Janet Yellen and the Treasury Take on Climate Change

Joe Biden has made the fight against climate change a focus of his new administration. Consistent with that focus is his appointment of Janet Yellen, a former Federal Reserve chairman and an advocate for climate action, to the role of Secretary of the Treasury.

The Treasury Department is responsible for guarding the United States’ economic health. While much of its work during the early months of the Biden Administration will be to help the country to navigate the ongoing economic impacts of the COVID pandemic, economic damages due to climate change have become more apparent in recent years, and the need for the Treasury to take action on the climate front has also become clear.

Joseph Aldy, an energy and climate economist at Harvard University, explores the steps that the new Treasury Secretary can take to address climate change, including the tools that the economic agency might employ to set its own climate policies, and influence climate action in other areas of government. Aldy also discusses the Treasury’s power to influence global climate action as the country’s chief economic diplomat.

Full Transcript

Andy Stone: Welcome to the Energy Policy Now Podcast from the Kleinman Center for Energy Policy at the University of Pennsylvania. I’m Andy Stone. Joe Biden has made the fight against climate change one focus of his new administration. Consistent with that focus is his appointment of Janet Yellen, a former Federal Reserve Chairman, and an advocate for climate action, to the role of Secretary of the Treasury.

The Treasury Department is responsible for guarding the United States economic health. And much of its work during the early months of the Biden Administration will be to help the country to navigate the ongoing economic impacts of the Covid pandemic. Yet as the economic damages due to climate change have become more apparent in recent years, the need for the Treasury to take action on the climate front has also become apparent.

This has raised interest in the steps that the new Treasury Secretary might take to address climate change, and how an economic agency might in fact shape climate policy. In today’s podcast, I’ll be talking with Harvard University Energy and Environmental Economist Joe Aldy, about the Treasury’s power to join the effort to address climate change. Joe will take a look at the tools the Treasury might employ to set its own climate policies, and influence climate action in other parts of government. He’ll also look at the power the Treasury might have to influence global climate action, as the country’s chief economic diplomat. Joe, welcome to the podcast.

Joe Aldy: Andy, thanks for having me.

Stone: So, you have been involved with the Climate 21 project, which promotes a whole-of-government approach to tackling climate change. What is this whole-of-government approach?

Aldy: Well, Andy, I think it starts with a recognition that climate change has an impact on every corner of the economy. For people, whether they’re living in California, where they may be at risk for wildfires, or the Gulf Coast, for risk of hurricanes, or anywhere in the country where we think about the prospect of heat waves in the summer or risks that may actually permeate from climate change that pass through the financial system and affect people when we think about their savings and investments.

So I think when you look at the fact that climate change is going to have an impact everywhere in the economy, and for that matter, our efforts to try to combat climate change, to reduce our emissions and greenhouse gases, are going to require us to decarbonize every corner of the economy as well. You recognize that you need to then bring the full force of the federal government across everything that it does in order to drive those kinds of changes we need to mitigate the risk of climate change.

So that means that it’s not just something that the EPA does in environmental regulations, or the Department of Energy does in developing new energy technologies. But it’s an understanding that what we do in, say, labor markets—think about the risk that climate change may pose to worker productivity, has implications for what the Department of Labor and OSHA may do. It has implications for how we might think about housing, and the kind of policies we want to pursue in the Department of Housing and Urban Development to help address some of the concerns and risks posed by climate change. It’s to think through what might be some of the potential risks that we face through natural disasters that impact how the Department of Homeland Security is going to organize its efforts to address climate change. And because of the risks that climate change poses to economic activity, there’s a critical role that the Department of Treasury can play, when it is actually trying to pursue a long-term economic growth strategy that’s resilient to climate change.

Stone: So, as we said, the Treasury is the executive agency that overseas the nation’s finances and its economy. And you’ve said that it’s got this important role to play. But, how is it positioned to influence climate policy?

