A Green Lining to a Global Crisis?
A Conversation with Joseph Aldy
Joseph Aldy is a Professor of the Practice of Public Policy at the John F. Kennedy School of Government at Harvard University, a University Fellow at Resources for the Future, a Faculty Research Fellow at the National Bureau of Economic Research, and a Senior Adviser at the Center for Strategic and International Studies. He is also the Faculty Chair for the Regulatory Policy Program at the Mossavar-Rahmani Center for Business and Government. His research focuses on climate change policy, energy policy, and regulatory policy. In 2009-2010, Aldy served as the Special Assistant to the President for Energy and Environment, reporting through both the National Economic Council and the Office of Energy and Climate Change at the White House. Aldy was a Fellow at Resources for the Future from 2005 to 2008 and served on the staff of the President's Council of Economic Advisers from 1997 to 2000. He also served as the Co-Director of the Harvard Project on International Climate Agreements, Co-Director of the International Energy Workshop, and Treasurer for the Association of Environmental and Resource Economists before joining the Obama Administration. He holds a PhD in economics from Harvard University, a Master of Environmental Management degree from the Nicholas School of the Environment, and a BA from Duke University.
Keith Forman: In the past, we've had numerous conversations regarding the price of energy, but today let’s focus specifically on oil prices. During the past 28 months, the impact of the coronavirus lead to a supercharged fiscal policy, which then fueled a hyper charged recovery from a seeming economic abyss. And now the Ukrainian crisis has only exacerbated the volatility of energy prices. We’ve seen oil prices from top to bottom swing about $160 in the past two years, if I'm not mistaken. So, first off, are these current high prices of fossil fuels good for climate transition or bad from the perspective of accelerating change?
Joe Aldy: Well, I think the critical thing we need to focus on when we think about the role of prices and driving decarbonization is the predictability of price. That I think is critical from the standpoint of a household and how they make plans when they think about: where they're going to live or where they're going to work, what kind of commute that means or what it means for taking the kids to school or soccer practice, or what kind of car they decide to buy. For all this, it helps to know how much the price of gasoline is going to be. I think that's the challenge of the dramatic volatility in fuel prices we've experienced over the last few years. It's very hard for a family to predict and make plans. It's also very hard for businesses that need to make decisions about the equipment they buy or the next large project they undertake to do that when one of those key inputs, the price of energy, is so volatile. And as a result, we tend to think there's a bit of a chilling effect when people are kind of faced with that kind of uncertainty. They might wait and hope that some of that uncertainty gets resolved before they make any big investments or changes in behavior. So I think that's the big challenge that we face right now when we see the highly volatile prices: it's not the kind of predictability that's necessary to foster transformational change.
If we want to send signals to people that “look, in the long run, you don't want to be buying gasoline and diesel and other fossil fuels for you to be able to turn on the lights in your home, etc.,” price can be a really effective instigator. And in fact, we've seen historically price being really effective at driving changes in how we source our energy and how we economize and become more efficient in our consumption of energy because people don't care about energy just for the sake of energy. They care about the services we get when we combine a source of energy with a piece of equipment or some capital asset or what have you. So I think right now when we see high prices, there are some who think, “hey, this is great” and it's going to encourage some people to buy electric vehicles (EVs). But what we really wanted was for people to have thought two, three or four years ago that prices would be high now or might be high going forward and be able to adjust and make plans in advance.
And I think that relates to the other fundamental challenge here — the political economy. Once we start experiencing these high prices and volatile prices, opponents of ambitious climate policy point to that and say, “hey, you don't want that climate change regime, it is bad for you.” What you really don’t want to see happen is that an economic slow-down with origins in the pandemic or from a rising interest rate environment be used as an excuse to slow-down or even reverse the progress we’re undertaking. So even if it's disingenuous, even if it's just sort of a tenuous claim, even if it's something that is hard to know right now, that will be the subsequent empirical question. There will be opponents of climate policy that will say “we're going to have high prices like this if we go forward with the decarbonization agenda of the proponents of renewable sources of energy, carbon taxes, etc.”
