Harvard Kennedy School Professor Gordon Hanson and Harvard University Vice Provost for Climate and Sustainability James Stock say applying the lessons from prior economic upheavals can smooth the green power transition for workers and communities who depend on the fossil fuel industry.
Featuring Gordon Hanson and James Stock
April 6, 2023
38 minutes and 54 seconds
Harvard Kennedy School Professor Gordon Hanson and Harvard Vice Provost for Climate and Sustainability James Stock say an important part of the green energy transition will be mitigating its effects on employment, both in the United States and overseas. Talking about the clean energy transition conjures up images of commuters riding sleek electric trains and cars powered by the sun and wind, and of workers with good-paying jobs installing the infrastructure of the future. But the outlook for communities that are economically tied to the fossil fuel economy isn’t quite as sunny. Stock is director of Harvard's Salata Institute for Climate and Sustainability, which brings together researchers from around the university to collaborate on climate solutions. Hanson is co-director of the Reimagining the Economy Project at the Kennedy School's Malcolm Wiener Center for Social Policy. Both of them say making the green energy transition is urgent and vital, but to do it successfully will mean planning a different sort of transition for almost a million workers in just the American fossil fuel extraction and refining industries alone—not to mention millions of workers further up the fossil fuel ecosystem. Thanks to previous economic shocks like globalization, automation, and the decline of the coal industry, we’ve seen first-hand the devastation that large-scale job loss can wreak on regions and towns that depended too heavily on a few sources of jobs like coal and manufacturing. Hanson and Stock say harnessing the lessons from those prior transitions can help create and power a future that’s both green and inclusively prosperous.
Gordon Hanson is the Peter Wertheim Professor in Urban Policy at Harvard Kennedy School. He is also chair of the Social and Urban Policy Area at HKS, co-chair of the Reimagining the Economy project at the Malcolm Weiner Center for Social Policy, a research associate at the National Bureau of Economic Research, and a member of the Council on Foreign Relations. Hanson received his Ph.D. in economics from MIT in 1992 and his B.A. in economics from Occidental College in 1986. Prior to joining Harvard in 2020, he held the Pacific Economic Cooperation Chair in International Economic Relations at UC San Diego, where he was founding director of the Center on Global Transformation. In his scholarship, Hanson studies the labor market consequences of globalization. He has published extensively in top economics journals, is widely cited for his research by scholars from across the social sciences and is frequently quoted in major media outlets. Hanson’s current research addresses how the China trade shock has affected US local labor markets, the causes and consequences of international migration, and the origins of regional economic divides.
James H. Stock is Harvard University’s Vice Provost for Climate and Sustainability, director of the Salata Institute for Climate and Sustainability, the Harold Hitchings Burbank Professor of Political Economy for the Faculty of Arts and Sciences; and a member of the faculty at the Harvard Kennedy School. His current research includes energy and environmental economics with a focus on fuels and on U.S. climate change policy. He is co-author, with Mark Watson, of a leading undergraduate econometrics textbook. In 2013-2014 he served as Member of President Obama’s Council of Economic Advisers, where his portfolio included macroeconomics and energy and environmental policy. He was Chair of the Harvard Economics Department from 2007-2009. He holds a M.S. in statistics and a Ph.D. in economics from the University of California, Berkeley.
Ralph Ranalli of the HKS Office of Public Affairs and Communications is the host, producer, and editor of HKS PolicyCast. A former journalist, public television producer, and entrepreneur, he holds an AB in Political Science from UCLA and an MS in Journalism from Columbia University.
The co-producer of PolicyCast is Susan Hughes. Design and graphics support is provided by Lydia Rosenberg, Delane Meadows and the OCPA Design Team. Social media promotion and support is provided by Natalie Montaner and the OCPA Digital Team.
Jim Stock (Intro): The power sector and the way we use energy is really deeply intertwined with so many different things that we do. The transition's going to affect not just those positions and those jobs, but really the way we do so many different things in the economy. So it's going to affect retail operations, it's going to affect things like service sector gas stations, and it's going to affect a huge number of new opportunities too. So I think one of the big challenges both here and internationally is thinking about the opportunities for new job creation and then getting those aligned or how that relates to the entities or the communities and the individuals who are going to be impacted by the loss of jobs.
