising a strategy for the future transition to a low-carbon economy. Knowing where to look requires a theory of both the mechanisms driving industrial change in general, and the particular institutional arrangements regulating them in the countries under study."

Link to the article.

• In a related paper for Science, Jerneck takes a closer look at the financing impediments to the solar industry in the US. Link.
• In the New Republic, Kate Aronoff writes on the prospects of a National Investment Authority. Link. Read also Saule Omarova's Data For Progress proposal for a NIA. Link.
• "On what foundations might an alternative economy be built? Neither population nor GDP will be its fundamental metric, but rather land scarcity." Troy Vettese in 2018 on a "half-earth" approach to climate catastrophe. Link. See also: Robert Pollin in 2019 on degrowth and a Green New Deal. Link.

CENTRAL BANKS AND CLIMATE

Common wisdom around central bank independence (CBI) is increasingly a matter of debate. Before the Covid-19 crisis, a growing number of scholars and commentators have proposed means by which central banks can address looming climate catastrophe—either by integrating new risks into their assessments, or by promoting more active resource allocation—and argued that central bank's attention to climate risk has focused too squarely on financial stability.

In a 2018 working paper, SIMON DIKAU and ULRICH VOLZ outline how, despite the "second-best" nature of this kind of intervention, the shift is already occurring:

"Allocating financial resources toward or away from certain sectors and companies implies favoring certain segments of the economy over others and appears to be incompatible with our modern understanding of independent central banks. Nonetheless, many central banks in emerging and developing economies have resorted to these policies as viable, second-best solutions to promote sustainable development and green investment. The notion of the neutrality of monetary policy has come under intense scrutiny more recently, not least in the context of discussions about the distributional consequences of the negative interest and quantitative easing policies adopted by major central banks. It is apparent that central banks in developing and emerging economies especially, and in Asia in particular, have been at the forefront of using a broad range of instruments to address environmental risk and encourage green investment."

Full paper available here.

• On VoxEU, Markus K. Brunnermeier and Jean-Pierre Landau on the applicability of central banking tools for the climate crisis: "The conventional wisdom on monetary policy is that it has no impact on long-term growth; its influence is mostly felt on a 1.5 to 2.5 years horizon. By contrast, climate change is all about the long term; effects and policies materialize and matter over several decades." Link.
• An IMF report by Pierpaolo Grippa, Jochen Schmittmann, and Felix Suntheim surveys the field: "Climate change will affect monetary policy by slowing productivity growth (for example, through damage to health and infrastructure) and heightening uncertainty and inflation volatility." Link.
• As governor of the Bank of England, Mark Carney gave an oft-cited 2015 speech, proposing a scheme of physical risks, liability risks, and transition risks. Link. And Jean Boivin argues for abandoning CBI in the face of Covid. Link.

Shaping the base of a renewable economy

The transition to a post-carbon energy economy will require extraction. As the sun set on the Bernie Sanders campaign, and with it the prominence of the Green New Deal in the contest for the presidency, the Trump administration issued an executive order encouraging private US exploitation of mineral resources in space. Whatever the shape of the coming transition away from fossil fuels, the need to understand the social and distributional costs of a changing energy infrastructure has never been greater. In a new report, I survey the state of mining, near-future ploys for extra-terrestrial extraction, and the persistent externalities of extraction.

Recent years have seen growing attention to the material requirements of information technologies, and especially to the social and environmental harms of sourcing rare earths and cobalt. Researchers highlight, for example, the dependence of electric vehicles and wind power infrastructure on rare earths, or batteries on lithium. But these discussions have tended to omit emphasis on necessity of extraction, relying instead on a more familiar idiom of consumer and corporate responsibility. Both the Trump administration's vision of celestial expansion and some visions of a post-carbon future depend, stated or not, upon a continuing regime of mineral extraction and outsourced harm.

STRANGE PUSH

A retrospective look at cap & trade

Of the various issues mired in severe and ongoing party polarization, climate crisis is among the most puzzling. Despite longstanding discussions of bipartisan market-based policy proposals like carbon taxes and cap and trade, large-scale government and industry action remains elusive.

