 Good afternoon and welcome to this IIEA webinar. We're delighted to be joined today by Professor William D. Nordhaus, Nobel Laureate and Sterling Professor of Economics at Yale University. While it's unfortunate that we're not able to welcome him in person at the Institute, we are nonetheless delighted that he is offered to give us his time today to speak via webinar. The professor will discuss his new book, The Spirit of Green, the Economics of Collisions and Contagions in a Crowded World. We'll speak for about 20 minutes or so and then we'll go to a Q&A with our audience. You'll be able to join this discussion using the Q&A function on Zoom, which you should see at the bottom of your screens. Please feel free to send your questions in throughout the session as they occur to you and we'll come to them once Bill has finished his presentation. A reminder that today's presentation and Q&A are both on the record, before handing over a very brief introduction. William Nordhaus is a Sterling Professor of Economics at Yale University in the United States. His major work focuses on the economics of climate change, developing models that integrate the science, economics and policies necessary to slow global warming. He was awarded the Nobel Prize in Economic Science in 2018 for integrating climate change into long-run macroeconomic analysis. From 1977 to 79, Professor Nordhaus served as a member of President Jimmy Carter's Council of Economic Advisers. From 1986 to 80, he served as the Provost of Yale University and was President of the American Economic Association from 2015 to 2016. Bill, thanks again for joining us and over to you. Thank you very much. It's a pleasure to be here in this new era where we can talk across the Atlantic without leaving our houses. But let me let me turn to the spirit of green. In an earlier era, green referred to the color of grass and trees and jealous eyes and of course to the color of Ireland or at least the course of the color of Ireland as seen from the United States and Boston and New York. But in the last half century, green has taken a life on a life of its own. Reflecting a new approach to individual actions, to the way companies should behave, political activities and laws. Green in this talk and in this book refers to an interconnected set of ideas about the dangerous side effects of modern industrial societies and how we can cure those or at least curb those. So the spirit of green covers a wide array of social, economic and political questions that are examined from a green vantage point. These are questions include established areas such as pollution and global warming, but they also involve new frontiers such as congestion, taxes, corporate governance and finance. I will take a few minutes to summarize the key issues that can be addressed if we take the spirit of green. And for those of you who would like to follow up, these ideas can be found in the 25 chapters of the book available, I hope, in your local library or in a Kindle edition for a few euros. To begin with, we must grapple with the consequences of population growth and economic growth. In an earlier era, when the first European settlers arrived in my home state of Connecticut, the major problems were coping with natural elements. Life was filled with clearing trees for agricultural land, staying warm from the brutal winters and battling horrible diseases. Neighbors were necessary for protection. But as our continent filled up and our world has filled up with people, factories, roads, pollution, our neighbors are harming us as well as protecting us. And what I'll call the spirit of brown, which is I think obvious in what I mean by that, is crowding out our green. We see it in pollution, waste, congestion, overfishing, depletion of species, and most ominously in global warming. These are serious issues that we must address and often have addressed and sometimes have not addressed. They may spin out of control if they're ignored. Up to now, our best estimates is that the gains brought by technology, technological advances, good governance and international trade have outweighed the damages of pollution and other powerful externalities. But there's no iron law of politics or the market to ensure that that upward trend will continue. The book on green rests on analysis and an ethical perspective. That is what I call the goals of a well managed society. It's not a new approach, but it's one which synthesizes political and economic science as its core. So a well managed society is one that is fundamentally designed to advance the well being of its members. And it rests on four pillars, four essential pillars. The first is laws to define property rights and contracts so that people can fairly and efficiently interact, whether it's in markets or outside of markets. The rule of law. A second is it requires effective markets to engage in the exchange of private goods, goods with have no spillover effects, such as bread. It requires laws, regulation, expenditures and taxes to correct important externalities and provide public goods, which is really the key focus of the book. And finally, it requires that the well managed society requires corrective taxation and expenditure to help ensure appropriate equity in the distribution of economic welfare. So those are the four pillars and each of them has a reflection in green activities, but I'm going to just go on to the next stage, which is the applications. Now, as we look at those four pillars, we need to cope with the undesirable side effects of growth. And in doing so, we must recognize the proper role of market and government. Some emphasize market only as in the Milton Friedman's approach to society. Some believe in government only, such as the earlier socialist approaches or communist approaches and central planning approaches, but neither will work. The market cannot solve our social problems any more than the government can by itself. The market by itself cannot effectively curb climate change. And the government by itself cannot effectively allocate produce and allocate bread. Finding the right mixture of market and government is one of the most vexing economic problems of environmental policies. Each plays a central