Gordon Hanson (Intro): We've come to appreciate that, for a number of different reasons, non-college educated workers just aren't that mobile geographically. So what we end up with is a situation when jobs disappear, those jobs aren't replaced, and it can take a generation or so for a place to get back into full equilibrium with the rest of the U.S. economy. The aggregate productivity consequences of this aren't huge. The social cost in those locations is pretty high.
Ralph Ranalli (Intro): Welcome to the Harvard Kennedy School PolicyCast, I’m your host, Ralph Ranalli. Imagining the clean energy transition conjures up images of commuters riding sleek electric trains and cars powered by the sun and wind, and of flurries of construction activity providing workers with good-paying jobs as they install the infrastructure of the future. But the outlook for communities economically tied to the old fossil fuel economy isn’t quite as sunny. Thanks to previous economic shocks like globalization, automation, and the decline of the coal industry, we’ve seen first-hand the devastation that large-scale job loss can wreak on one-industry cities and company towns. Our guests today, Harvard Kennedy School Professor Gordon Hanson and Harvard Vice Provost for Climate and Sustainability James Stock are studying the intersection of employment and climate policy both in the United States and overseas. They say making the green energy transition is urgent and vital, but to do it successfully will mean planning a different sort of transition for almost a million workers in just in the American fossil fuel extraction and refining industries alone—not to mention millions more workers throughout the fossil fuel ecosystem. Creating a brighter future that’s both green and inclusive will be difficult and require both political will and smart public policy.
Ralph Ranalli: Gordon, Jim, welcome to PolicyCast.
Jim Stock: Great to be here. Thanks.
Gordon Hanson: Yeah, thank you.
Ralph Ranalli: We're talking about the effects of the clean energy transition on workers and communities and labor markets. So, I wanted to start with how many people are going to be possibly affected and how does this compare to other transitions? For better or worse, this isn't our first rodeo. We've been through a number of other challenging transitions for workers: automation, globalization, and the decline of the coal industry is pretty analogous to what's going on now. Can you both start by talking a bit about the scope of this issue and how impactful it is going to be?
Gordon Hanson: Sure, I might dive in first, since I've been looking at some of the specific sectors in my recent research. You can think about three groups of workers that are going to be affected. The most obvious ones are in core industries. These are workers that extract and refine fossil fuels and then make electricity from those fuels. There are about 750,000 workers in extraction and refining, about another 200,000-250,000 in power generation. So that's about a million workers in what you can think of as core fossil fuel industries. The adjacent workers are the ones who use electricity very intensively on the job, and this includes a bunch of manufacturing industries that historically have located near electrical generating utilities because they use enough electricity such that proximity matters. So these are things like primary metals and paper and basic chemicals. There's about another 750,000 to 800,000 workers in those industries.
In past energy transitions, because this is not our first one, those jobs have relocated as energy sources have changed, and so we might think of them as also being highly exposed. Then the third is core adjacent-adjacent. Our workers in service sector industries that are integrated into the local supply chain of those industries. And so they are located nearby, and they would be disrupted as the local economy experiences job loss associated with a shift away from fossil fuels.
Ralph Ranalli: Jim, this isn't just a domestic issue in the United States though, this is an international issue as well.
Jim Stock: Well, it's interesting just hearing these numbers where it's maybe a couple million in terms of the first two tranches at least. But the power sector and the way we use energy is really deeply intertwined with so many different things that we do. The transition's going to affect not just those positions and those jobs, but really the way we do so many different things in the economy. So it's going to affect retail operations, it's going to affect things like service sector gas stations, and it's going to affect a huge number of new opportunities too. So I think one of the big challenges both here and internationally is thinking about the opportunities for new job creation and then getting those aligned, or how that relates to the entities or the communities and the individuals who are going to be impacted by the loss of jobs.