Forman: Are you saying that we go Adam Smith here? Those opposing efforts to transition to renewable energy focus on supply and say the one way to fix high prices is to increase supply and therefore we need to drill more. We need to mine more coal; we need to keep in service fossil facilities because we want to lower the prices that people are absorbing now.
Aldy: Well, we do face this challenge where we have 24/7 media and social media. We have demands for immediate action. And we're talking about a market that does not move quickly. So there'll be conversations whether we should we be leasing more acreage in the Gulf of Mexico to oil drilling companies. That is actually a current policy debate right now, as the next lease offering under federal law (OCLA) is being developed. Even if we were to say we're going to put more in the Gulf of Mexico up for lease, that oil is not going to be produced immediately — offshore drilling just takes a lot of time. You have to do your homework in advance before you decide to bid on it. But then once you have the lease, you have to spend some time doing the seismic imaging and really try to understand where is the target resource; then enter into a contract with a contract driller. We typically think these projects are taking sort of 5 to 7 or 8 years. It might even take longer for one than the ten year cutoff where you have to relinquish the lease back to the federal government. So when you hear people say, “hey, we've got to drill more”, one needs to realize that it takes time. Now, some of the onshore developments, where the rights are already well established, and that are using fracking technologies can move a little bit faster.
But there are also people who say this is why we need to build a ton more wind and solar facilities and why we need to start installing heat pumps everywhere — all this stuff takes time. When you see what's happening right now, where I think it's, as you noted, a combination of factors, both an increase in demand coming out of COVID lockdowns and increased activity fueled by government stimulus. Now we see a restriction in supply because of the embargo and limitations on Russian output, at least to many of the Western democracies. It's kind of like you're watching a car accident happen in slow motion, but, you know, there's nothing you can do at that point. Or some people like to talk about this, you can't turn a supertanker on a dime, it just takes a little bit of time. I think we move much faster now when you think about incredible growth in our generating capacity, wind and solar, we've built in the last five years. I'd say it's comparable to how long it typically took to build new power plants. Some of these things can move faster than they have in the past, but not fast as in the next few weeks or the next few months, which is what grabs people's attention. That's the political and the policy challenge for Washington and other capitals, there just aren't many policy tools for you once you're in this bind.
Forman: So you mentioned volatility, and I concur with the premise that households and corporations need to know what the environment looks like five years from now when they make these decisions today. But it's clear to Europe, from a sovereign perspective, from an EU perspective, that this volatility has exposed the tenuous nature of its relationship with Gazprom, not to mention Russian oil. So here's where volatility — it doesn't matter if prices are going to go back down — has exposed an untrustworthy counterparty. Can you make the case that the Ukrainian crisis is a game changer for the EU spurring a more accelerated pathway to greener? Can you also address that “greener” has expanded its definition to include natural gas and nuclear from a year ago?
Aldy: I think there are going to be short term, and by short term I mean the next winter, and then medium-to-longer term impacts. And part of that is related to the previous comment that you can't turn the supertanker on a dime. I hope Europe has a mild winter coming up because while they have undertaken some efforts to increase their capacity to import LNG (liquefied natural gas), to try to increase their ability to store gas in advance — it may not be enough. For a lot of these countries, Russia is the major supplier of gas. And if you're not going to be importing that gas, it's going to be hard to heat, and in some places, to ensure sufficient electricity generation. Part of it is a challenge where we have seen in the case of Germany, walking back from nuclear decommissioning. And in the short term, we may need to question what impact might this have on coal usage. Natural gas prices will go up, especially in US and Asia, as Europe effectively cuts off supply from Russia. The concern is to what extent does that give a bit of a lifeline in the short term to more coal? There's a sense in which there might be burning more coal to make up for the fact that they're going to be short of gas over the coming months in Europe. This spillover may happen globally as natural gas prices will be higher everywhere. That may extend the lifetime a coal fired power plant in the US for a couple more years; where they see their primary competition, that has been beating them into the ground over the past decade, is now at its highest price since 2008. In developing countries, they will be trying to think through how they might source their growing need for power for their electricity markets. And they may see that coal looks relatively inexpensive now that natural gas prices are going up. So I think there's a concern that in the near term, as you try to meet your basic energy needs, your heating needs, and your power needs, that you're going to see some return to coal that may offset some of what may be near term efficiency or conservation measures associated with higher fuel prices.