Aldy: Well, I think the important thing to start with is the Secretary of the Treasury. The nominee, Janet Yellen, Dr. Yellen, will represent the administration on economic policy. As she works with economic policymakers around the world and other governments, as she works with leaders in the investment community and CEOs in the business community, she’ll be the person representing the administration on economic policy working with Congress, on the steps we take going forward. And so everything that that represents what President-Elect Biden wants to do, and what President Biden will do as President, with economic policy, is going to start with how his economic team, led by Secretary Yellen, will engage all these policymakers in the public and private sector.

And so the thing that I think is really important is to recognize that because climate change has impacts throughout the entire economy, what Treasury does, influencing and guiding, say, what the federal government does on insurance policy. Or what the federal government does on financial regulations. What the federal government does in providing credit and guaranteeing credit into the US economy. All of these are going to have important implications in how they address— and also, how they account for the risk of climate change.

Stone: So, this is a very different role than we might see, for example, from the EPA. Which, you know, kind of comes front of mind when we talk about climate issues. EPA, obviously, would have regulation that would directly impact, say, the amount of emissions that come from a certain industry. This role, for Treasury, is a very different role in that sense.

Aldy: Right. So, EPA could use existing authorities under the Clean Air Act to regulate emissions directly. What Treasury can do in engaging, say, the private sector, is both how to promote and encourage accounting for both climate change risk and what might be the implications of climate change policy in the business and investment communities.

We can think about this as really complementing what EPA does. EPA will be setting out these standards to try to reduce emissions. But what Treasury can do is insure that the business community and the investment community are accounting for what policy may be in the future, to help guide that next investment. To guide those next decisions in the business community, that are going to help reduce the emissions intensity of our economy, that might guide us towards new innovations, in commercializing them and bringing them into the economy to help respond in an effective way to these new policies. And to the ambitious long-term goals that President Biden has set for his new administration.

So it’s different than saying, “We’re going to tell an industry-X to do this emission requirement or meet this emission target.” But I think they can really help drive the change in behavior across everybody in the private sector, in a way that can help insure that we have the breadth of decarbonization we need in the economy, but that we can also do so in a more cost-effective manner.

Stone: Now, Joe Biden has picked Janet Yellen to lead the Treasury. And it’s important, because Yellen favors a carbon tax, and she has a history of supporting climate action generally. Now, the question is, given all that she has on her plate, and notably economic recovery related to the Covid crisis, how realistic is it that she’ll in fact make climate change a priority again, given all that she’s got to think about?

Aldy: Secretary Yellen has a lot on her plate. Rebuilding our economy. Rebuilding our economic relationship with allies around the world, as well. The Secretary of the Treasury represents the administration in international economic policymaking. So there’s certainly a lot that’s on her plate. There’s probably a lot related to tax reform that’s also on her plate.

But I think it starts with the President. When the President says, “This is a priority,” members of the cabinet respond to that. And the President has made it very clear that climate change is one of the first-tier priorities he wants to address in his first administration. It is something that I think is reflected in his choice of Janet Yellen as Secretary of the Treasury.

Secretary Yellen has done her homework for decades, on climate change. I was her staffer back when she was Chair of the CEA, when she was representing the Clinton Administration before Congress, testifying on the economic impacts of the Kyoto Protocol. So she spent a good bit of time back then learning about and understanding climate change policy. Recognizing the importance of dealing with the challenge of climate change, but doing so in a manner that makes best use of our resources. Because it’s that kind of cost-effective approach to climate change that can insure that we, A, can deal with the problem this year, B, have the resources and the political will to take even more ambitious steps in the next year and the next year, and so on.

So I think that she recognizes that this is something that is a priority for the President. And I think she appreciates how this has implications throughout the economy, which is why it’s a natural place for her as the lead of the economic team, to tackle climate change. And I think she will be creative, and her team will be creative, in how they think about delivering progress on climate change that compliments efforts to rebuild the American economy.

Stone: You just mentioned the word “team”. Team, in the Treasury. And that brings up an interesting point. Yellen is walking into a Treasury that has been gutted in terms of the climate experts that it has on staff, and in terms of its climate capabilities generally. How bad have things gotten at the Treasury?

