Dr. Joe Aldy
Professor of the Practice of Public Policy, Harvard Kennedy School

There has been much talk in recent weeks about how to think about using emergency economic relief and stimulus funding from Washington, D.C. to not only address the immediate economic fallout from COVID-19, which has resulted in many parts of the economy being shut down, but also to make progress on some of our more urgent longer-term challenges, mainly, climate change. Climate scientists, environmental groups, certain industries and others have been urging lawmakers to jumpstart the economic recovery through a green stimulus package. Ideas range from clean energy tax credits, to requirements that bailed-out airlines commit to decarbonize, to building green infrastructure, and many more ideas.

In this edition of Columbia Energy Exchange, host Jason Bordoff is joined by Dr. Joe Aldy to gain insight into design of stimulus and how climate policy could factor into it. Joe is a leading environmental economist, currently a Professor of the Practice of Public Policy at the Harvard Kennedy School. His research focuses on climate change policy, energy policy, and more. From 2009 to 2010, he served as the Special Assistant to President Obama for Energy and Environment. It was in that role, and on the presidential transition that preceded it that he was a key White House staffer, that Joe negotiated with Capitol Hill on the Recovery Act that included $90 billion for green goals.

Joe was previously a Fellow at Resources for the Future and served on the staff of the President’s Council of Economic Advisors. He holds a Ph.D. in economics from Harvard University.



Jason Bordoff:  Hello and welcome to Columbia Energy Exchange a weekly podcast from the Center on Global Energy Policy at Columbia University, I’m Jason Bordoff.  I hope you’re all well and most importantly healthy and safe wherever you are as you listen to this.  These are certainly trying times for all of us, like most of you I’m working from home, which makes it harder among other things to record podcasts since we try to do these in person all the time to allow for better conversations.  But Bill Loveless and I are going to continue to bring you Columbia Energy Exchange from our remote work setups and we’re going to try to bring insights when possible into energy and climate related aspects of the current pandemic tragedy that we are all struggling through together.  And one of those issues that’s been much discussed in recent weeks is how to think about using emergency economic relief and stimulus funding from Washington DC, to not only address the immediate economic fallout from Covid-19 which has resulted in many parts of the economy being shut down, but also to make progress on some of our more urgent longer term challenges, mainly climate change.  Climate scientists, environmental groups, certain industries and others have been urging law makers to jump start the economic recovery through a green stimulus package.  Ideas range from clean energy tax credits, to requirements that bailed out airlines commit to decarbonize, to building green infrastructure and many more ideas.  And so, to gain insight into the design of stimulus and how one might think about climate policy being factored into it, I reached out to one of my friends and former colleagues Dr. Joe Aldy.  Joe is a leading environmental economist; he is currently a Professor of the Practice of Public Policy at the Harvard Kennedy School.  His research focuses on climate change policy, energy policy and more and from 2009 to 2010, he served as special assistant to the President, President Obama, for Energy and the Environment and it was in that role and on the presidential transition that proceeded it where he was a key White House Staffer, that Joe negotiated with the Hill on the Recovery Act that included 90 billion dollars for green goals.  Joe was previously a Fellow at Resources for the Future, he served on the staff of the President’s Council of Economic Advisors and he holds a Ph.D. in economics from Harvard.  Joe Aldy, thanks for joining us on Columbia Energy Exchange, virtually as we’re all working remotely now, we appreciate you making time to be with us.



Dr. Joe Aldy:  Jason, it’s a pleasure to be here, thanks for having me.



Jason Bordoff:  So, I wanted to talk to you because I always enjoy talking with you, I learn a lot by talking with you from our time working together in the administration and even -- even before in think tank world, but your -- you had direct experience in the Obama Administration and on the transition before that negotiating with Capitol Hill and spending time being one of the lead people in the administration putting the provisions together in the American -- in the Recovery Act coming out a great recession focused on clean energy, the 90 billion dollars in green stimulus, and so we’re in a moment now of severe economic downturn as a result of the Covid-19 pandemic crisis.  And there’s a lot of discussion about whether you can kill multiple birds with one stone so to speak, can we support the economy in the near and medium term and try to make progress on our clean energy goals at the same time.  So that’s what I wanted to spend some time talking with you about today.  Can you just start by giving us your sense about what we’re likely to see, what the consensus view of economists is in terms of how severe a downturn is going to be, the estimates seem to get worse, not better and then we can talk about what’s on the table for stimulus right now, where is the focus?