Now, the longer term for Europe is to figure out how to get off the natural gas dependency. I think it is very possible this can happen given that they already have, I think, a lot of political will to be ambitious on climate change. There is one thing that is a bit comforting about how much coal may move into the EU power system — the EU Emissions Trading System (ETS) that's capping the emissions of power plants and large manufacturing facilities. If you bring in some more coal to meet your electricity needs, that's going to require emission reduction somewhere else. So you may not really get much of an adverse impact on emissions there, but I'm still concerned about what it might do to increase from what it would have been otherwise. Emissions from coal fired power plants outside the EU, whether it's in the US, whether it's in some other emerging economies, I think that that is potentially sort of a near term effect where we have higher emissions in the near term. But you may be galvanizing political will for even more ambitious cuts in the EU. Now the alternative is, with really high fuel prices and high inflation in Europe, they might just say, we can't do this, that we may have to walk back some of our ambitious plans. And that would mean it's more coal, not just in the next 6 to 12 months in Europe but maybe the next five years. This might provide the time they need to really build out enough renewables and to think about what alternatives to buying gas from Russia can enable them to advance their goals but not be held hostage to their primary supplier.
Forman: So we might have to put our 2030 lenses on and look at the goings on today to welcome these contemporary market upheavals? We’ve talked about prices and volatility and energy extortion maybe resulting into some long term good, and let me put on my liberal academic hat on and say this is great because it really exposes the frailty of fossil fuels. This is why we have to get out of this fossil fuel world. But this totally ignores all the people that are around me, I mean, the ones that aren't in my epistemic bubble. So this situation, even if you can make a case that it might nudge things in the correct direction for the long term permanence of the world, it really disproportionately burdens the lower part of our social pyramids.
Aldy: So, you know, this is part of the reason why it's important to get a little bit into the weeds. There's a risk, as an economist and a policy wonk, that we get into the weeds too much. But why? It is so different to have high fuel prices because of shocks to supply somewhere else in the world and have a high fuel prices, say, because of a cap and trade or a carbon tax? With the latter, we have higher prices, but we are creating a lot of economic value that we keep in the country. We're raising revenue either by auctioning off those allowances like they do more and more in the EU or as they do in California. They do it also in the Northeast and mid-Atlantic states through the Regional Greenhouse Gas Initiative. Or let’s say you raise revenues through a carbon tax. And what you can do then with those revenues is target lower income households who do spend a larger fraction of their budgets on gasoline, on electricity, so that they're not made worse off by this policy.
The problem right now with high prices, because there's a supply shock in the world, is that it's the owners of the wells, and to some degree the refiners, are the ones who are enjoying larger profits than they would have typically. Otherwise, the money is going to the other countries in the world that we buy oil and gas from. There's no mechanism, when there's just a supply shock in the world, to be able to really help target assistance of any form to those lower income households like you can with climate change policy. And of course, politically, that's one of the things that makes this really, really hard right now as we live in a time of volatile fuel prices, initially influenced by the Ukrainian crisis and now exacerbated by OPEC production constraints. If there's one price that is known by more Americans than anything else, it's probably the price of gasoline because it's posted on every other corner in America. So it makes it all the more salient. When the price of milk has gone up, I don't notice because when I buy milk, I'm buying 20 or 30 other things at the grocery store. You notice your grocery bills higher, but it's not like gasoline. I go to the store, I go to the station, I fill up my car. I'm like, “Wow, I've never seen a number that big before on a pump.”
I think about this in terms of the impact on the attitudes of consumers, about their pessimism about the economic outlook, which is a bit complicated in the US. We see a very pessimistic outlook when we look at consumer polling with regard to the overall wellbeing of the economy vis-a-vis opinions on individual economic wellbeing which polls better. This has probably to do with low unemployment and rising wages despite rising costs. I don't want to be too Pollyannish as I think there are some significant concerns about how we're going to think about the policy responses to inflation, what impact that might mean on slowing economic growth, what that might mean about future unemployment over the next 6 to 24 months. But I think the price of gasoline is just incredibly salient; and I think that one of the challenges we face is how do we address the fact that it is a burden on those who don't have a lot of spare savings and to whom $5 gasoline is a huge difference from $2.50 or $3 gasoline.