In a masterful 2013 book-length report, Harvard political scientist THEDA SKOCPOL offers an autopsy of the 2009-10 push for cap and trade legislation. The detail-rich account illuminates not just the legislation's failure, and its leaders in the U.S. Climate Action Partnership (USCAP), but the innumerable complexities of the broader Washington policymaking apparatus.

(h/t to climate economist Gernot Wagner, associate professor at NYU and founder of Harvard's Solar Geoengineering Lab, for bringing this piece back up in a recent newsletter and column.)

"If environmental politics in America was ever a matter of working out shared bipartisan solutions to expert-assessed problems, it is now far from that—but in what ways and why? And what is to be done? My report ponders these matters.

The corporations that participated in USCAP could double their bottom-line bets—by participating in the "strange-bedfellows" effort to hammer out draft climate legislation that was as favorable as possible to their industry or their firms. But heads of the leading environmental organizations in USCAP had to stick by whatever commitments they made in the internal coalitional process, or else it would fall apart.

The USCAP campaign was designed and conducted in an insider-grand-bargaining political style that, unbeknownst to its sponsors, was unlikely to succeed given fast-changing realities in U.S. partisan politics and governing institutions."

Link to the full report.

• In the footnotes: Eric Pooley's 2010 book The Climate War, which provides an in-depth account of the activities of USCAP. Link to an excerpt from the book, link to the publisher page.
• A 2011 paper by Michele Betsill and Matthew Hoffman examines the "contours" of cap and trade, through an analysis of 33 distinct policy venues. Link. And a 2015 paper tracks climate adaptation planning across 156 U.S. municipalities. Link.
• A previous newsletter highlighted Skocpol's essential work on US welfare history. Link to the archived letter. And link to a recent blog post featuring climate academic Leah Stokes's recommended readings on climate-related research.

What rural electrification can teach us about a just transition

This year, we once again shattered the record for atmospheric carbon concentration, and witnessed a series of devastating setbacks in US climate policy—from attempts to waive state protections against pipelines to wholesale attacks on climate science. Against this discouraging backdrop, one idea has inspired hope: the “Green New Deal,” a bold vision for addressing both the climate crisis and the crushing inequalities of our economy by transitioning onto renewable energy and generating up to 10 million well paid jobs in the process. It’s an exciting notion, and it’s gaining traction—top Democratic presidential candidates have all revealed plans for climate action that engage directly with the Green New Deal. According to the Yale Project on Climate Communications, as of May 2019, the Green New Deal had the support of 96% of liberal democrats, 88% of moderate democrats, 64% of moderate republicans, and 32% of conservative republicans. In order to succeed, however, a Green New Deal must prioritize projects that are owned and controlled by frontline communities.

Whose power lines? Our power lines!

Efforts to electrify the rural South during the New Deal present a useful case study for understanding the impact of ownership models on policy success. Up until the mid-1930s, 9 out of 10 Southern households had no access to electricity, and local economies remained largely agricultural. Southern communities were characterized by low literacy rates and a weak relationship to the cash nexus, distancing them from the federal government both culturally and materially. They were also economically destitute—a series of droughts throughout the 20s led to the proliferation of foreclosures and tenant farming. With the initial purpose of promoting employment in the area, the Roosevelt administration launched the Rural Electrification Administration in 1935. The Rural Electrification Act of 1936 sought to extend electrical distribution, first by establishing low-interest loans to fund private utility companies. The utility companies turned them down: private shareholders had little reason to invest in sparsely populated and impoverished counties, whose residents could not be assured to pay for services; private investors lacked the incentive to fund electrification for the communities who needed it most.

Editor's Note: This is the first post in a new series, Phenomenal Works, in which we invite our favorite researchers to share notable readings with us. We'll be publishing new editions every two weeks, around our regular output of interviews and analysis. Sign up for our newsletter to stay up to date with every post.

Leah Stokes is an Assistant Professor in the Department of Political Science at the University of Santa Barbara. Her research spans representation and public opinion, voting behavior, and environmental and energy politics. Her forthcoming book is titled Short Circuiting Policy and examines the role of interest groups in weakening environmental protection policy across the United States. Her academic work has been published widely in top journals, her journalism and opinion writing has been published widely including in the New York Times and The Washington Post, and she is frequently cited in news media of all kinds. You can follow her on Twitter here.