role in maintaining the balance between improving living standards and controlling congestion, pollution, and other spillovers. A central theme of the book is the role of efficiency. Now, of course, efficiency is the staple of economists, economists eat it for breakfast, lunch, and dinner. And it denotes the most effective use of the society's resources in satisfying people's wants and needs. We often laud the effectiveness of properly functioning markets, and appropriately so. For example, markets were very important in providing life-saving vaccines for the coronavirus. We also recognize, however, situations where markets fail. And they fail particularly in the presence of negative externalities or spillovers like pollution or contagious diseases. And activities with negative spillovers, activities with negative externalities, lead to spillovers in which those who benefit from the activities do not compensate those who are harmed. So a firm that pollutes the air or the water will benefit through higher profits, but it won't compensate those who are harmed through health or degraded water supplies. For these negative externalities, the presumption is that the unregulated market will misallocate resources, producing too much brown stuff and too little green. Now, in some areas, the externalities are relatively small, and we choose to tolerate the result. One example is traffic congestion. Traffic congestion is an externality where one person too many on the road slows down many others. Traffic congestion wastes billions of hours a year. An economist devised ingenious schemes to put a price on congestion. But most countries have decided to groan and bear it rather than pricing it. In other areas, such as deadly air pollution from burning coal, most countries have taken steps to curtail the worst damages. So here there's a choice. There are many externalities from chewing gum to climate change, and we need to determine which of those are important enough and expensive enough to regulate them. Now, green policies are most often associated with combating pollution or congestion, but infectious diseases similarly display the syndrome of harmful externalities of economic activity and globalization, and these require different tools, such as government directed treatments and vaccines, such as government regulation of drugs, such as government approval of drugs and testing, government oversight of clinical trials. But these are still examples of harmful spillovers that must be corrected. Additionally, pandemics are part of a deadly syndrome of fat-tailed catastrophes. These are phenomena where low probability and high consequence events may take place. These tail events, as they are called, are especially challenging exactly because they are rare. In 2008, we had a tail event in financial markets. In 2020, we had a tail event in the pandemic. In the earlier era, we've had tail events such as wars. Now, the problem is these tail events are challenging just because they are so rare. We cannot actually gauge their frequency or severity, which in turn makes them difficult to recognize when they appear and equally difficult to prepare for in advance. But these fat-tailed spillovers or externalities are some of the most challenging that we face. A related point is to recognize that externalities, correcting externalities is costly. At the very least, the corrections require the precious and scarce time of governments and managers who have other pressing concerns. But from an economic point of view, most interventions take place through the regulatory process of the command and control of a variety. They are of the nature, do this, but don't do that. Regulations involve necessary costs of compliance to, for example, install pollution control equipment. But they also have excessive costs because they're difficult to design with perfect or even reasonable efficiency. The excessive cost of regulation reinforces the point that governments must choose which problems to control and which to leave alone. And just as important is that policies should use the most effective tools that are available. A hopeful new trend in the design of green policies is the use of market mechanisms. And this is seen particularly in the case of pollution taxes to control pollution. These have a short history, probably going back in an important way to about 1990, but they have proven extremely effective in reducing conventional air pollution such as sulfur dioxide. And many economists believe that the single best tool for slowing climate change is to use high carbon prices, as they are called, such as through carbon taxes, as a way of restraining the emissions of carbon dioxide and other greenhouse gases. In addition to restraining emissions, high carbon prices also provide incentives for low carbon innovation. The spirit of green also applies to important areas such as politics, innovation, corporate responsibility, and investment. And in each of these areas, a central dilemma arises between benefits to the decision-making and the social gains. In many areas, there's a dilemma where you have to face the trade-off between the gain to the decision-maker, such as profits to the firm, and the gains to public welfare. But one area where there is no dilemma is the application of green principles in the area of environmental taxes or green taxes. Green taxes use fiscal instruments to internalize negative externalities like pollution. It might be a tax on carbon dioxide emissions. It might be a tax on sulfur emissions. It might be tax on road congestion. Environmental taxes are one of the most promising innovations of recent years. And in fact, they're the holy grail of public policy. They have a trinity of traits. They pay for valuable public services by raising revenues. They meet environmental objectives efficiently. And unlike other taxes, they are non-distortionary. The area with the greatest potential are carbon taxes and gasoline taxes, with sim taxes such as those on alcohol, tobacco, firearms, and gambling being closely related. Here is a way of thinking about this approach. Tax bad's not good. Tax bad's not good. This little adage is simple, it's intuitive, and it's correct. One of the areas