Forman: Joe, can I put you in charge of explaining how gasoline prices doesn't even count in core inflation to the public?
Aldy: Right. So, typically, when policymakers try to understand inflation, they recognize that there are two categories of what we consume, one where prices go up and go down a lot with fairly high frequency and the other where price movements are stickier and more persistent. And so this first category is going to be the cost of energy and the cost of food. Let’s say there's a really bad crop year for grains because of droughts or because of flooding and food becomes more expensive, but we know that's not likely to be a persistent change in food prices since the next crop is likely to be much better — we'll have more supply. We'll see the price of those grains and everything that's made with those grains go down. And likewise, there may be a short term supply shock that causes crude oil prices to go up and hence gasoline and diesel prices go up. But likely at some point that supply shock will be remedied — we'll see more supply come back online. I think back to Hurricane Katrina which knocked out a lot of both refining capacity and pipeline capacity. We saw over the course of weeks the price of gasoline in the East Coast go up more than $0.50 - $0.75 a gallon. We then had Hurricane Rita hit just five or six weeks later. And that was stressing. The prognosis for gasoline prices that winter was not good; but we were able to make the repairs to the system, get the refineries running again, get the pipelines back up to full capacity again — and we saw the price come back down. So in measuring core inflation, we try to strip these volatile components out because we know they go up and down and we don't want to make long term policy decisions such as monetary and tax policy based on short term factors.
Forman: To the extent that gasoline prices stay where they are, even though we're pulling them out, they'll ultimately be baked into the prices of the goods and services that are in the core inflation now?
Aldy: Yes. So there is going to be some spillover such as in services like restaurants. A lot of what they get delivered to them is more expensive now because freight costs are higher in response to higher fuel prices and other short-comings of the supply chain. And the question is, as we think about some of those services, do we think those prices are going to go back down or do we think they're going to be kind of sticky? Do we think that some people are going to demand higher wages that are likewise going to be sticky; they're not likely to go back down, even if some of the inflation pressures that encourage people to ask for higher wages and higher salaries, eventually dissipate.
Forman: That's one of my thoughts when I saw a McDonald's paying $18 an hour in Salmon, Idaho. I just thought to myself, hey, that's probably good because that's not going to go back down to $11. In the context of income disparity, a good outcome. Is the market actually resolving wage gaps without tax policy, without changing the minimum wage? So maybe there is some good; however, moving into a recession where instead of getting $18 an hour you get no dollars because McDonald's decides to cut staffing — this could be the other side of the coin.
You are at the Harvard Kennedy School which is known for its expertise in policy and politics — so let’s now discuss the politics of the situation. In the context of compromise, we've already talked about Europe maybe having to go to coal and is looking more favorably at fossil fuels to get through this period. We also saw President Biden recently meeting with Crown Prince Mohammed bin Salman of Saudi Arabia, who he has called a “pariah” in the past. In addition, I was recently in Israel and they're talking about making Saudi Arabia part of the Abraham Accords. How do we backburner issues like human rights abuses in response to near term desires?
Aldy: So this is the challenge that a president faces, which is a very different challenge to what presidential candidates face. It's much easier for candidates to ignore tradeoffs and complexity. As president, you get a first-hand look at your relationships and whether it's Saudi Arabia or it's China or it's even Canada and Mexico, who we think of as being very close partners economically and politically and so on, but they're complicated. So there's some things that you're going to have conflict over. There's some things where you have to work together. You just have to. And so it's a challenge, I think, when you are trying to address something that matters a lot to the American people, which is what's the price of gasoline, when you're speaking, whether it is to Saudi Arabia or other major players in OPEC, you want to have a conversation about how we need to actually get more production going right now.