Aldy: Well, you know, I think it’s important to look back that it was Secretary Paulson in the Bush Administration who created the first Climate and Energy Office within the Department of the Treasury. That is an office that continued throughout the Obama Administration, and actually played a number of important roles in how we engaged in international climate negotiations, how we worked with Congress on domestic legislation, how we implemented some of the Recovery Act from 2009 that had significant investments in clean energy technologies.

That office no longer exists. So I think there is a concern about the need to sort of rebuild the staff within Treasury. I think one thing that’s important is where there may be opportunities to advance the climate agenda through the tax code. Whether it’s in supporting renewable power, energy efficiency, new technologies like battery storage or hydrogen technology in the industrial sector, or low-carbon mobility like electric vehicles. They do have good staff on the tax side of Treasury, who have long worked on these issues and are still there. But I think in terms of building up a lot of that policy expertise, they will need to make some investments in personnel.

This is not an issue, though, that’s unique to Treasury. This is going to be an issue, I think, in a number of departments in the federal government, to rebuild the expertise in climate policy issues and climate change risk, throughout the government.

So I think it’s going to start with how they bring in some of the political appointees, and making it clear to each one of them that climate is part of their portfolio. Even if, historically, say, the Assistant Secretary for Domestic Finance, may not have thought much about climate change, we do want that person to think about it. So you want the Assistant Secretary of Economic Policy to be engaged on climate change, recognizing the implications it has for economic growth, but also how to engage in policymaking and rulemaking. Often, the Office of Economic Policy of Treasury would work with other agencies as they help a review of, say, EPA regulations, or Department of Energy regulations.

So I think there are opportunities to build into the portfolios of the political appointees you’re bringing in, that will then guide how you hire new staff to tackle these issues. But I think it is something that is going to take a little bit of time, to build out the staff. To rebuild the staff, to focus on international economic policy, both in how we engage in, say, the climate negotiations and international climate finance. But also, how we use our foreign aid and our foreign assistance. Especially, say, through the development banks, like the World Bank and the regional development banks, to try to promote both more climate-resilient development in the developing world, but also insure that they reduce their emissions of CO2 as they continue to grow.

So there’s a lot that needs to be done. I think it’s an opportunity that actually makes it quite exciting for a lot of the staff, to be able to take on a new challenge. And to do so in a way that spans the capabilities across the department. But the personnel challenge is one that they’re going to have to tackle at the Treasury Department.

Stone: You’ve really emphasized this in your writing. You said quite explicitly that climate knowledge should be hard-wired into the key job descriptions at the Treasury. You know, I wanted to ask a related question here. We’re talking about the tax code, and how the Treasury might act to potentially, I guess, set policies that might be positive for Green Energy, for example. How does the Treasury’s responsibility to direct tax code and certain tax policies, compare to that of Congress generally? Is there overlap? Can Treasury do much without Congress’ say? How does that all work?

Aldy: So, tax policy is interesting as a contrast, if you will, to regulatory policy. Congress often delegates a lot of discretion to the executive branch, in designing and implementing regulations. But in tax policy, there’s very little delegation. There is a little bit of opportunity for the Treasury and IRS to make technical adjustments in the tax code. So, we adjust a number of provisions in the tax code to inflation. So, Treasury and IRS will do an annual inflation adjustment for those things. Including, for example, in the clean energy space, the production tax credit for renewable power generation is indexed to inflation.

But it’s not like Treasury and IRS, on their own, could go and design a carbon tax. They couldn’t completely revamp the existing technology-specific tax credits, and make them technology-neutral, low-carbon tax credits. So there’s got to be a lot of work between Treasury and Congress, for what we might want to do through the tax code.

And I think it’s important to recognize, historically, we’ve actually done more spending through subsidies for clean energy technology, than we actually do through direct appropriations, say, to the Department of Energy. So it is a key part, historically, of what we’ve done to promote clean energy. And when we did the Recovery Act of 2009, I think some of the most successful elements of that were the ambitious ramping up of tax credits for wind power and solar power that helped contribute to the significant investment we’ve seen in both technologies over the past decade.