where we particularly need to think about environmental taxes is in the area of controlling CO2 emissions. Many countries use a cap and trade system as a way of enforcing it and then allowing the markets to set a price. While this is an effective mechanism for controlling emissions, it has the advantage of wasting the resources that could be raised by a tax or auction system. And so many economists who think about using market mechanisms for CO2 control would urge to use either carbon taxes or auctioning of permits, in the case of cap and trade systems, to raise the revenues that are so needed for public purposes. As we examine many of the challenges that today's economies face, we find that solutions will often require technological changes, in some cases rather deep and profound technological changes. If we think of one example of about a little more than a century ago, one example was how to clean up the mountains of horse manure that were produced when transporting people and goods. Our cities were literally littered with horse manure, and not only the horse manure, the urine, and New York had approximately 100,000 characteristics of horses a year that had to be carted away. But the manure was cleaned up not by sweepers, but by the automobile, which came and replaced the horse as a mode of transportation. More recently, when we were trying to clean up acid rain and sulfur dioxide and used economic incentives, the high sulfur prices induced a number of institutional and technological innovations. And similarly, I believe a transition to a low carbon world will only arise and depends critically on technical advances to replace our fossil dependent technologies. In fact, technological change faces strong headwinds in any case, and particularly strong hurricane force winds in the case of innovation for green activities. Innovation for environmental goods and services is a special challenge that might be called a double externality. So innovation itself is an externality because those who produce the innovation don't reap the entire reward. Some of it spills over to other producers, some of it spills over to consumers. So the return to innovation is only partially captured by the innovator. And that's the first externality for environmental goods and services and green innovation. However, there's a further gap between social and private because the good itself is underpriced. So if you were to produce a green low carbon technology, not only would you not get the entire benefit of your investment, but when you did reduce the CO2 as a result of your process, that would be undervalued because the price of carbon dioxide around the world is well below its social cost. Now, correcting these externalities or alleviating them is a critical, critical issue for making a transition to a low carbon world. One of the externalities in the double externality is easy to correct, easy in principle, and that is correct the underpricing of carbon emissions. If you if you can price carbon emissions properly, then many low carbon projects, investment and technological projects will become profitable when now they're not. But helping address this double externality and green innovation is one of the most urgent needs on our agenda. A final frontier is in our green survey is global public goods or global environmental issues. And while many global threats exist, climate change is the ultimate green challenge. It's the ultimate challenge because as a global public good, it involves everybody, but in a certain way involves nobody. Everybody is affected. Everybody is contributes, but nobody contributes sufficiently. No individual person, no individual country, no individual company contributes sufficiently so that if you cut back your own emissions by 10, 20, 50 percent, you will make a noticeable difference to the global scene. I would emphasize four key issues that need to be addressed if we were to make progress here. First, citizens of the world, individuals, citizens, voters, teachers, analysts, journalists, people who vote need to understand and accept the gravity of the impacts of warming on the human and natural world. We see them increasingly in the newspaper with stories of wildfires and intense hurricanes and flooding and rising sea level, but we need to recognize that those are just the initial signs of this disease, of this ailment. We've just seen the beginning, and the worst is yet to come. Secondly, nations must establish policies that raise the price of carbon dioxide and other greenhouse gases and raise them sharply. And while experts and environmentalists recognize the importance of carbon pricing, virtually no progress has been made on this on a global scale. While we would need a carbon price somewhere between $30, $50, $100 in that range per ton, the global price today is about $3. So less than one tenth of where it would need to be, maybe one thirtieth of where it would need to be to be effective. So this is an important step in globally. Finally, the best hope for coordination is a climate club to coordinate the activities of different nations. It's an international organization that would impose minimum standards and penalties. It's a coalition of nations that commit to strong steps to reduce emissions, along with effective mechanisms to penalize countries that do not participate. As nations meet in Glasgow to ponder steps to slow global warming, they need to recognize that the current model they have pursued through all these conferences of the 26 conferences of parties have failed. They need to realize the current model of voluntary agreements has failed. It needs to be replaced by a stronger approach where actions have consequences and inactions have consequences. In a way, the European Union, which you and Ireland know well, is a kind of model for nations to follow as a multinational agreement where there are penalties as well as benefits. And this kind of model is one that could be pursued by countries in trying to understand how to improve our activities in climate change. So that's a summary, a brief summary, maybe not so brief summary of the experiment of green. Let me turn it back over to the moderator for questions or comments. Thank you for listening.