Dr. Joe Aldy:  Right.  You know, the challenge is we’re dealing with incredible uncertainty about the spread of the virus.  That’s caused us to have a kind of patch work approach across the country in terms of what local governments and state governments are doing to try to contain the virus and -- and that’s -- those responses, the self-isolation, the shelter in place orders, etc., the shutting down of certain kinds of businesses, are all having a pretty severe impact on the economy.  And we’ve seen estimates out there from say different major banks about what they think the near term economic impacts could be.  There are some that are issuing forecasts for the second quarter, for April to June, in which GDP might be 20% lower than what had been previously.  And you know, to put that in perspective at the depth of the great recession in the fourth order of 2008 from October to December that year we saw GDP fall 6%, so we are talking about a really dramatic reduction in economic activity that reflects the really severe health shock caused by the virus and the efforts we’re trying to do to keep it from really spreading and infecting tens of millions or hundreds of millions of Americans.



Jason Bordoff:  So, from the standpoint of economic policy and then we’ll move to climate policy, what are the measures that are on the table today?  By the time this airs we may well have a stimulus agreement and this -- it seems indications from Capitol Hill are that they’re on the cusp of reaching bipartisan agreement on what’s needed.  What’s -- help us understand what the key measures are in that agreement and what you think a sensible stimulus needs to look like given the severity of this crisis?



Dr. Joe Aldy:  So, you know typically when we think about economic stimulus, the idea here is to try to get the economy back up to the full use of all its resources, that when we’re in a recession, when we see a contraction in the economy we’re not using all of our workers, we’re not using all of our factories and our stores and we’re trying to increase demand and economic activity to get people back to work and to get the factories humming and the stores working and part of the challenge here is what we want to do is to get people and businesses money so they can deal with near term cash flow needs to be able to pay rent or mortgage, to pay for food, to meet their necessities.  Well, we actually don’t want them to go to work in a lot of places around the country right now because that would contribute to the spread of the virus.  And so there is a bit of a challenge here that I think is different than what we’ve seen in past recessions in terms of how we need to sort of structure the stimulus and anything we want to try to maximize that sort of propensity to consume out of stimulus that sort of a bang for a buck.  If people are consuming out of stimulus dollars as supposed to saving that’s more economic activity now.  And so ideally what we like is to see that resources that go to individuals, that go to businesses can contribute some way or another to spending now and like I said that maybe things like just making sure you’re meeting your needs for rent and mortgage and paying for food etc.  When I think about some of the key provisions, and to be honest the policy process is moving really fast.  And so, I’m not going to project what maybe in the final bill, but I think a couple of things that seem important are first, how do we deliver cash to individuals right now.  You know, there’s some things that people have done in the past, let’s say reduce payroll taxes, there’s been some discussion about that, but a payroll tax pays off only over time and only for those who are still working.  If you give people cash right now, that addresses I think some of the anxiety and some of the short-term cash flow needs they have to meet their sort of monthly obligations for housing and food, etc.


I think the second component that can be important is to think about how you provide aid to state and local governments.  Part of this is because that there is a kind of adverse contractionary effect within state and local government spending when we’re in a recession.  Many of those governments have balanced budget obligations and if their tax revenues are going down because economic activity is going down, because we extended the tax filing deadline for federal taxes to later this year, that automatically extends most state tax filing deadlines when they do typically get some more payments that come in, they may start to cut back on spending to try to maintain their balance budget.  So, there’s value in trying to provide some resources to the states, so they can address both their immediate healthcare needs, but also to make sure they’re not cutting off -- cutting out jobs and cutting off some of their services.  I think there’s also going to be importance to think about how we lend resources to businesses both large and small whether it’s through the small business administration, through some of the facilities that are being described that might be under the purview of the Department of the Treasury, some of which might be analogous to what we did in 2008 with TARP where we provided opportunities to provide to -- to give resources to companies, to lend to them, to help them get through this period where they’re going to see a significant reduction in their revenues.