Stokes's work is indispensable for anyone who wants to understand the politics of energy policy—and think through possible ways forward in the climate crisis. Below, her selection of must-read research.

INTEMPERATE OBJECTIVITY

On the pressures of policy-relevant climate science

Without any “evidence of fraud, malfeasance or deliberate deception or manipulation,” or any promotion of inaccurate views, how can bias enter a scientific assessment? In their new book, Discerning Experts, Michael Oppenheimer, Naomi Oreskes, Dale Jamieson, et al explore the pattern of underestimation of the true consequences of climate change.

Climate change's impacts are uncertain; predictions about climate change are difficult to make. Taking an ethnographic approach, Discerning Experts shows how those difficulties, coupled with the nature of the public discourse, and the pressures that come when research is going to be discussed and used in policy, have tilted climate assessment optimistic and cautious.

In a summary of their book, Oreskes et al explain three reasons for the tilt:

“The combination of … three factors—the push for univocality, the belief that conservatism is socially and politically protective, and the reluctance to make estimates at all when the available data are contradictory—can lead to ‘least common denominator' results—minimalist conclusions that are weak or incomplete.”

These tendencies, according to the authors, pertain to the applied research context. The academic context is different: “The reward structure of academic life leans toward criticism and dissent; the demands of assessment push toward agreement.” Link to a summary essay in Scientific American. Link to the book.

• In an interview, Michael Oppenheimer elaborates on other elements that skew the assessments: the selection of authors, the presentation of the resulting information, and others. Link.
• In a review of the book, Gary Yohe reflects on his own experience working on major climate assessments, such the IPCC’s. Link.
• A David Roberts post from 2018 finds another case of overly cautious climate science: models of the economic effects of climate change may be much more moderate than models of the physical effects. To remedy this, “We need models that negatively weigh uncertainty, properly account for tipping points, incorporate more robust and current technology cost data, better differentiate sectors outside electricity, rigorously price energy efficiency, and include the social and health benefits of decarbonization.” Link.
• Tangentially related: carbon tax or green investment? It’s worth considering not just all possible policy options but also their optimal interactions. A paper by Julie Rozenberg, Adrien Vogt-Schilb, and Stephane Hallegatte concludes, “Optimal carbon price minimizes the discounted social cost of the transition to clean capital, but imposes immediate private costs that disproportionately affect the current owners of polluting capital, in particular in the form of stranded assets.” Link to a summary which contains a link to the unpaywalled paper.

DETERMINED MOVEMENT

Energy production and political institutions

The role of labor (with some notable exceptions) has been relatively marginal in debates over how to decarbonize the economy. But given the growing number of clean energy jobs (and some recent labor news), it is reasonable to predict that any large-scale shifts in the nature of energy production will be accompanied by large-scale shifts in the nature of energy work and the labor relations that define it.

In his 2011 book Carbon Democracy, Columbia University professor TIMOTHY MITCHELL explores the political history of energy production. The wide-ranging study spans history from the industrial revolution to the Arab Spring, and charts the relationship between carbon-based energy production and various forms of governance. Among the arguments at the core of the book is Mitchell's identification of the emergence of democratic labor institutions within the structure and position of coal mines during industrialization—a position that was weakened in the transition to oil.

From the book:

"Between 1881 and 1905, coal miners in the United States went on strike at a rate of about three times the average for workers in all major industries, and at double the rate of the next-highest industry. The rise of mass democracy is often attributed to the emergence of new forms of political consciousness, and the autonomy enjoyed by coal miners lends itself to this kind of explanation. There is no need, however, to detour into questions of a shared culture or collective consciousness to understand the new forms of agency that miners helped assemble. Strikes became effective, not because of mining's isolation, but because of the flows of carbon that connected chambers beneath the ground to every factory, office, home, or means of transportation that depended on steam or electric power.

Changes in the way forms of fossil energy were extracted, transported and used made energy networks less vulnerable to the political claims of those whose labor kept them running. Unlike the movement of coal, the flow of oil could not readily enable large numbers of people to exercise novel forms of political power."