So I think there’s a lot where Treasury does analysis that can help inform the bill writers in Congress. The Treasury staff have already been— this is something they naturally do in an election year. They’ve already been scoring different provisions of tax proposals from the candidates over the course of the summer and the fall. So they’ve already been doing some of their homework. And I think got into a serious debate about, how do we want to extend various kinds of tax credits for clean energy, how we might want to modify them. But if we want to do something more ambitious like a carbon tax, these are all things where the analysis being done in the Office of Tax Policy is going to be critical to inform both the Administration’s work with Congress, but also be a direct input to the work of the House Ways and Means and the Senate Finance Committees.

Stone: Coming into the Inauguration, there was already some criticism that knowing what stance Yellen may take or is expected to take around climate, some have already been critical that she should stick to financial regulation and keep away from the climate issue. And that raises, in my mind, the following question. So, it seems that the Treasury is going to need some sort of justification to take on the challenge of climate change. I don’t know if this is a legal justification or not. When I think, again, about the EPA, its role is very clear. To protect the environment, to protect human health. In the case of the Treasury, what is the justification, the fundamental justification, it may use, that Yellen may use, to act on climate?

Aldy: So, those who naively say, “Just stick to the financial markets, just stick to growing GDP,” I don’t think they recognize that climate change is already here. That climate change is already in our markets. We have evidence already that the value of coastal properties that are more likely to be inundated by storm surge and sea level rise, are actually selling at a discount relative to other properties, that are not subject to such climate change risk.

We’ve already seen in equity markets how companies that have a disproportionate share of their assets exposed to hurricane risk see that their equity prices are more volatile and tend to be lower as a hurricane is approaching their assets. Especially those along the Gulf Coast. We are seeing, already, investors recognizing that where they spend money matters, because of their concern about both the magnitude of climate change risk, but then the fundamental challenge that it’s really hard to diversify out of climate change risk. When you think about a lot of people who are investing monies, they’re trying to manage both their return, but they want to insure that the way they are allocating their resources in a portfolio, they will diversify out of risk so that if they suffer a shock in one part of their portfolio, it doesn’t mean the whole portfolio goes down.

And that’s the problem with climate change. Because it’s happening to the whole planet. It’s really hard to diversify. And this is why you need to have economic policy taking into account the full gamut of the impacts of climate to the economy, and the full range of policy responses that the US government could do to mitigate those risks to the economy.

So, I think of it as something where it’s clear we’ve already seeing in financial markets, we’re already seeing it in our lives today. If we look at the hurricanes, the intensity of hurricanes we’ve suffered over the past half-dozen years, we look at the intensity of the forest fires we’ve suffered over the past half-dozen years, it’s clear that climate change is in the United States and it’s playing out both in our lives every day, but it’s also influencing activity that occurs in the financial markets. And this is why you need to have, I think, a Secretary of the Treasury who recognizes that, and leads the way tackling it.

I will also note, the Secretary of the Treasury can do a lot that doesn’t go through an existing authority. If the Secretary of Treasure starts to give a speech, and, say, goes to traders on Wall Street or goes to the investment community and gives a speech about the importance of climate change, that registers with people who make decisions in our economy.

It’s that kind of soft power that they’re signaling, that this is really important, and we’re going to be trying to tackle it in every dimension of the work that we do at the Treasury— it starts to, I think, influence the thinking of the decision-makers in the private economy. This is no longer something that the environment health and safety office of the company needs to deal with. It’s no longer something that the corporate social responsibility office needs to deal with. It is going to influence your day-to-day operations. When you hear the Secretary of the Treasury, what she says, it’s affecting the way she does her work, day to day. And I think that has a really important impact in changing behavior and investment in the private economy. That’s not a function of going through any kind of existing statutory authority, or legal responsibilities.