Ralph Ranalli: Right. It's important to think of this as not just job loss, but also job creation. Gordon, I know you've done a lot of work on the fact that locationally, in terms of geography, those two things don't necessarily align. The locations where the jobs are lost and where the jobs are created aren't necessarily the same places. Can you talk a little bit about what regions in the United States—and we can also talk about this internationally—are the most exposed in the short term, and then possibly in the longer term too?
Gordon Hanson: Sure. And I want to highlight a difference in job location, picking up on something that Jim just said. A bunch of these jobs are located where they are because that's where the oil is, the gas is, or the coal is; and as we shift away from those fuels, then those jobs are going to relocate to where the sun is, to where the wind is, to where we can make hydrogen and so forth. There are a bunch of other jobs that are where they are because that's where the people are. So a gas station is located where a gas station is because there's people there. And in a sense, we don't need to find a new address for the gas station attendant, we need to find a new occupation in the same city.
So it's an important challenge, but a distinct one. The places that specialize in those core fossil fuel intensive industries include a bunch of the places you think about when you think about oil and gas and coal. So that's West Texas, that's Louisiana and Houston, that's the Oklahoma panhandle, that's Wyoming and North Dakota, it's Pennsylvania and much of Appalachia. It's also then some manufacturing regions, the traditional manufacturing belt located in and around those energy sources. These places are primarily medium-to-small cities. Among the most exposed communities to fossil fuel jobs, if we look at the top end, the largest of those is Odessa, Texas, with 400,000 people. Most of these places have 50,000, a hundred-thousand, 200,000 people, and they are really specialized in that thing.
Jim Stock: So Gordon, one thing that I've been curious about, and I bet that you have some insights into this, is the extent to which these different types of fossil fuel communities are more migratory and used to different non-place-based activities. So maybe this is just a stereotype, but we think of coal mining communities as of course being linked closely to that specific coal mine and those facilities there. On the other hand, oil and gas extraction tends to move around. When North Dakota opened up and the Bakken was being developed for fracking, then there was a big influx of folks from all over the country to work on those facilities, and similarly moving through Wyoming and the Permian Basin and maybe they’re a more migratory community. Does that play a role in terms of thinking about the effects of this energy transition on job seeking?
Gordon Hanson: It does, and it's a really important distinction to make. Almost any energy town started as a boom town. You discover a resource, you move in, and you begin to exploit that resource. Jobs are created from one day to the next, and you have a bunch of itinerant workers who aren't committed to living in a place. If the boom persists, then the boom town becomes a regular town and the specialization in the coal mining or oil drilling or whatever becomes a permanent part of the landscape. If we look nationally at the U.S., you see a mix of those places. The communities that have specialized in fracking and in shale gas are still more of the boom town type. That's certainly true in North Dakota. It's true in parts of West Texas.
But you have a lot of these other areas where the fracking has come on top of an existing base of industry dedicated to fossil fuels—so if you think about the Marcellus Shale and the whole Pennsylvania-Ohio area, there the fossil fuel industry has evolved over time. But I think you're absolutely right, Jim. As we think about the challenges of job loss, it's very different in a North Dakota county which has an itinerant workforce than it is in a community in southwestern Pennsylvania that has been doing something related to fossil fuels since the 1860s.
Ralph Ranalli: It's challenging with these sorts of jobs because—and I think you’ve made this comparison Gordon—they are analogous to manufacturing jobs in that they tend to be a pathway for workers without college degrees to earn a relatively high wage. And replacing those jobs can be difficult. But as we've said, it's not our first time going through something like this. I know you've spent a lot of time looking at the coal transition. Can you walk us through some of the lessons that we've learned from that transition about the places that you mentioned, where it's not an itinerant workforce, it's a workforce that's in place and most of it's going to stay in place. What have we learned from studying those places and trying to help them out?
Gordon Hanson: The history of coal of the U.S. and its ties to the economy is a really interesting one. Coal was there at the beginning of the industrial revolution in the U.S., and businesses were created in places that had coal, because you needed coal to power the new and exciting technologies that were becoming available in the 1860s and the 1870s and the 1880s. So there's this deep historical connection between coal and entrepreneurship, and as some of those places have moved on from coal, that legacy of entrepreneurial dynamism has remained. This is something that our colleague at Glazer has studied in his work.
