#14 - Lessons from the First 14 Episodes
Hi and welcome to another episode of the Climate Economics podcast with me, your host, Arvid Viaene. For this episode, I wanted to do an overview of the first 14 episodes and some of the lessons that I took away. If you’re new, this is a great episode to get an overview of what we’ve covered so far. If you’ve already listened to some of the episodes, I’m going to give you some insights and refreshers on what we saw. To structure this overview, I’m going to think of the episodes in three buckets: Measurement, Impact, and Policy Design.
Let’s start with Measurement. As Peter Drucker said, ‘If you can measure it, then you can manage it.’ In episode one with Koen Deconinck, an economist from the OECD, we discussed measuring farm-level emissions. 10% of emissions happen at the farm level, but Koen pointed out that averages can be misleading because there’s a huge variety in emissions per farmer. One beef farmer might be emitting a lot, and another not at all. The challenge is how we can measure emissions at the farm level. We discussed many challenges and solutions in that episode. If you’re interested in learning more, I highly recommend checking that out.
Another episode where measurement was important was my interview with Ishan Nath, an economics professor at Harvard. Ishan’s work is about how climate change hits agriculture in the Global South disproportionately more. One of the insights is that climate damages are non-linear. Going from 20 to 21 degrees Celsius is not the same as going from 33 to 34 degrees. Crops start to wither away from temperatures beyond 30 degrees, so that baseline matters a lot. We also discussed why the Global South has a harder time adapting to climate change.
In episode three with Christa Hasenkopf, we widened measurement into air pollution. We discussed how measuring and publicly sharing pollution data often leads to political pressure. People are often not fully aware of how bad the air quality is. We discussed the case of China, where monitoring of air pollution helped make China’s clean air push visible and enforceable. She’s now helping set up systems to expand monitoring to other parts of the world where it’s not as developed yet.
Even in my episodes on cap and trade, measurement is often the first step, and it actually takes quite a long time to set up. Measurement is not just a nerdy topic; it’s part of policy because it changes narratives, accountability, and what becomes possible.
Let’s move on to the second category: Impact. This is where my solo episodes five and six live. In episode five, I provide a back-of-the-envelope way to think about climate damages. Simply saying ‘climate change is bad’ isn’t helpful for policy because policy requires trade-offs. In my rough calculation, a carbon price around 100 Euros per ton lines up with damages on the order of a few percent of output—my estimate was about 3.4% of GDP. We need a common unit to compare climate change to other urgent priorities.
In episode six, we discussed United States climate policy and the social cost of carbon. The social cost of carbon is essentially the damage caused by emitting one more ton of CO2 to current and future generations. In the U.S., this estimate moved from $1 to $190 per ton depending on the administration. Obama started a scientific process with the Interagency Working Group. Trump then changed some assumptions, reducing the estimate to $1. Under the Biden administration, incorporating new scientific estimates, it reached $190. In an ideal world, the social cost of carbon is a scientific estimate, but political factors often influence the final number used for policy.
Returning to air pollution impact, a remarkable statistic is that air pollution on average reduces global life expectancy by about two years. In New Delhi, this increases to about eight life years lost per person. In Europe and the US, we might think of air pollution as a co-benefit of tackling climate change, but in India and China, air pollution is the primary goal, and tackling climate change is almost the co-benefit.
In episode 12 with Joe Shapiro and episode 13 with Reed Walker, we asked if we are regulating air pollution efficiently at the margin in the U.S. They found that U.S. policy is still too lenient at the margin; further reductions in air pollution would provide more health benefits than it would cost firms to implement.
Now for the third category: Policy Design. Cap and trade markets are my favorite topic and the number one tool to tackle climate economics and air pollution. In a popular episode with Jos Delbeke, we had an institutional masterclass on building a cap and trade market. We discussed the creation of the world’s first market in the EU. It had many challenges initially, including over-allocation of emissions and over-supply of allowances due to the financial crisis and cheap offset credits. Policy is not static; they kept learning and developing tools like the Market Stability Reserve.
Going forward, it’s going to be a hard decade. We’ve done the easy-to-abate emissions. Upcoming work for the Commission includes the Carbon Border Adjustment Mechanism (CBAM) to get imports to pay a carbon tax and the EU ETS 2 for the transport sector.
In episode seven with Kaushik Deb, we discussed the world’s first cap and trade market for particulate pollution in Gujarat, India. In a randomized experiment, they found that while one-third of firms were not complying under traditional ‘command and control’ regulation, non-compliance dropped to zero in the cap and trade market, at a lower cost and with lower emissions.
In episode four with Ben Probst, we discussed carbon credit offsets—where one country buys reductions from another. While theoretically great, Ben’s paper examined 20% of all carbon credits and found that four out of five were essentially useless. Only one in five actually led to a reduction in CO2. There’s a serious credibility issue regarding these offsets.
In episode nine with Marian Krüger, we discussed carbon removal technologies. Costs vary a lot but are generally high, from $150 per ton for biochar to over $1,000 for direct air capture. We will likely need policy-driven demand from compliance markets like the EU ETS to continue attracting investment and innovation.
Finally, we focused on policy politics. In episode eight, Professor Lorenzo Cimarchi discussed the 2018 US-China trade war. China incentivized provincial officials to relax environmental standards to soften the economic blow of U.S. tariffs. While air pollution worsened, it didn’t significantly affect economic growth or competitiveness. In episode 14, Professor Matilde Bombardini discussed how extreme weather shocks impact voter behavior. Eight additional extremely hot days can shift the Democratic vote margin by about 0.66 percentage points, potentially impacting close elections and the probability of passing carbon pricing bills.
That was an overview of the episodes with some highlights. I hope you found this useful. In the next episodes, we’re returning to regular interviews, including one on the differences between cap and trade and a carbon tax, CBAM, and Article 6 on carbon offsets. Thank you for listening and have a great end of your year.