Stone: So she can frame the conversation in a lot of these areas, it sounds like. Now, the Treasury Secretary, very interesting, is also the chair of what’s called the Financial Stability Oversight Council, the FSOC. And that council exists to address systemic risks to the US financial system. And we’ve been talking about this broad, systemic influence that the Treasury may have. So again, the possibilities here to influence climate policy seem almost infinite. Are there particular opportunities that stand out?

Aldy: We have a pretty complicated approach to financial regulation in the United States. We have a number of, an alphabet soup, of financial regulators. Most of which are independent regulators. The Securities and Exchange Commission that has oversight of equity markets. We have the Commodity and Futures Trading Commission that looks at exchange trading, especially, of futures contracts and so on. We have regulators at the banks, say the Federal Reserve Board and FDIC and so on.

So, we have a number of different regulators. And there was a concern, naturally, coming out of the financial crisis of 2000 and 2008, of systemic risk becoming a problem again in the future. And especially that, because we have so many different regulators, that there are occasionally opportunities where either a risk may span the jurisdictions of multiple regulators, or there may be some new risk that falls between the cracks between regulators. And so the Financial Stability Oversight Council was intended to try to address this. It’s chaired by the Secretary of the Treasury, to sort of monitor the economy, monitor the financial system, make sure that we’re trying to stay ahead of the curve for any systemic risk that may be posed to the financial system that may spill over into the real economy.

And I think here is an opportunity with respect to climate change, for the Secretary of the Treasury to elevate climate change, and put it on the agenda of the FSOC. And part of what you can do then is, as you’re having all the leaders of these regulatory commissions come together, is to highlight where there may be opportunities. Because, you know, you don’t necessarily tell the Chair of the SEC to go “do” something. But it’s a way to put it on the agenda by shining the light on it, and drawing the public attention to it, making it more likely that you might encourage the Chair of the SEC to take up, say, new climate change-oriented financial disclosure regulations, something debated for a while.

You may go to the bank regulators and say—one of the things that we did in the wake of the 2008 financial crisis was to stress-test the banks, and just see how durable their balance sheets looked when considering systemic risk. We could create a new climate-oriented stress test, and just see that if a given bank has a lot of its assets that may be overly exposed to climate change risk, that’s something that’s important for us to know and to think about how we can manage that risk.

So I think there’s a number of ways in which the Secretary of the Treasury can help work with the other financial regulators and get them moving on this, to again, bring in and account for how climate change risk impacts different elements of the financial system.

Stone: It’s interesting, as well, that the Treasury Secretary is the Chairman of the Boards of Trustees of Social Security and the Medicare Trust Funds. And these are masts of non-discretionary parts of the federal budget. Now, you’ve written that climate poses a financial risk to both of these programs. How might the Treasury influence policy here to address climate change and climate risk?

Aldy: You know, a key thing in serving as the chair of these boards is that these boards give us an update on, what’s the status of these trust funds? Do we have enough money in the Social Security Trust Fund and the Medicare Trust Fund, when we look at our long-term liabilities? It has been something that’s been going on now for decades, where we say, “Here’s when we think that the trust funds might start to run out.” And they have to report to Congress every year when they think there is a shortfall in the trust funds.

And so typically, we end up getting these stories written about what our incoming revenue stream looks like, how much do we think we have in these trust funds, and how they may address what our expected payouts are, both for Social Security, when people are in retirement, and for their health insurance when they are also retirement age and claiming Medicare.

Climate change could have several implications for each of these funds when we think about how a warmer climate, when we look at some of the most recent research suggesting it could reduce worker productivity— that might turn into, then, lower labor income, which means both these trust funds are financed by payroll taxes, less revenues going in. It may have implications for the payouts, especially in Medicare, when we think about potential for climate change to contribute to worse health outcomes.

So it’s something where I think as you know, these are non-discretionary. But as their role in the Secretary of the Treasury chairing the trust fund, it’s another way to illustrate how climate change is impacting the way we as a government and we as a society have organized our efforts to take care of the older populations in our communities through both Social Security and through Medicare. So I think it’s a way to sort of highlight the risks that climate change poses to these trust funds, the risk they pose to our older populations, and to make it quite salient, then, I think, for the policymakers in Congress to understand just how pervasive climate change risks are in our daily lives.