The ups and downs of coal—coal prices are high and employment is booming, coal prices are down, employment is contracting—characterized about a hundred years of the U.S. experience in the coal industry from roughly 1860 to the 1960s, 1970s. And then something really changed around 1980, you had a whole bunch of new sources of oil that came online that led to a secular decline in oil prices off of the 1970s highs. And that led to a decade of job loss in coal in the 1990s. And then you had fracking and the natural gas boom of the last decade, which led to a second round of job loss. So those two recent experiences haven't been about boom and bust. They've just been about bust and bust, and that means that the communities which had been waiting for good times to return haven't seen it. And we've seen then a reduction in co-employment nationally from about 250,000 workers in 1980 to about 40,000 workers today. The places that were specialized in coal mining have seen a permanent loss of those jobs and the absence of moves, on the whole, into successful new export activities. And that means a rise in joblessness, the exodus of young people, especially the college educated. And what remains are communities that are older, sicker, and poorer than the rest of the country.
Jim Stock: And of course, much of what you're referring to here is through traditional coal mining regions in Appalachia and to a lesser extent in the Midwest. I think part of the story also in coal is the transition starting in the late seventies or mid to late seventies of coal production to the West and in particular to the Powder River Basin, where coal could be mined with much lower labor costs because it's basically strip mining. It basically is strip mining with a very small overburden, so that then it's able to have much higher labor productivity for mining that coal. And of course, that coal also being lower sulfur than eastern coal was something that its use was spurred by environmental regulations throughout the 70s, 80s, and 90s.
Ralph Ranalli: Jim, I know you've looked at countries that are further along in the energy transition, especially countries in Europe, than the United States is. What lessons can we draw from their transitions that might inform our transition here?
Jim Stock: Sure. Well, we have looked at ... So Europe is certainly further along in the energy transition than we are here in the United States. It has a very different set of circumstances. There is coal mining, but it's a smaller amount of their power sector than it is here in the United States. They have a lot more dependency on imported fossil fuels, oil and gas, for all of their electricity and other transportation needs. And I think we're all exceptionally aware of how dependent they are on natural gas imports from Russia,and then through liquified natural gas as a result of the tragic invasion of Ukraine.
So we did do a study looking at the macro effects of efficient climate policy, and the European Union has actually implemented efficient climate policy in a number of different dimensions. They have a cap-and-trade system for the power sector that covers, I think it's 31 different countries in the EU and then it expanded some other countries that have joined. But what was interesting, and what we took a look at, was that of those 31 countries, approximately half of them had implemented a carbon tax. So we were able to look at the effect of the carbon tax in an otherwise similar regulatory regime and see if there were any noticeable macroeconomic implications.
So what was the effect of a carbon tax on employment, for example? Now this is an aggregate level. It's not at a disaggregated or regional or local level like Gordon has been looking at. And the carbon tax was on, excuse me, transportation fuels. So what we did find is that there was really remarkably little detectable effect of the carbon taxes on employment and GDP and the other macroeconomic aggregates. It did have an effect on reducing emissions. So emissions went down because the price of diesel in their case, or diesel and gasoline, but diesel primarily went up as a result of the carbon tax, but we could not detect any statistical effect on employment. So that was a pretty interesting finding about what one might think of as a very traditional efficient climate policy. And here in the U.S. we're not doing that. We're not imposing a carbon tax. There's been discussions about that, but that's not the direction that we've gone and we've gone a different direction towards subsidy programs with a very important local domestic content provisions and support for energy communities, provisions through the recent legislation, the Inflation Reduction Act and the Infrastructure Investment and Jobs Act, also known as the bipartisan infrastructure law. So that's also a separate line of discussion, but it's actually a really important one, an interesting one looking forward.