Link to the book preview, link to a 2009 article that preceded its publication.

• For more on labor dynamics in industrial Britain, see Robert Steinfeld's 2010 book Coercion, Contract, and Free Labor in the Nineteenth Century, and Suresh Naidu and Noah Yuchtman's 2012 paper on coercive contract enforcement in coal and other industries. Link to the first, link to the second.
• A 2012 review of Mitchell's book by Matt Stoller: "Globally, the switch from coal to oil was a fight about labor. You can’t understand modern democratic or third world political structures without understanding energy, and particularly, coal and oil." Link.
• A book on the role of Mexico's oil fields in labor disputes during the Mexican revolution, by Myrna I. Santiago. Link.
• A Next System report by Johanna Bozuwa imagines a network of democratically-run energy projects as the core of a "just transition." Link.

PROGRESS UNCOUPLE

Debating growth and the Green New Deal

In past newsletters, we have highlighted research and policy proposals relating to the Green New Deal and the literature surrounding "degrowth"—the idea that the growth imperative is at odds with human flourishing. In a recent exchange, economist Robert Pollin debates sociologists Juliet Schor and Andrew Jorgenson on the relative merits of "decoupling" and "degrowth." The former asserts that "economies can continue to grow while advancing a viable climate-stabilization project, as long as the growth process is decoupled from fossil-fuel consumption." The latter holds that public discussions over combating climate change must turn "from growthcentricity to needs- and people-centered policies."

The authors share a commitment to increased public investment, and both sides emphasize the distributional consequences of decarbonization. Their debate turns on, and illuminates larger conversations regarding the discursive frameworks and metrics we use to understand economic life. Schor and Jorgenson see reducing GDP in the global north as one element of a program to radically restructure the principles of society; Pollin understands these efforts to muddy the mandate for immediate climate action.

From Pollin:

"Let’s assume that global GDP contracts by 10 percent over the next two decades, following a degrowth scenario. That would entail a reduction of global GDP four times larger than what we experienced over the 2007–2009 financial crisis and Great Recession. In terms of CO2 emissions, the net effect of this 10 percent GDP contraction, considered on its own, would be to push emissions down by precisely 10 percent—that is, from 32 billion tons to 29 billion. So, the global economy would still not come close to bringing emissions down to 20 billion tons by 2040.

The overwhelming factor pushing emissions down will not be a contraction of overall GDP but massive growth in energy efficiency and clean renewable energy investments (which, for accounting purposes, will contribute toward increasing GDP) along with similarly dramatic cuts in fossil-fuel production and consumption (which will register as reducing GDP). In my view, addressing these matters in terms of their specifics is much more constructive than presenting broad generalities about the nature of economic growth, positive or negative."

Link to Pollin's initial paper, link to Schor and Jorgenson.

• Pollin elaborates on this point in his follow-up statement with a case study of Japan: "Despite the fact that Japan has been close to a no-growth economy for twenty years, its CO2 emissions remain among the highest in the world, at 9.5 tons per capita." Link. Another recent article reviews and recaps the decoupling vs. degrowth exchanges. Link.
• Schor and Jorgenson’s follow-up challenges Pollin's conviction that decoupling is either possible or efficient: "After decades of promises from advocates of green growth that absolute decoupling will happen, the record is dismal. The simple point about growth is therefore that it makes the nearly impossibly high mountain that we need to climb even steeper. Why rule out an important source of emissions reductions before we’ve even started?" Link.
• Another iteration of the debate in a compilation of INET papers: Schröder et al argue that "if past performance is relevant for future outcomes, our results should put to bed the possibility of 'green growth.'" Michael Grubb takes a different tack: "Before declaring that history has set limits on what is possible, we need to be extremely careful. The future has already started, though its beginnings may be modest." Link.
• From Autonomy, a proposal for a shortened work week—a key element of several green degrowth arguments. Link.
• Mark Paul, Anders Fremstad, and JW Mason offer a brand new paper on US decarbonization. "In an economy facing persistent demand constraints and weak labor markets, public spending on decarbonization will raise wages and living standards." Link.