Stone: We’ve talked about Yellen in her new role as potentially being an influencer, and influencing other agencies to take a hard look at climate and its potential impacts and the risks. But I wanted to ask you this. Are there specific legal authorities, or more bluntly, carrots and sticks, that the Treasury can actually use to really push through some climate thinking, again, across the government?

Aldy: So, I think one thing that the Department of Treasury has done and will do, and will be important early in the Biden administration, is crafting how we engage on international climate science. This is something that has been a key part of the international negotiations on climate change dating back to the 1992 Rio Earth Summit. There is a concern that the developing world lacks the resources to invest in both lower carbon technologies, as well as in the technologies that will make their development more climate resilient. And this was a key part of both the 2009 Copenhagen Conference that really I think drove the necessary pivot in international climate policy that led to the 2015 Paris Agreement, which is now the framework that governs the way we approach international climate policy.

The challenge is, soon after Paris, we have a President Trump pull the US out of the Paris Agreement, and then to stop funding climate change efforts through both the Treasury and through our foreign aid packages at the State Department and USAID.

So I think one thing here is, early on, the Secretary of the Treasury and the Department of the Treasury can say, “Here is our path forward in reengaging the international community on climate change, and demonstrating our seriousness starting with how we recognize the value in investing in climate change, through the World Bank, through the regional banks, through the Green Climate Fund that was established, really, in the past decades. It was first proposed in the 2009 Copenhagen Accord. It is something that President Obama had put in about a billion dollars towards, but was a $3 billion promise. I think a lot of countries want us to sort of live up to that promise.

I think there’s a question about how we want to make investments, both that are substantial enough to demonstrate our seriousness, but also to insure that we’re spending the money well, and that we’re really taking advantage of all the opportunities, both multilateral institutions, but also our bilateral funding. This is where Treasury would work with State to insure that we’re getting the biggest climate bang for our buck. But I think that’s something that at the get-go is something that the Department of the Treasury can do to help address climate change.

The next thing, I think, is to elevate— given the importance of rebuilding the global economy post-Covid, the Secretary of the Treasury through the G20 process, works through the finance ministers of the largest developed and developing countries— is to make sure that climate is integrated in that. Because that is gonna be the kind of ways in which we coordinate with our partners around the world in rebuilding the economy, once we’ve got Covid managed, later this year.

Stone: Now, I want to go back to this year. You mentioned the World Bank, the multilateral development banks. And to make sure I understand that correctly— so, the Treasury Secretary has significant sway in determining how those banks spend their money globally? Is that correct?

Aldy: Right. So, Treasury typically represents the United States Government at the World Bank, at the IMF, and at the regional development banks. And so part of it is that we will be weighing in on major decisions at those banks. In the past, we have weighed in on policies at these banks, to try to discourage investment in fossil fuel infrastructure projects in developing countries.

So there’s ways in which we can try to change both the policy at the banks, some of the investment decisions that are being evaluated by the boards of the banks. But also, how much money we’re putting into the banks and how we’re directing them to specific climate-oriented funds. And that’s where Treasury is the lead within the Administration, and how we work with Congress on what gets appropriated.

When we think about foreign aid, there’s part of it that goes on a bilateral basis, and then there’s part of it that goes through these multilateral institutions. And it’s that latter part where Treasury is the lead in the US government. And they can be, I think— it’s usually quite clever and creative in how we go forward to make sure that we are a leader again internationally, and insuring that as we’re spending this money— because I will admit, as somebody who’s been involved in these negotiations for a long time, I feel like there’s been much too much focus on the inputs, how many dollars are we spending, as opposed to the outputs and the outcomes. What are we actually getting from these investments? And I think there’s ways we can try to be more effective in evaluating the performance of the spending, that can then guide subsequent decisions about both the amounts and the direction of our international climate finance expenditures.