Now, the reasons some of these conversations are complicated is that OPEC has been coordinating with Russia in recent years. So let’s do a little flashback to August 1990. Iraq invades Kuwait. Iraqi and Kuwaiti oil are basically off the market. We lose almost overnight 5 million barrels a day, which is a huge shock to the market. Now, the thing is, at the time, Saudi Arabia, UAE, a couple other countries had a lot of spare capacity. They had made a lot of investments early in the late seventies and early eighties when they saw oil prices, really high. Oil prices over the second half of the eighties had declined. And so it wasn't that difficult for them to really increase their production significantly. And the United States lobbied Saudi Arabia quite aggressively to get them to do that. Because of war, the global markets acknowledges that someone is offline now. It has not quite been that way with Russia and Ukraine. So I think there's this question about how you might work with Saudi Arabia to see if they can produce a little bit more oil now. But it's complicated by the fact that Russia has been an economic partner with Saudi Arabia in recent years in the world oil market. It's also complicated by our economic policy and financial policy with respect to Russia — we're trying to say we're not going to buy their oil anymore. But we're seeing Russia ship oil to other countries that are outside this alliance of Western Europe and the Western democracies. We've seen Chinese and Indian imports of Russian oil increase. There's now an effort to try to see if we can put in a kind of price cap that would try to use some of the buying power of consumers to limit how much in revenues Russia can generate from this. Now, depending on how that gets implemented, that might start to look more and more appealing to Saudi Arabia. And at some point, it may be saying we're going to take out a major competitor. It may mean we go into a period of higher oil prices than what we had say in 2018, 2019, 2020 pre-pandemic. Once we got into March 2020, the market went haywire. But I think there's a potential where you can say, look, we want this kind of economic relationship and we need it for the world. And we're doing this as the US and Saudi Arabia, the world's two biggest producers of oil. We have seen drilling activity increase here in the United States which is going to lead to more production here as well. But it's also hard because there are serious concerns about the actions in the Saudi government and their approach to human rights which is getting more attention now. Let's be frank, it's not like this is just a new thing. We've been working with non-democracies for a long time. They play a major role in how we power the planet and we've overlooked their abuses to sustain ourselves in power. And in fact, there are times in the past when the United States government was actively supporting those who were not democratically elected in some oil producing countries. So, you know, it has been part of the complicated way about the world we operate in, where sometimes you have to work on some issues where it is in your interest to work with a country where on other issues you want to criticize them, where you want to actually use any kind of lever you have to drive change in those countries. And so you have tough conversations.
Forman: High oil prices. Windfall profit tax introduced in the UK. I don't think the US will introduce one here now, despite implementing one from 1980 to 1988. But high prices actually have created undue profits going to oil producing companies as well as countries. And in the case of BP and maybe Total and Shell, this is sort of the ‘nest egg’ that they're saying they're going to use for the energy transition. So if it takes $3 billion to do the carbon capture project at Teesside, UK, BP can now do two of those projects contemporaneously. So in the private sector, can we spin a case that we don't need to do windfall profit tax because the profits in some of these cases will be spent for the benefit of all? Or should we mark the dollars and say, if you don't redeploy them in this way, we will tax you? Is that possible, even given the fungibility of capital?
Aldy: So there's a little bit of empirical research showing that when we did the windfall profits tax in the early eighties, it discouraged US production. It did have an impact on drilling and subsequently on production, especially over time. In the short run, you just have some wells that become less and less productive. The pressure in the field goes down and you kind of have to work more to get it out. And at some point with the windfall profits tax, you're not incentivized to spend more to maintain production so you are going to just produce less out of the field. So it's not just like, yeah, I found a field, I stick a straw in and I just let the oil come out until it's done. Since there's a lot of work continually being done on producing fields, such as enhanced oil recovery, you're more likely to do it when you're going to make more money doing that. So there is a concern that if you don't design a windfall profits tax well, you actually deter the domestic production that you need right now given high oil prices. So the question is, do we see these companies make an argument that they’re going to do the kind of investment that the advocates of a windfall profits tax want them to do in the climate context? I can imagine that being a talking point or maybe a set of talking points. I'm sure there are people within these companies who, especially given the last few years, believe that they now have revenues to move forward with what are ambitious investment programs in clean energy. I'm also sure there are those in some companies who believe that they can move forward and do more of this. But I can also imagine that there are those who are the owners of these companies who are like, it'd be nice to have larger dividends now than what they paid out in 2020. So it's complicated. And, you know, for some of these companies it's complicated when we say all these oil companies are getting rich. Another way to think about this is as a major shareholder of BP in your UK pension programs. The funds and the pensioners like those dividends and it helps them meet their pension obligations for retirees in the UK. So I think the politics of this are very complicated.