The last thing I would say is whether we want to consider expanding or augmenting some of our automatic stabilizers.  And by that I mean when we think about policy to address recessions we have some policies that automatically kick in to help us stimulate the economy, help those who are made worse off during a recession like when they lose their job, we have unemployment insurance.  So we may want to think about ways in which you can have sort of automatic stabilizers kick in or expand, we did this some a decade ago during the last recession, but these are different ways in which you can try to address the short-term economic needs and credit needs throughout the economy so that people aren’t concerned about whether or not they’re going to miss rent, people aren’t going to be worried about whether or not they can actually buy food for their families, that businesses know that they can keep running and that we don’t have a huge increase in bankruptcies.  I think these are the kinds of things that people are trying to think about crafting for the immediate needs for stimulus for the crisis that we’re experiencing today.



Jason Bordoff:  That’s really helpful overview and I presume we worry about deficits later, that’s not a concern in the middle of one of the most severe economic downturns we’ve seen in very long time.



Dr. Joe Aldy:  You know, the point of stimulus is basically to increase our economic output today to stimulate demand for economic activity today and we do that by borrowing from the future.  That does increase deficits, but right now with bond rates you know, which is the -- how much does it cost the U.S. to borrow from the future, they’re well below two percent.  When you account for inflation, we may be spending less in the future to payoff of our bonds than the dollars we’re getting today for spending.  So, this is not a time to be worried about deficits, we’re not imposing a huge increase on -- in terms of borrowing cost and paying interest payments in the future because right now the borrowing costs are really low given how low the interest rates are.



Jason Bordoff:  Okay. And -- so it’s very helpful, and everything you just said and all those components of what you described are needed for stimulus given the particular type of crisis we’re facing where people are not even permitted to go to work if they still have work jobs to go to.  You didn’t mention anything about -- about climate about clean energy, so I’m just wondering if you could talk about whether -- whether it fits, when we think about this crisis -- can this be an opportunity to achieve what you just talked about and some other important policy priorities too?



Dr. Joe Aldy:  So, I think it’s important to recognize that we’re going to need a series of stimulus efforts to get the economy back on its feet again.  The focus right now is on people who have lost their jobs or unable to work, for companies and small businesses that aren’t getting any revenues right now, but I think there are some insights about sort of the need for a series of stimulative efforts that we can draw from the experience in 2008 and 2009 and even in 2010.  So, let me give a couple of examples during the great recession.  We first had a stimulus in February of 2008 on the order of about a hundred and fifty billion dollars in the Bush Administration.  We then had the TARP Bill in October of 2008 that was seven hundred billion dollars of authorities to basically increase lending to major companies throughout the economy to keep them going.  What’s interesting about that bill is there’s actually more pages in the TARP Bill on energy tax credits primarily focused on clean energy then there are pages on TARP.  We then of course had in February of 2009 the Recovery Act --



Jason Bordoff:  And just so people know because -- just that people know because we use the acronym the Troubled Asset Relief Program I think it was called this was this --



Dr. Joe Aldy:  Yes.



Jason Bordoff:  was bailout toward the end of 2008 the yeah okay.



Dr. Joe Aldy:  That’s right.  Yeah, so that was the major policy in -- that passed in October of 2008 by the resources both for major financial firms, but it also served a lot of the resources to help to bailout the auto industry in terms of both GM and Chrysler.  We had in February of 2009 the Recovery Act as we’ve already mentioned on the order of about 90 billion dollars of clean energy spending and tax credits there, but we had then another bill to support the states in the summer of 2009 so they wouldn’t layoff teachers and first responders etc., as they were dealing with the cash crunch in their state budgets.  And then even in December of 2010 we had the big tax agreement between the incoming Republican House and the Obama White House that -- that culminated in the 2010 Tax Relief Act that extended Bush era tax cuts, but also expanded unemployment insurance and reduced payroll taxes that are another form of stimulus.  So, you really had over a matter of several years a bunch of different stimulus policies that moved through Congress.  And I think it’s important when we think about what maybe the role for climate oriented or clean energy stimulus is that I think once we get through this initial crisis dealing with the economy for the second quarter or maybe the third quarter of this year, we’re going to need additional efforts to get the economy going again restarting it and then it’s useful to think about what maybe the opportunities for integrating these climate oriented investments as part of a broader stimulus package there.