Ralph Ranalli: I did want to go there, because I think the next topic I wanted to explore was the relative effects of different policies on advancing the goals of decarbonization, but also in terms their efficacy and their negative impacts on things like labor markets. So you've got carbon taxes, you've got cap-and-trade, you've got more incentive-based schemes like we have here, and you even have market forces thrown into the mix. What do we know about the differences between those different policy avenues in terms of having positive impacts on labor markets, but also positive impacts on decarbonization?
Jim Stock: Well, I think that's a great question. So I think there's a couple of different levels that one can look at. Look at the effect of different climate policies on labor markets: There's the macro level, the national level, and then there's the much more micro or regional or local levels. At the national level, as I mentioned, at least in the European evidence, there's little evidence that a carbon tax or an efficient climate policy has negative effects on employment or GDP. It seems to be roughly a wash.
In the U.S., we've taken this different approach, which is to not approach this as taxing bad things, not approach it as taxing carbon emissions, but instead subsidizing good things or subsidizing low-carbon technologies such as wind and solar, and then a number of other related technologies that are low carbon like carbon capture and utilization, and then the ways that that clean energy is used through electric vehicles and so forth. So we've taken the approach of giving tax credits or other subsidy programs for all of those areas. That, I would expect, would have roughly the same effect on a national macroeconomic level as a carbon tax, which is basically not much. It's not the sort of thing that you would expect to see having a substantial effect. There's a little bit of nuance here because the expenditures under the Inflation Reduction Act and the Bipartisan Infrastructure legislation are likely to be substantially larger. I think there are a number of folks who have studied the likely expenditures and they think they're higher than some of the earlier projections. So there might be some traditional Keynesian and fiscal stimulus effect of this that's partly offset from various tax enhancements or various revenue enhancements in those pieces of legislation. But there could be some macro effect both on prices and on employment through this Keynesian expansionary effect, but I think that's likely to be pretty small. The magnitudes are just not that big. It's spread over many years. So by and large, I think at a macro level, we would expect to see fairly small first round effects of this. Now at a micro level or at a regional level, that's going to be quite different, and we still are going to have the same energy transition issues at a regional level or a local level that we started this conversation discussing.
Gordon Hanson: And we've seen evidence of that in past changes in environmental policy, not about green technology, but about trying to clean up air and water with the enforcement of the Clean Air and Clean Water Acts. Beginning in the 1970s, work by Reed Walker at UC Berkeley and Michael Greenstone at University of Chicago showed that states that were behind in catching up with meeting national mandates for emissions saw larger losses in employment in the sectors that were most affected, and that concentrated on local labor markets in which those plants were located. As Jim suggests, in the aggregate, in terms of what this means for total employment, total productivity, the impacts we're talking about are pretty small. But then when we think about a different way of aggregating up—not in terms of GDP, but in terms of wellbeing because of the scarring effects of job loss and the manner in which those scarring effects are exacerbated by lots of jobs being lost in the same place—we might think in terms of our national welfare, that those changes are larger than what impacts on productivity look like.
None of this is to say these are changes we don't want to see happen, but as we look forward to this process of adjustment, that we want to have some mechanisms in place that help us to do it in a way that gets us the big aggregate gains we're going for in terms of lower carbon emissions at a social cost which we can keep as low as possible. Europe has had a big advantage on us here in that they have developed … even though Europe is derided for all of its interventionist policies when it comes to the labor market, they do retraining of displaced workers much better than the U.S.does. Not all countries, but a number of them are really a model for how you take a middle-skill worker who has expertise in a manufacturing job that's now obsolete and get that person into a new job that's not all that much worse than what they were doing before. The U.S. track record there is on average pretty bad, although we have examples of how it can be done well.
Ralph Ranalli: Right. I wanted to get to those examples in a minute, but I did want to stay on this issue of approaches and talk a bit about markets. There's been good news on the market front in that some market-driven changes—such as the lower costs for solar and wind—have driven positive changes towards decarbonization. But Gordon, I think your research has also found serious limitations with relying on markets, particularly employment markets, to help these very adversely affected communities. Instead of labor mobility, where you have capital following labor, or labor following capital, you basically get this regressive spiral that leads to entrenched joblessness. Can you talk a little bit about the limitations of that market-based approach in these local environments?