That said, is it a choice that we're going to try to monitor, or are we going to let these companies voluntarily tell us all the great things they're doing with their revenues on climate? I think it's all part of a political fight and the arguments that each side brings to that fight on a given policy option. But to me, the bottom line is in the US there's no bipartisan pathway to a windfall profits tax. I can't imagine current Republicans crossing the aisle on this. And that means you'd have to have at least 50 Democratic votes and you'd have to think about a way in which you shoehorn this into a future reconciliation bill. And given what Senator Joe Manchin has said in the past, I'm not sure he would make a windfall profits tax on the fossil fuel industry, a part of further tax reform that he'd support.
Forman: Let's talk about a carbon tax and maybe in the context of Europe having a border adjustment mechanism. What do they call it, Joe?
Aldy: A carbon border adjustment mechanism, the CBAM.
Forman: Right. And then you have Senator Sheldon Whitehouse who believes he might be able to get 55 senators to agree on a carbon tax. Do you think that has a chance — the possibility of properly pricing the negative externalities of fossil fuels?
Aldy: The Whitehouse proposal is pretty interesting in the sense that although Senator Whitehouse has been an advocate for a carbon tax for a while, in contrast to his previous proposals that have been for an economy wide carbon tax, this proposal would impose a tax or a fee on energy intensive manufacturing in the US and on imports in those industries that come from other countries. The basis is the carbon intensity of that industry. So what you can think about is if you run a steel mill and your carbon intensity is better than the average of all US steel mills, you pay no tax. In a sense that the first part of your output is going to be exempt from the tax so long as you are at least as efficient as the average of your industry. And if you are importing steel from, say, China that has a higher carbon intensity than the average of US steel, those imports are going to be facing a fee as a function of how much they're above that benchmark in the US. This proposal is structured so that the more carbon intensive goods manufactured in emerging economies and only the dirtiest sources in the US industry are going to face a fee in the near term. Now over time, that benchmark becomes more stringent and more and more US sources would face a fee. This bill would at least get us started with pricing carbon as a way to reduce emissions in the US. But at the onset addresses the concern of unfair competition from countries where we import a lot of our more energy intensive goods. So I think politically it has some appeal. It has some differences, but I think it’s conceptually aligned with part of the proposal from the Climate Leadership Council, which was originally a number of Republican elder statesmen trying to get a carbon tax on the table politically. I think there are some in the business community, and some conservatives who might say this is a reasonable way to go forward, especially if we do it in lieu of EPA regulation.
I also want to comment on another challenge for just a moment. There was some sense that Senator Manchin would be a possible yes on climate policy that ensured that whatever we implement is also applied to our foreign competitors. Now, having said that, 55 is not the number we need. We either need 50 and get it in reconciliation or we need 60. So whilst Senator Whitehouse thinks there's a few Republicans who are willing to cross the aisle, it's hard to count to 60 and especially count to 60 as people focus on the election and possible swings in majorities.
Forman: We've touched a little bit on this, the energy security issue. I do want to ask you how does what's happened in the world in the last 24 months impact your OPEC simulation game that you're renowned for doing in your Energy and Environmental Economics and Policy course? I think that current events, have changed the rules. The algorithm may need to be fixed — do you think so?