Jason Bordoff:  So, maybe that is -- like begins to be response of the question I was going to ask you next which is you know, which components of clean stimulus and there are lot of ideas out there are both from the Recovery Act and more recently things that we may want to spend significant amounts of government money on, but -- but do they achieve the purpose of jump starting the economy.  Last time we talked about principles of timely, targeted and temporary, this is a different kind of crisis -- perhaps we need different principles and when you try to do something like say we can put people to work by subsidizing the weatherization of homes, that’s going to reduce energy demand and it’s going to create jobs.  And I think that program in particular had maybe a mixed track record, you could talk about it, but does that make any sense when people can’t leave their house to go to work in the first place or does that kind of speak to what you were talking about which is not just what we need to do in the next month or two, but in the longer term?



Dr. Joe Aldy:  I think it’s -- when we think about whether it’s promoting weatherization of homes or promoting the installation of solar panels or building of wind farms or constructing factories to manufacture batteries that may enable electric vehicles or maybe at larger scale to enable storage and utility system.  All these I think of as efforts we will want to consider undertaking once we have the coronavirus under control, that we need to think about as we jump start the economy you know, we’re doing something we haven’t done before in shutting down parts of the economy and it’s not clear that like once we sort of lift all these containment measures that everything is just going to go back to normal.  There may be challenges in some parts of the economy or some parts of the country and the question is how do you design a stimulus effort that can be targeted to those needs and it maybe that we find that there is value you know, one of the things that we thought about in the context of supporting say solar power, in the Recovery Act is that a lot all of the installation of solar panels are using workers who have the skills that they’d developed working on construction sites building homes and this is the time in which home building construction had collapsed as a part of the housing bubble in the financial crisis.


So there may be ways you try to orient your stimulus way that targets those parts of the economy that are recovering more slowly out of this shutdown once we have coronavirus under control.  I mean I -- there is a big thing that we need to all recognize here which is the most important part we can do to stimulate the economy is to get this problem under control.  You know, so whatever we’re doing on the public health front is critical that lays the foundation for what you can do next and how you’re going to make investments to get the economy going again and to do those investments that are thoughtful and strategic that yield long-term payoffs.  You know, that was part of how we crafted the Recovery Act in 2009, there was a lot to deal with the immediate problem of people unemployed so we expanded unemployment insurance to increase their take home pay by reducing their payroll taxes, but also recognize you can make strategic investments with long-term benefits to the economy which we did in education and healthcare and in clean energy.  So, I think there’s a lot as we’re moving forward with not what’s going to be debated this week or over the next month in terms of stimulus efforts, but over the next several months probably into 2021, where do you make investments in the economy, taking advantage of the -- of this period of very low interest rates so that you are creating jobs now, creating demand for the output from our factories, you’re getting the economy humming again, but you’re doing it in a way that is also going to deliver on something critically important like mitigating the risk posed by climate change.


I also want to say one other thing that I think is different now Jason than what we had a decade ago, and that is in the Recovery Act we focused almost everything that was climate oriented on basically some form of emission mitigation, low carbon technology, zero carbon technologies, energy efficiency, I think given the -- our better understand in the 12 years or so of not making sufficient effort in globally in combating climate change we’re going to see value making more investments I think in adaptation, improving our resilience, enhancing our resilience to climate shocks, some of that may even be quite related to what we need to do in terms of improving our public health surveillance whether it’s for a future coronavirus or whether it’s for a vector borne disease because of climate change all these are the kinds of investments that I think are climate oriented that go beyond just mitigating emissions and the different kinds of policies that help us mitigate emissions, but also help us make us more resilient to a changing climate in the years to come.



Jason Bordoff:  Yeah, well let me come back, I want to ask you about sort of what should be the components of clean energy stimulus and to what extent that is -- is stimulus to why think about it and to what extent it’s just clean energy spending as we got a big problem we need to solve them we should focus on spending government dollars toward it.  Just in terms of the near term challenge, there are some ideas about what is going to be done you know, presumably very soon which are things like supporting affected industries like the airlines and providing them with --



Dr. Joe Aldy:  Right.



Jason Bordoff:  significant funding and then people have said you want to make that conditional on commitments to decarbonize or a cap on aviation emissions.  Do you think that is -- makea sense or we got to think longer term when it comes to climate?