Gordon Hanson: So, in the economic models we used to work with to understand job loss, we have the idea that higher unemployment rates would attract firms to a location because higher unemployment rates would indicate lower wages. What are firms about? They're about taking advantage of profitable opportunities, unemployment rate goes up, so firms are going to move in and the problem is solved. So that model of capital chasing labor, we've come to appreciate, doesn't really operate for an important reason. When you have a bunch of job losses in a place, it's not like everything is the same except for a factory or two being closed. What we've come to appreciate about the way cities work is that there are these important agglomerative benefits that come from the overall scale of activity that come from dynamism, that come from new investment, that come from workers picking up skills. And when we arrest that process through massive job loss, there's a ding to aggregate productivity in a place, not nationally, but in a particular place. And firms are then going to look at these places and say, "They look dysfunctional. That's not where I want to put my money. I want to put my money where it can be invested much more safely."
Workers then could adjust by moving somewhere else and take advantage of higher wages in other locations. Well we've come to appreciate that, for a number of different reasons, non-college educated workers just aren't that mobile geographically. So what we end up with is a situation when jobs disappear, those jobs aren't replaced and it can take a generation or so for a place to get back into full equilibrium with the rest of the U.S. economy. The aggregate productivity consequences of this aren't huge. The social cost in those locations is pretty high.
Jim Stock: Gordon, the recent legislation, the Inflation Reduction Act, and some other recent pieces of legislation actually have some fairly significant provisions focusing on domestic content and stimulating local production. So for example, in the electric vehicle tax credit, half of it is dependent on whether critical minerals are extracted or processed in the U.S.. Another half is dependent on battery manufacturing in North America. The power sector component of it has prevailing wage and apprenticeship requirements, and it especially has as bonuses for siting in energy communities. So I think all of this was put in, partly, to make it politically appealing, but partly in recognition of some of the problems that you and your co-authors pointed out about what happened in terms of hollowing out of American manufacturing and seeing if that could be addressed through these fiscal mechanisms. These are not job retraining programs, of course, they're just straight demand, let's build more battery plants domestically. And indeed we're seeing that battery plants built in the southeast east and getting started there. And I was wondering if you have some preliminary thoughts on the effectiveness of these policies, sometimes referred to as industrial policies or domestic content policies, in terms of addressing the concerns that you're worried about impacted communities?
Gordon Hanson: This new activity in the industrial policy domain in the U.S.—it's just really interesting. We would not have foreseen this five years ago, and now there seems to be actually a fair amount of bipartisan consensus that this is what we should be doing. The differences between the Republicans and the Democrats on industrial policy are pretty minor. I'm really nervous about the potential efficacy of these recent initiatives for some simple reasons.
Consider the Inflation Reduction Act. Take its name: It's going to help us reduce inflation. What else is it going to do? It's going to help us hasten the green transition. By the way, it's also going to expand women and minority entrepreneurship. And it's going to help bring jobs back to where joblessness has become endemic. It’s really hard to craft a piece of legislation that achieves its primary goal. You've got to get a lot of different actors in line to make stuff happen. And when you do it, it's a big success. Now here we come with a piece of legislation that has five major goals, and that's just the first five. There're another 10 or 15 down the list. And there's a confidence in the ability to achieve change along all of these margins that I'm skeptical of. I'm not skeptical of the good intent. I'm skeptical of the execution because each of these margins is complicated and policy has failed in the past.
Jim, you mentioned the battery plants. We're going to have a bunch of new battery plants in the U.S.. We're going to have a bunch of new semiconductor plants. My guess is that a lot of those are going to be in places that were already primed for success. Where is the first semiconductor manufacturing plant going? Columbus, Ohio. Columbus, Ohio has the Ohio State University. Nobody's worried about Columbus, Ohio. We're worried about Middletown, Ohio, where J.D. Vance is from. Nobody's talking about investing in Middletown, Ohio at the moment. So we are going to see a response to the incentives put in place in this burst of legislation that you just gave an overview of, but I'm not too optimistic about its ability to address these issues related to displaced workers in the past legacy of joblessness.
