Inside RFF / Reaching Out

RFF Fellow Billy Pizer recently returned from a one-year stint at the White House Council of Economic Advisers, where he served as a senior staff economist, a position that has been held by several other RFF researchers. Resources caught up with him to find out what the experience had been like.

RESOURCES: What did you work on while you were at the Council of Economic Advisers (CEA):

PIZER: I mainly focused on climate change issues. One of the interesting things about this position is it's different every time; a lot depends on what's going on. Shortly after coming into office in January 2001, President Bush rejected the Kyoto Protocol, saying that it didn't serve U.S. interests. In June 2001, he gave a speech in the Rose Garden, where he talked about how America remains committed to the framework of climate change, with policies that emphasized science and technology. After I came on board, the focus shifted to development of a mitigation policy.

I worked closely with the staff at the Council of Environmental Quality, which was tasked with developing policy options that were then run through the Cabinet-level working group, which in turn offered recommendations to the president. This is where the idea arose for a goal for curbing greenhouse gas intensity instead of absolute emissions. The group studied a range of possible targets, including the eventual choice of an 18% intensity reduction over the next 10 years. Finally, there was the idea that firms and individuals that demonstrated real reductions should be issued transferable credits for those reductions, which could be used against some future obligation.

RESOURCES: RFF researchers were among the first to promote markets for trading emissions credits. How would your proposed market for intensity reduction credits work?

PIZER: The first question is what the demand for these things will be—there's no policy in place now that requires people to hold these credits. However, there is a real possibility that some sort of cap-and-trade or mandatory mitigation program will be put in place in the future and companies will face significant obligations. Consequently, companies will have an incentive to buy these credits now when they're really cheap—providing a kind of insurance against future climate change policies. If there is some mandatory policy in the future, the credits will appreciate in value.

Our program would be based on a voluntary reporting scheme that is part of the Department of Energy's 1605(b) program, labeled that way because it's part 1605(b) of the Energy Policy Act of 1992. The current 1605(b) program has focused on flexible participation—allowing firms to record their emissions reduction activities in a variety of ways that have sometimes sparked criticism. For our purposes, the program would need to be made a lot more credible and verifiable before it can be the formal basis for credit generation.

RESOURCES: What's the status of the proposal?

PIZER: An interagency working group met regularly over the past few months to discuss ideas for reforming the program. There also were outreach efforts, including soliciting public comments and issuing a formal notice of inquiry. The Secretary of Energy recently issued recommendations to the president regarding principles for the program and a proposed implementation schedule. If all goes forward as planned, the program may be up and running by the end of 2003. (Note: The recommendations are available at www.energy.gov/ HQPress/releases02/julpr/pr02136.htm, accessed July 22, 2002.)

RESOURCES: What are the pros and cons of this approach?

PIZER: A significant advantage is that this program could be implemented solely through administrative actions without involving Congress at all. The disadvantage, for many people, is that the program is strictly voluntary, with no mandatory reductions. But everything is a signal, you have to interpret these actions and act accordingly.

RESOURCES: How did your RFF background particularly contribute to your work at CEA?

PIZER: I came in well prepared for the climate change work, having covered this issue from a lot of different vantage points. And I greatly benefited from the wisdom of people like Dick Morgenstern, Mike Toman, Ray Kopp, Richard Newell, and others. These people really helped me form my ideas and opinions about how an emissions trading system would function.

RESOURCES: What will you take away from the experience? What are you going to do now that you're back?

PIZER: It has been an invaluable experience learning how all these clever theoretical ideas you have about prices and quantities, or the upstream regulation of carbon dioxide, mesh with technical and political constraints and don't always turn out to be possible. What I've come away with is a much greater appreciation for the policymaking process and an awareness of the need to consider the state of technical knowledge about a given area, the stakeholders, their experience with market mechanisms, and so on. Now that I'm back, I'm going to need to rebalance my research portfolio. I'm very interested in thinking about what you have to do to make these complex policy ideas more practical.

And I'm very interested in what we at RFF can do to better inform public discourse. One of the things you don't ever realize until you're on the flip side of the news is how misinformed the media can be about environmental issues. I would read articles about issues where I had first-hand knowledge of what was going on and what the policy was really about. Even stripping away all the political rhetoric on both sides, reporters still struggle to get the facts right.

I think there is really a valuable role for RFF to play as broker of information, explaining both sides of a problem. We have the capacity to present things in a more objective way because we don't lobby and we don't raise money based on the positions we hold, which is how everybody else does it.