Dr. Joe Aldy:  You know, so -- so the challenge of course is we’re trying to do two things with one instrument, we’re trying to -- to stimulate the economy and address climate change and there’s sometimes a tension between those.  If you’re really trying to move economic activity quickly, if what you’re trying to do is prevent major bankruptcies in a given industry that’s hard hit by coronavirus and certainly air travel is one of those, there’s a challenge of making the policy more complex.  Increasing the administrative complexity is a concern, you know, one of the things that I think when you look the Recovery Act is a lot of what we did with that was using existing authorities.  We don’t -- aren’t crafting much that was completely new.  There are a few exceptions, but for the most part we’re using sort of existing authorities.  As soon as you say I’m going to do something but I am going to create a whole new condition or requirement on it, you have to be really careful how you think through that because it may end up having unintended consequences, it may end up not being that effective, there could be some loop holes with that.


So -- so I would rather think about something that’s perhaps staggered where it’s, you know, there’s some sort of initial support to keep these major companies afloat that are suffering really adverse impacts from the coronavirus, but then think through that any kind of sort of continuing support can have some conditions, but we need to be thoughtful about those.  There was, in the implementation of TARP, there were some conditions placed in the support of those resources, so we might sort of think about that going forward, but I think it’s -- we need to keep in mind that there’s sort of an initial challenge here of just keeping the economy running and we need to address that and maybe that’s so long as we’re in this period of very low interest rates, what you call stimulus this month in six months time you might just call good public investment, or what you say in 12 months time it’s just good public investment, and if the interest rates are still really low you’re borrowing to make investments that yield long-term payoffs that are really cheap from a financing standpoint.  So in some sense I am not sure you would necessarily call all this stimulus or just good public investment just like you know, over the course of 2009, 2010 we kept passing pieces of legislation that had a stimulative impact on the economy weren’t necessarily called stimulus.



Jason Bordoff:  Yeah, you spoke about this a little bit already, but say a bit more about what lessons from the Recovery Act you -- you take away now and what that tells us about what we should do moving forward?



Dr. Joe Aldy:  Yeah.  So first off is administrative simplicity.  The simpler we make it, the easier for people to understand the rules, to use the resources, the get them moving to the economy, to increase the effect that has on economic demand.  Second, I think it’s important to be thoughtful though about how we target those resources and so the targeting can come in sort of two ways when we think about stimulus and especially stimulus with climate or energy impact.  One is you want to target those activities that have the biggest bang for the buck in terms of increasing aggregate demand, but you also want to target those activities where you think you might be changing people’s decisions on what they buy, changing the decisions in businesses about what they invest in in a way that has a better impact on the climate.  So certainly you want to have at least a do no harm approach when it comes to the climate and your economic stimulus and you want to be, I think, creative about ways in which you can target your resources that they may get both a near term bang in terms of economic activity and a near term bang in terms of reducing their emissions, but there is I will acknowledge a tension here as well between how you design something that’s administratively simple and something that’s really targeting those whose behavior you change with the policy.


The next thing I would say that’s important is to take advantage of the fact that we have a lot more data now and a lot more sophisticated analytic tools, statistical tools for evaluating those data that can give us some opportunities for quickly learning about what’s working, what doesn’t, use it in a way to help leverage our resources in a way that it targets people and target changes in behavior and we can use those data and the analysis of those data in a way to improve our targeting of those policies and allow that to sort of enable the updating and the improving of the policy over time.  So, so there maybe ways in which we sort of craft new stimulus and new investment policies in a way that gives some discretion for the design so that as we learn we can improve on its implementation over time.


And the final point that I’ll make about this is to recognize that not everything we need to do on climate can be achieved through public spending, especially public spending in a stimulus context.  For example, we know we need to be doing more research and development.  Research and development takes not just money, but it takes the time to train new scholars and researchers, it takes time for them to do their experiments and so on.  We can provide some resources for that, I think back to the Recovery Act, that was the first time that we provided resources for ARPA-E, the big Advanced Research Projects Agency at the Department of Energy, but it’s something where there’s only going to be a limited amount of resources you can provide in a short-term for R&D, what you really want is a long-term commitment to that.