Jim Stock: And I guess one of the things, just following up on that, since there are multiple objectives to these pieces of legislation, of course one of the key objectives is reducing carbon emissions and expediting the transition to clean electricity and clean generation. And the modeling of this is actually difficult because of these additional provisions, because it's really not clear how much more these additional provisions will cost. So there's $7,500 in this E.V. tax credit, but those come with strings attached and how much do those strings cost? And then how much of that is the remaining part that's passed along to the consumer? Now, I think we're going to see a big transition to electric vehicles anyway, just because of market forces driving down the prices of the cost of batteries and so forth. But certainly having multiple objectives in the context of this legislation makes it hard to assess exactly how far this will be driving that transition.
Ralph Ranalli: It's interesting, this is a great transition point, because I did want to talk a bit about roadblocks, and one of them is poor policy design. How does poor policy design—or perhaps the lack of effective policy design—negatively impact our ability to accomplish the energy transition and mitigate its effect on labor markets? Can you talk about examples of just some well-intentioned policy design failures?
Jim Stock: I guess I would look at this in a slightly different way. It's easy to think about the multiple objectives of the Inflation Reduction Act as potentially meaning that you're not going to be able to achieve each of those objectives as fully as you might. On the other hand, it's the biggest piece of climate legislation that we've been able to pass. We got this passed, but we didn't get Waxman-Markey passed, and we don't have a carbon tax. They know we're not following Europe's lead, and this is going to be quite impactful. So most of the estimates suggest that this is going to boost E.V. sales substantially. Even though there's this ambiguity that I mentioned, it's going to really drive down, it's going to reduce electricity prices, it's going to drive up the fraction of renewables used. There are question marks around how much of that, but this is definitely a major step in the right direction. So I think one has to look at this from a perspective of what's reasonably feasible. This was feasible. This was able to garner support and actually get through the legislative process.
Gordon Hanson: So if it's the case that the other objectives fall by the wayside, and what the Inflation Reduction Act ends up really being about is increasing incentives for adopting green technology, that's great. You want legislation to be simple, to have clear benchmarks and to communicate to the private actors involved what the incentives are then. And the failure of that would actually have the side benefit of having all these other issues that we want to deal with. We should deal with them in their own domains through legislation that addresses the underlying distortions that are at work. And those distortions are not really related to the green transition. They're related to the challenges of small business getting credit in depressed places, of workers in those places financing their training, of knowing what training to undertake. And that's a very separate set of issues. So I'm pessimistic about the IRA achieving its non-climate goals, but I'd be optimistic about the way in which that might then generate renewed pressure to address those goals coming forward, about which, again, there's some bipartisan consensus. People understand that we need to think more carefully about how to generate more jobs in places where employment rates are low, and it's not, at the moment, a left-right issue.
Ralph Ranalli: I wanted to get your reaction to something else though—speaking of not left-right issues—because the Inflation Reduction Act obviously was a win for at least the intent of addressing climate. But then we seem to have this movement in the opposite direction, with the recent anti-environmental, social and governance investing—better known as ESG—bill that passed the Republican-controlled House and passed the Senate with the help a couple of Democrats from states that are heavily dependent on fossil fuels. In the New York Times story about the bill they basically traced this anti-ESG movement back to 2018 and some Texas oil companies not being able to get financing and complaining to Governor Abbott. That was the genesis of it. What did you think of that political pushback and political pushback to the clean energy transition itself and how that might affect both achieving the transition and to doing it in a way that creates new jobs in places that need them?
Jim Stock: Well, there are a couple of ways to think about the ESG debate. Certainly I think one of them is fairly narrow, which is that ESG is fundamentally about asking corporations to do something largely voluntarily that will reduce emissions. And if one takes the view, as we often have in the United States, that the purpose of a corporation is to maximize shareholder value, and then you take a fairly standard neoclassical line that that's going to then result in improved economic activity throughout the economy and more jobs and higher productivity and so forth, and making everybody better off, then it really does raise the question. And I think there's a legitimate intellectual point about what's the role of a corporation in that context, and what is it able to do in that context, and what is it reasonable to ask corporations to do?
