Hunt Allcott on uncertainty, inequality, and mitigation in times of a warming globe
The 2023-Tinbergen Economics Lectures, which were dedicated to Empirical Environmental and Energy Economics, were delivered by Hunt Allcott, Professor of Global Environmental Policy and Economics at Stanford University.
Professor Allcott, widely recognized as a leading expert in the field of environmental policy, energy systems, and behavioral economics, delved into the latest empirical evidence during the lectures, addressing critical aspects such as climate impacts, the social costs of carbon, and policy design challenges faced by governments in their pursuit of emissions reduction and climate change adaptation. In this interview, conducted by Antonia Kurz and Yasmine van der Straten*, we explore Professor Allcott's insights on climate change, the effectiveness and distributional consequences of environmental policies, and the importance of interdisciplinary research of this rapidly expanding field.
To which extent do you think that people understand what the implications of climate change and a 2-degree Celsius warmer planet are? What is the importance of their beliefs?
The implications of 2 degrees of warming are large, unequal, and uncertain. There is a paper we discussed in class by Carlton et al., in the Quarterly Journal of Economics, that finds that severe climate change would increase mortality by an amount worth several percent of GDP by the end of the century. As these impacts are concentrated in countries that are already hot and poor, so they are very unequal. They are also very uncertain: the paper is very careful about accounting for uncertainty, and strikingly there is more than a 25 % chance that climate change actually reduces mortality, instead of increasing it. That’s an example of how the reality is understood by the current frontier of science. Do normal people understand this? I think many people understand it, but also many who overestimate the impacts of climate change, and many who underestimate it. Given that the predictions are so uncertain, we don’t know who is going to be right.
Do you think people in the US would be more concerned if there would be a larger emphasis on why this should matter to them? For example, while poorer countries are more severely hit, this may affect them by leading to large influx of migrants and political conflicts?
It’s hard to get political action on climate change because it is so uncertain, it’s so far in the future, and in many cases the harm occurs in a different place than where most of the CO2 is emitted. So, I agree that anything we can do to bring home these harms and make them salient to voters in high-emission countries feels very useful. And yes, there will be some negative mortality throughout the world: maybe it’s higher mortality, maybe it’s lower agricultural productivity, maybe it’s more fires, floods and hurricanes, and more migration. It seems important to make that salient.
One line of your research studies whether non-standard policy instruments, such as nudges, in energy and health information can change consumer behavior. Do you think nudges can also be useful to foster international cooperation on climate policies?
The reason social comparison and simple information provision and other so-called “nudges” are popular and worth studying is because they are cheap. So, if I can do something easy to get you to save energy, or to mobilize voters cheaply, that’s great. Can we rely on nudges to realize large scale emission reduction or international cooperation? There I am less optimistic. Politicians tend to think about whether they will get re-elected, and the key ingredients to that are how they look in the media, whether they do things that their constituents like. So that’s more about media presentation and campaign strategies, and less about comparing yourself to a politician in another country.
To sustain a livable planet for future generations, we need a long-term perspective. However, short-termism is inherent to politics, and this much affects the implementation of effective climate policies. A discussion at the heart of climate change economics is how to evaluate the welfare of future generations, and which social discount rate to use. How do you view the trade-off between current and future generations?
There are a couple of considerations. The first is that there are many different investments we need to make as a society, such as in education, public transport, roads, bridges, poverty reduction, and new businesses. We thus need to make sure that we allocate funds to each of these investments in a way that makes sense in concert with all the other investments that we are making. One way to answer this question then, is by asking what the rate of return is we get on other investments and ensure we apply a similar rate to climate mitigation investments, considering the time horizon and the risk profile of the investments. An alternative is to start from first principles and think about how much we would want to invest in our futures. As we will be richer in the future, and hence the value of additional consumption will be less than when we are poorer, we might want to forecast how much richer we will be in the future when climate investments pay off. That calculation can then be used to determine the interest rate one would accept when saving money from our current state to this future, richer state.
What do you think is currently the biggest challenge for effective climate policies? Do you think that distributional considerations are sufficiently considered in policy design?
The biggest challenge for effective climate policies is that many current policies are less effective at reducing CO2 emissions than alternatives such as carbon pricing. Mandating renewable energy sounds great. Subsidizing electric cars sounds great. Energy efficiency subsidies and standards sound great. All those policies are widely implemented due to popularity among the public but, as far as we can tell, they do not achieve as much CO2 reduction per dollar of social cost as a carbon tax would. The popularity of these policies might be attributed to distributional consequences, where subsidies benefit current consumers and companies while passing the negative consequences, including increased government debt, to future generations. As a result, the current policies lead to less greenhouse gas reduction than could be achieved.
Do you view the energy crisis as an obstacle or opportunity for the green transition?
It’s undeniable that last year’s energy crisis and the war in Ukraine have caused significant hardship and increased energy prices, making it challenging for households to make ends meet. The recurring energy crises in the last 50 years highlight the inherent volatility and risks associated with relying on fossil fuels. This underscores the potential for increased energy stability through the integration of renewables into our electricity systems. By embracing renewable energy sources and effectively incorporating them into our infrastructure, we have the opportunity to mitigate the risks and achieve a more stable and sustainable energy future.
You are a contributing author to the AR5 report of the IPCC. Can you tell us more on what is it like to be a contributing author?
My part was a small part of the big report: You write it, get feedback, and edit it in response. It is an incredible collaborative effort that brings together people with diverse backgrounds and perspectives, forcing individuals to set aside their disciplinary biases and jargon. It requires stepping out of one’s own comfort zone and embracing a multidisciplinary approach. The experience is akin to working in an environment like Stanford’s new School of Sustainability, where different disciplines come together to create impactful research, teaching, and action for a better world. It’s a school full of people trained differently than we are as economists, who are extremely impactful and productive as engineers and natural scientists.
In conclusion, Professor Hunt Allcott does not only underscore the importance of well-designed carbon policies and renewable energy sources for a more stable, equal, and green future, but also of interdisciplinary research. Experts recognize the value of integrating different disciplines and insights to address these complex challenges effectively. While there is an increasing focus on interdisciplinary programs of Graduate Schools and initiatives, it remains uncertain whether academia adequately rewards interdisciplinary work. Nonetheless, there is a consensus that those approaches are needed in training students and organizing departments. Examples, such as collaborative work on estimating the social cost of carbon, demonstrate the essential nature of such interdisciplinary collaboration. We would like to thank Hunt Allcott for his engaging lectures, and insightful perspectives shared during his time at the Tinbergen Institute, which have enriched our understanding of the field of environmental and energy economics and sparked meaningful discussions among all students participating.
*Antonia Kurz (Vrije Universiteit Amsterdam & Tinbergen Institute) and Yasmine van der Straten (Universiteit van Amsterdam & Tinbergen Institute) are PhD students.
Summer course on Climate Change
On August 21-25, 2023 Tinbergen Institute organizes a summer course on Climate Change. This course is part of our summer school program. Learn more about this course on the summer course page.