The other two areas where I think that stimulus spending is not going to address your concerns and when we think about some of the infrastructure like transmission or pipelines maybe even pipelines for renewable fuels that maybe a key component of a future climate change policy, some of those were held up not by the lack of resources, but from the challenges of how we site those, allocate the cost of those, and subsequently build those.  And finally, I would say that in the long-term, if we’re going to be dealing with climate change, we want new technologies out there and being deployed, we need a comprehensive policy framework that creates the demand for that.  And when you think back to the efforts in the Recovery Act, the clean energy spending pack which is really the first step of what was intended to be a multi-step climate change strategy where the second step was going to be a comprehensive long-term cap-and-trade program to create that kind of demand.  So, I want to reiterate that I think it’s important when we think about trying to deal with climate change is that there is a near term opportunity here to think about investment, but it should be complimenting a long-term policy that creates that kind of demand for these technologies throughout the economy.



Jason Bordoff:  And you’ve looked a bit at sort of what -- when I say what lessons there are from the Recovery Act, part of that is also what worked and what didn’t and so I mentioned a minute ago that at least my reading of some of the economic literature is that the Weatherization Program may be a little mixed this was not of Recovery Program, but there was Cash for Clunkers Program to try to transition the auto fleet faster that seems a little mixed, what do you think worked well and does that tell us actually when it comes to specific opportunities for spending what we should focus on now?



Dr. Joe Aldy:  Right.  So, Cash for Clunkers from an environmental standpoint, economist standpoint, didn’t do much.  It may have helped the auto companies by moving cash flows up six to nine months as they were going sort of week to week and month to month that probably matters, so in some sense it may have helped them economically, but it didn’t really do much for us from a climate standpoint.  I think of -- probably the policy reform that had the biggest impact in -- in the energy economy was the so-called Section 1603 grants.  So, this was taking something that had been a tax provision, an investment tax credit for solar and a few other technologies, and saying we’re no longer going to require you to do this through the tax code, we’re going to just make this a grant.  That made it administratively quite simpler, it made it easier to fully monetize the value of that where there’s complications in how you can do that through the tax code and we made everybody eligible for the production tax credit like wind farms and geothermal facilities, they were eligible to claim the 1603 grant as well.


What you had was something that was taken up quite aggressively by companies throughout the renewable power system, we saw a lot of investment in wind, we saw over the first half of the last decade we invested in more wind capacity than we did gas capacity.  It helped facilitate the reduction in the cost of solar over time so that in the last five years we’ve seen more solar capacity come online than any other new technology.  So, I think that’s an idea where you made something administratively quite simple. It was just a little bit of tweak from a policy that that the business community was already familiar with and I think it played a key role in the dramatic growth in renewable power that we’ve seen in the United States over the past decade.  I think that stands in contrast to what we learned from the Loan Guarantee Program where it just wound up being a very slow moving program, in the end it didn’t support that many projects.


You know, in the matter of the first 20 months, you only had four projects that had a closed guarantee on their borrowing through that policy and only another eight projects that had conditional guarantees as they were trying to go through the process of completing those.  So that moved much I think much more slowly than other policies and really raises the question about whether or not that should be part of something where you’re trying to achieve the dual goals of both economic stimulus and clean energy investment.



Jason Bordoff:  So, when you think about -- let’s just turn to what should be part -- if we have an opportunity to make investments to support an economic recovery with a little bit longer timeframe around them, how you think about what you’d prioritize in terms of climate?  You mentioned broad categories, not just mitigation, adaptation too, and I guess the way I’m thinking about this, but tell me if it’s right, there’s like a little bit of a Venn Diagram, there’s a lot of things that presumably would be smart to spend money on to achieve our climate objectives and -- but when your policy motivation is economic recovery, you want to ask sort of where the overlap is between those two goals and what do you think you would prioritize in that overlap  right now?



Dr. Joe Aldy:  So, you know, I think a key thing here is to recognize that we’re going to have to learn more about what parts of the country and what parts of the economy are hardest hit and where we can be thoughtful and how we target our resources going forward. So, let me give an example, let’s suppose that we recognize there’s parts of the Southeast which has historically invested less in renewable power.  It ends up having challenges restarting its economy after the coronavirus has been contained.  We might want to think about ways in which we target, again we’d be tweaking some our existing policy approaches, but we could do so in a way that might target subsidies for investment in renewable power down there.  There may be a way you know, some people have talked about ways in which you modify the production tax credit that supports wind and geothermal or even the investment tax credit for solar that we make those policies a little bit more technology neutral and we talked about how they may be valued more highly in places where you’d likely be displacing more carbon intensive sources of power.  That way you’d be creating larger subsidies and perhaps more than investment incentive in places like the Southeast that still have a more carbon intensive grid than say where I live up in Massachusetts or out West where there’s already a lot of wind and solar and even hydro in the grid.