The flip side of that is that we're in a situation where we have passed the Inflation Reduction Act, but before then we had very little guidance from Washington. We still have fairly modest guidance from Washington, aside from these subsidies that were passed through the Inflation Reduction Act. And so we're sitting in a situation where absent clear public policy guidance and absent any unanimity from the states, we're asking for corporations to step up to the plate. And that puts them in a really tough position. Even if the aspirations of the corporations and the corporate leaders are laudable, and they really do want to help reduce overall emissions, it puts them in a really difficult position where it becomes a bit of a political debate. At a higher level, I think I would take some issue with this being an example of resistance to the transition. I think there are definitely different views across the spectrum about how the energy transition is going to be done most effectively. I think there's much less debate, much less disagreement about the importance of decarbonizing the economy. It really is now, at this point, more a question of how that happens rather than should it happen.
Gordon Hanson: So the ESG debate has been fascinating to watch unfold. Inside the corporate boardroom, the view of it is, in part, is that this is a new element in the compliance agenda: Things that we have to report on that we're obligated to do, in this case not legally but in some moral or political sense. Once we've accepted the goal of reducing climate emissions, companies are going to be pretty happy to report on what they're doing. And so it doesn't conflict with broader objectives. I guess I have a contrarian view on the value of this debate. I think if you want to distract attention from meaningful efforts to reduce carbon emissions, then the debate about ESG is great because you're going to absorb all of this energy into a discussion where there's not really that much on the line. What's on the line is taking seriously changing the way in which we produce electricity and trying to interconnect grids and making big bets on new forms of energy production. And if we can divert some of the heat evolved around the politics of that into the ESG debate, then great.
Ralph Ranalli: Great. So we're nearly at time. But this is PolicyCast, so we like to end on concrete specific policy recommendations, the ones that if there are people whose hands are on the switch manipulating the levers of policy and power who are listening, what would your top policy recommendations be for advancing decarbonization and at the same time mitigating those employment impacts and possibly even creating a net benefit for distressed labor markets? Jim, I'll let you go first.
Jim Stock: Sure. I'll just pick one, which is siting reform. One of the big challenges now that we face in terms of implementation of the IRA is that with really cheap renewables, especially with the subsidies, there's questions of: Where do you build them? Can you build them? And most importantly, can you get the power that's generated from where the wind in the sun is to where the demand is? And that requires being able to build these facilities to connect them to the grid and to bring that power to the coasts. So that's a really thorny set of issues with the final one, transmission siting, being the most difficult of all.
Ralph Ranalli: Gordon, I'll let you have the last word.
Gordon Hanson: Sure. I'm going to give two recommendations. One is just separate climate policy from dealing with distressed economic regions. Don't try and pull off a two-fer, because you probably won't do it. So do your climate thing. And on the employment side, the focus should be not job loss from the energy transition, but concentrated job loss in general.
And we can do much better in terms of designing unemployment insurance to deal with instances of concentrated job loss. And we can do much better in terms of expanding the scale of active labor market programs that help displaced workers get re-employed quickly. We've learned a lot about what works. What we haven't done yet is scale those approaches or diffuse information about how to design them and how to implement them nationally.
Ralph Ranalli: Well, thank you both. I really appreciate your being here. It's been a very enlightening and enjoyable conversation. Thank you very much.
Gordon Hanson: Absolutely. Thanks for having me.
Jim Stock: Thanks very much.
Ralph Ranalli (Outro): Thanks for listening. Please join us for our next episode, when we’ll be joined by Harvard Kennedy School Professor Stephen Goldsmith, who’ll talk about the smart infrastructure revolution and why he thinks Republicans should get behind it. If you have a comment or a suggestion about our podcast or a specific episode, please email us at email@example.com. And until next time, remember to speak bravely, and listen generously.