Aldy: I'm going to have to go hire a teaching fellow to rewrite the game. You're right. I mean things have changed. Severin Borenstein first developed this game at Berkley, and then Gilbert Metcalf at Tufts made a few modifications and also used the game. I also made a few modifications. The big things that have changed are when OPEC decides to coordinate with other suppliers, like Russia, which is not part of the original game, and how we just take the rest of the world's demand as a kind of given. Especially when we think about, I think how quickly in the US you could change fracking technology to impact global supply. Maybe the game needs to be changed more. I think there's still some pedagogical value given its current setup. So maybe I'll use that as my justification for not for not changing it. There was a point in, I guess it was 2013 or 2014, we changed sort of the fundamentals of the game. So a typical clearing price would be more likely around $70 or $80 a barrel instead of $40. Because when it was first written by Severin, it was really written in a period when you could expect prices in the $40 or $50 range. And that seemed okay around 2016 when I started running it again after I came back from sabbatical and the price of oil had fallen back down to about $40 or $50 a barrel. So there's a risk in trying to revamp a game to sort of anticipate where you think the market is going.
But I would say another way to think about this and wrap up, is that the last 24 months have put a lot of pressure on the global economic and political systems not to mention global citizenry. It has also shown some of the weaknesses we see in terms of cooperation among countries when faced with dire shocks. The COVID shock really showed that in a bind we resort to our nationalist tendencies across the board. We did not see good cooperation in managing the risk of COVID, and we still don't see it. And that gives me pause when thinking about the effects of climate change getting worse and worse and we realize we haven't done enough to deal with this problem. How do we find creative ways to work together? Or do we start putting up walls? What do we say to those who are in flood ravaged countries or places where it's truly too hot to even live? Do we say, no, you can't immigrate into our country? What do we say to those whose island countries are slowly going underwater and can't relocate somewhere else? Do we stop spending money to help these who are at the forefront of climate change because we recognize we now have communities in our own country who are suffering the risk of climate change? And I think there were some really important lessons as well about adaptation when we think about COVID. For me, COVID was inconvenient. I could basically do my job with my computer at home and that's inconvenient. There was no life or death risk associated with my employment like people who, especially early in the pandemic, went to work without mask, went to work in places that were poorly ventilated, and they were exposed to a lot of other people. And then I think of those who lost their jobs when we saw that incredible drop of employment by 20 million jobs in one month. I think we saw that kind of inequality in our means and opportunities for adapting to a shock that I fear we're going to see that kind of inequality in the future. So these recent instances give me pause and maybe a little pessimism.
What gives me hope are our students. What gives me hope is the passion, the creativity and the technical skills that our students have which is going to make them really important problem solvers going forward. It's going to enable them to come up with ways beyond capabilities at my age to be as imaginative as they will be in tackling these problems. Knowing that they have the motivation to tackle these issues and I see the ingenuity they bring to develop the solutions that are both technically appropriate and politically viable. That's really exciting. And part of it is we're trying to deal with this in the context of, I think, some bigger problems, like the future of democracy in America. I think what becomes of our democracy has important implications for how well we will address climate change and how well we'll be able to work with other countries to address climate change. But we have students who are tackling that and we have students who are tackling our democracy because they're really passionate about climate change. So that's what gives me hope. Even as I've been a bit frustrated and seeing how we've managed the shocks and the risks we've been confronted with over the last two years.
Forman: Well, you have you have a great legacy. You have positively influenced the White House, Senator Whitehouse, a small group of climate policy advocates that are dispersed all over the world, in Jordan, Belgium, France, Germany and around the US all working hard to impact change. That has to make you proud. It gives me hope just thinking about it.
Aldy: Well, it is great to see them out there doing what they do and doing it so well.
Forman: Thank you very much for sharing your time and insights.
About the Author:
Keith Forman is a Harvard Advanced Leadership Initiative Senior Fellow with 40 years experience leading global companies in the energy industry. He is currently Chairman of Capital Product Partners, a shipping company based in Greece, and senior advisor on global energy transition issues to Kayne Anderson Capital Advisors, an investment management firm in Los Angeles. Previously, Keith has served as CEO of two renewable energy companies, as well as Independent Director, CFO, and SVP of Finance of various hydrocarbon infrastructure companies, including Crestwood Midstream Partners, El Paso Corporation, and GulfTerra Energy Partners. He began his career advising natural gas pipeline clients at Manufacturers Hanover Trust.
This interview has been edited for length and clarity.