So, it’s one thing where I think we’re going to have to learn where there are -- the challenges in restarting the economy and then think about ways in which we can target our climate policies in a way that can leverage investment in those areas.  We might also want to think about this in terms of the sectors of the economy and the kinds of occupations in the economy that are having challenges getting back up to speed and getting fully utilized, we want to design our policy instruments to try to target those as well.  And maybe that there’s some parts of the economy where building trades don’t come back as much.  And it may be that while weatherization cost a lot from a climate standpoint, in terms of how much we’re spending to get a say a ton of CO2 effectively reduced, it may be something where you make some modest climate progress but you’re doing in a way that creates a lot of jobs that are needed in areas where the economy is failing to recover.  So I think a lot of this is how we’re going to have to take evidence over the next three, six and twelve months to help inform the shaping of these policies and so that’s why it’s hard for me to say right now like you do X, don’t do Y, because I think we’re going to have to really learn what the economy looks like over the coming months before you can do that I think in a really thoughtful manner.



Jason Bordoff:  Are there some things you think would just probably be no brainers, clean energy tax credits or infrastructure spending or things that have been talked about for a while?



Dr. Joe Aldy:  So, I think there’s certainly a lot of value when we think about this on the infrastructure side, part of that’s just we know that we have some aging and deteriorating quality infrastructure and with really low interest rates it makes sense to build back up that infrastructure, to build that infrastructure in a way that’s more resilient to future climate shocks, and to do so in a way in which we’re financing it with very low government bonds, very low interest rate government bonds.  So, I think there’s a lot that can be done on the infrastructure side.  I think there maybe something, you know, we have a broken politics right now.  I thought that if we were going to see any kind of cooperation among the parties in the first term of the Trump Administration, it was going to be on infrastructure.


 I think it makes sense to do some of the stuff going forward.  So, to me it seems like kind of no brainer, both to try to show some unity politically moving forward and to create a lot of jobs and to do so in a time when it’s pretty cheap to finance that.  To me that seems like it makes a lot of sense and I think it’s something that when we think about the risk posed by climate change, we’re going to have to make more investments in adaptation resilience.  We haven’t been doing enough, a lot of those have clear demands on the public sector, they create clear public goods, it’s something that makes sense for us to be spending public dollars on and you know, it’s you know, one of the frustrating lessons from coronavirus is we had the evidence to act earlier and we didn’t heed the evidence.


And there’s a parallel here with climate change, we know the evidence of the risks that are coming to us, it’s a different time scale than coronavirus, but we know it’s coming and we need to be making investments now so that we can mitigate the really worst potential outcomes from climate change by some of the investments we can make in infrastructure going forward.  And infrastructure I don’t just mean building new roads or mass transit, I also mean the public health system infrastructure that I think will also play an important role, whether it’s to deal with the future coronavirus or future vector borne diseases that are spreading with warming climates around the world.  That I think all those can yield strong payoffs when we think about the risk posed by climate change.



Jason Bordoff:  Yeah.  You know, that that all makes sense and I mean you sort of sit in this, you know, unique spot because you’re dual headed, as we called in the administration, between the economic team and the climate team because you are describing many things that are important long-term investments deal with the climate challenge, and so this question of timeframe comes up when you are sort of saying well we have -- if we’re trying to spend money to stimulate the economy does that -- how do we think about the overlap of that and what timeframe we think might make sense to achieve some of these longer term goals?  Are there things you think sort of clearly maybe shouldn’t be on the table like, even if they make sense when it comes to climate change?  You’ve probably seen this letter that many prominent -- Bill McKibben, our old colleague, Gina McCarthy, some others have signed for sort of a green stimulus plan and it’s very comprehensive, it covers sort of you know, and almost anything you can think of, transportation and manufacturing and farmers and food systems and on and on, foreign policy even.  So, how do you think about what -- where the line is between things that we want to do for stimulative effect and how do we think about sort of longer term goals?