Stone: You also mention the word in there, “leadership”. And you also mentioned as well the Green Climate Fund. And the US pledged $3 billion to that fund under Obama. Trump suspended payment. As you said, only about a third has been paid into that, of our obligation. So when we talk about US leadership, does this track record of American politics interfering with what we actually do regardless of what we say, does this create a credibility problem for the Treasury in terms of its overseas influence?

Aldy: Well, US climate policy has certainly been on a yoyo for a couple of decades. And this is an issue not just for Treasury, but it’s an issue that President Biden will deal with, and will deal with on a number of fronts. This is an issue for climate, but also, given what the Trump Administration did, for example, on trade policy. This will be an issue on trade policy as well.

So I think the credibility issue is important. I think it’s the reason why we should be thinking about crafting action and steps on climate policy that are durable. And part of this is, I feel like the Trump Administration— they kind of learned the hard way. They thought they could just come in and say, “We’re going to deny climate change, and we’re going to just promote coal. We’re going to bring coal back.” This is one of the things that Trump promised back in 2016, that he was going to bring back coal. And that’s not happened.

And part of that is the fact that there were just some fundamental changes in markets, where the investments in renewables were durable. Once you build a wind farm or a solar facility, they’re really cheap to operate. The costs are all up front. So once we built those, they were going to run whenever the wind blew or the sun was shining.

We have some things that are truly durable I think in terms of fundamental changes in the supply of natural gas that drove down the price of natural gas. These market factors now are why coal never came back. It’s just something where at the end of the day , you’ve had enough changes in the economy that these are going to endure. And I think that’s one thing that’s going to be critical. Is that if we see a really ambitious push over the next couple of years in policy that can drive down the cost of technologies, that can increase the penetration and deployment of these technologies in the power sector, in transportation and so on, if we get where the Secretary of the Treasury makes it very clear to investors and business leaders alike, that you really need to make climate change part of your everyday investment evaluation and your long-term strategy, and we see, say, the price of carbon being a benchmark used in decision-making across the private economy, we can see it being used as a benchmark in a lot of decision-making in the government. I think that’s the kind of thing that signals that this is going to endure a change in administration in the future.

And being able to demonstrate on the ground fundamental changes both in policy but also in our private economy, what they’re doing to mitigate climate change, I think is what’s going to be necessary for re-establishing that credibility when working with our partners around the world.

Stone: Well, you just hit on a point that is so incredibly important. And that’s that yoyo effect. And you also just explained some of the ways that the Treasury can influence things so that, say, post-Biden, a new administration will come in that would not be so friendly to climate issues, that it would be difficult to reverse some of these policies and these trends that are in place. And that’s so important not only for us to follow through on our commitments, but also for our global standing in this area.

Aldy: I think there are enough business leaders now that recognize, I think, both the risk of climate change but also the opportunities in how we chart a new path forward in growing our economy, that can address climate change. And I think they’re ready to work with the public sector in figuring out what’s the right policy landscape to make that happen. I think some of them have been frustrated by the yoyo, the lack of predictability, the uncertainty. They see Washington as a vacuum over the past four years. But they operate in a number of states which have continued to move forward aggressively to address climate change. They’re working in other countries in the world that are becoming much more aggressive in tackling climate change.

So I think part of the reason why we can be effective and we can sort of stop this yoyo, is because it’s not just what happens in terms of our elections. It’s going to happen, it’s going to impact what happens on the ground, when we realize what was a nascent industry of installing solar panels a decade ago, is now an economic force throughout the country. That manufacturing components to go into wind turbines ends up being a meaningful part of the US manufacturing sector. That being able to make these kinds of investments in our infrastructure to make us more resilient to climate change, improves the quality of life of everybody around the country.

It’s those kinds of things that both make climate change more salient, but also help clearly illustrate the benefits of tackling the problem, to everybody in our economy, that I think is what’s going to help us really turn the corner and really drive the necessary change we need to tackle this problem.

Stone: Joe, thanks very much for talking.

Aldy: Andy, it’s been my pleasure.