Dr. Joe Aldy:  Well, part of this is you can say how do I, from first economic principles, build a big stimulus package that can try to both grow the economy and deal with climate change.  I can also think about this with sort of a political lens and say, where are there opportunities to layer on the stimulus investments that do something important for climate change.  So I think part of it is to say we know from experience you know the 2008 TARP bill is fascinating, basically what you had is a few weeks before that, the House and Senate were trying to come up with a final sort of spending bill for the year, so they could all -- all the members could get out of town to go run for reelection.  And in the end, Senate Finance didn’t get its way for a bunch of energy tax provisions they wanted in the bill and it looked like those weren’t going to get extended into the next year.


The economy goes into free fall, we realize we need to have a TARP package.  TARP fails in the House, it goes to the Senate, and the Senate says, fine we’ll pass TARP, we know looking at what happening in the stock market, what’s happening and the evidence in the financial sector.  The House has to pass this the second time, we’re going to throw in other stuff we like including energy tax provisions.  It was strictly opportunistic.  You got a bunch of energy tax provisions in then, so I think you know, it’s not -- when I look at the sort of the wish list, it’s extensive.  A lot of it doesn’t strike me as like, wow this is how you get an economy regrowing in the next three to six months, but it may be, hey this is an important investment that yields long-term returns for the economy and if the opportunity for a bill that must move, that’s going to have resources for spending now on a variety of things to get the economy back up near its potential, then maybe you layer in some of this.  But I want to be careful, I want to be careful with this, I want to make sure that you don’t layer this stuff in in a way that slows down the stimulus and that’s, I think, the key challenge in how you craft some of these things, because some of the kinds of conditioning that people want, you know, when we start putting on more and more constraints on how we spend our money, we end up spending it slower.  And it’s how we’re going to sort of balance the need for fast moving resources to get the economy back up from the depths of the second quarter of this year, once we’ve got coronavirus contained, we want to make sure that we’re not doing so much on climate that sort of slows that, that means people are out of jobs longer or people are struggling longer or small businesses are struggling any longer than they need to.



Jason Bordoff:  So, that’s a really good -- an important point, a good one to end on too because we’ve taken up a lot of your time, but what I hear you saying, tell me if I have this right, is sort of the famous Rahm Emanuel adage, you never want a serious crisis to go to waste, we have -- we’re going to spend a lot of money as a government and we have an important policy objective in terms of stimulating the economy and putting people back to work coming out of crisis, but if -- don’t let the -- we shouldn’t hold up or miss an opportunity because we’re sort of standing on principle about where some of these lines are between different policy objectives to miss an opportunity to put resources to work that as long as you’re not undermining that policy goal of stimulus and recovery that make progress in some of these longer term goals and as we’ve seen just from what’s happening today you know, every other industry has lobbyists at work trying to get a piece of this and if we can try to put some of these dollars to work addressing longer term climate challenges might be a really good use of government resources.  Am I paraphrasing you correctly?



Dr. Joe Aldy:  That is fantastic and I am glad you brought up Rahm because that is the nature of the piece of the politics here.  There are a lot of different interest see the opportunities here, the appeal of course when I think about the individuals who’re trying to lobby on climate and clean energy is these are investments that yield really important long-term payoffs for our society.  So those are ones where I hope we can find ways to take it you know, to support those as long as they are complimenting what we’re doing to regrow and recover our economy.



Jason Bordoff:  That’s great.  Really helpful expertise and perspective from the Recovery Act last time and whatever happens you know, in the matter of hours or days on this next tranche of stimulus, I think this is something we’re going to be talking about for quite a while, both the economic challenge which is going -- is not going unfortunately we’re probably not going to come out of quickly, but obviously the climate challenge which is going to be with us for a long time.  Joe Aldy, thanks for making time to be with us on Columbia Energy Exchange today.



Dr. Joe Aldy:  Jason, thanks for having me.



Jason Bordoff:  And thanks to all of you for listening.  For more information about Columbia Energy Exchange, the Center on Global Energy Policy, please visit our website energypolicy.columbia.edu and follow us on social media @ColumbiaUEnergy.  I’m Jason Bordoff, thanks for listening, we’ll see you next week.