economics – Free Range Podcast

Season 2, Episode 11

On this episode of Free Range, host Mike Livermore is joined by UVA Law professors Quinn Curtis and Mitu Gulati, as well as UNC-Chapel Hill Law professor Mark Weidemaier, all experts in the regulation of financial markets, to discuss their new paper, “Green Bonds and Empty Promises.”

A wide range of institutions borrow within the bond market, including municipalities, corporations, and sovereign nations. The essence of a bond is a set of promises, which include repayment terms and limits on opportunistic behavior by debtors. One new feature of the bond market is the rise of ESG (Environmental, Social, and Governance) investing. ESG is widespread within the mutual fund industry but has found a place in the bond market as well. However, there is a difference between investing in the environment through stocks and through bonds. Stocks allow the investor to earn more as companies gain wealth by adapting to climate change, but bonds are paid back at a fixed rate of return, so the risk and return equation is different.

Green bonds are a type of bond that is associated with environmental projects, but the actual language in bonds dealing with sustainability or environmental performance is often vague. This was one of the major research findings in Green Bonds and Empty Promises – purportedly environmentally friendly bonds don’t actually limit how the borrower can spend the borrowed money (0:50-27:58).

To understand the market for green bonds, Gulati, Curtis, and Weidemaier began by defining the category “green.” For this, they relied on third-party databases that are used throughout the industry when investors are building ESG portfolios. Issuers likely determined their own categorization, essentially deciding whether their bonds would be listed as “green.” The green label matters because these bonds might have a lower interest rate, referred to as a green premium, although research indicates that any green premium that does exist is very small. However, green bonds do appear to enjoy some benefit in terms of liquidity because many investors want to show their clients environmental responsibility.

After collecting a sample of green bonds, the team then investigated the actual promises found in them. Interestingly, their research found that green bonds generally do not possess legally enforceable commitments to use proceeds for environmental projects. Interview research found that many know the “green” label is PR and don’t expect the status quo to improve (27:59-57:56).

The conversation wraps up with the methods in which the situation can be addressed, and all four provide their opinions. Weidemaier explains that legal enforceability would remove the market’s liquidity, transforming it into an affinity bond market that is no longer fungible. Another option is to simply kill the market since green branding can still happen, but then no one is misled on such a scale. Curtis believes that there is some room for improvement as certifiers can begin considering legal enforceability and the market would inevitably become smaller but more credible. This theory depends on the sincerity of the investors’ demand. Gulati considers the green bond market to have the potential to evolve into something better since it is currently booming and the way it operates is unique. Livermore describes significant environmental improvements as being made mostly through policy, so the value in private markets is mainly that they raise awareness for climate change and may aid in a cultural shift to support pro-environmental policy (57:57-1:09:20).

Season 2, Episode 8

Transcription

On this episode of Free Range, Mike Livermore is joined by Danae Hernandez-Cortes, an economist and professor in the School of Sustainability at Arizona State University who studies environmental justice and the distributional consequences of environmental policy.
The conversation begins with a discussion of the new emphasis within environmental economics on environmental inequality, with researchers now focusing on questions related to where pollution is located with respect to disadvantaged communities and how policy affects the distribution of environmental harm. Comparing environmental inequality to general inequality is difficult to do precisely, but Hernandez-Cortes describes the distribution in environmental inequality as comparatively sharper. Race and ethnicity tend to be an additional variable, beyond income as indicator of exposure to environmental harm. Many current inequalities are the result of historical legacies of discrimination and racism. There are many moving parts when it comes to environmental inequality, and it can be hard to isolate the most important causal variables. (0:40-18:05)

Environmental inequality often correlates with other kinds of inequality where race is a factor. However, Hernandez-Cortes points out that her research suggests that health and environmental inequality are not as related as one would assume.

The conversation shifts to market-based mechanisms as solutions for mitigating environmental inequality. While they tend to have lower costs and are more efficient, Hernandez-Cortes points out that they can potentially lead to environmental disparities by reallocating pollution. The effect of market-based mechanisms on environmental inequality is theoretically ambiguous and depends on context. In her work on market-based mechanisms to control greenhouse gas emissions in California, Hernandez-Cortes has found they have actually reduced environmental inequality, despite significant skepticism from the environmental justice community.

Nevertheless, for Hernandez-Cortes, it is important to solve environmental justice problems with policies that focus on that issue even though broad environmental initiatives such as reducing aggregate pollution can sometimes reduce environmental inequality. Additionally, when it comes to policymaking, many activists look to be included in the process instead of just caring about the outcome. (18:07-47:06)

Hernandez-Cortes notes that the quality of the outcome of a policy can affect the composition of people in a place. But, to assess the role of place in environmental inequality, many details are needed as factors like housing and income also come into play. Gentrification generally only results from a policy that changes the environment significantly. Overall, environmental issues are typically multi-generational, and they interact with other place-based sources of inequality, such as housing discrimination or unequal access to schools or health care, to have long term negative consequences. At the same time, interventions to improve environmental justice can also lead to benefits far into the future, as the same dynamics play out as a virtuous cycle of improvement. (47:07-1:01:01)

Season 2, Episode 7

Transcription

On this episode of Free Range, host Mike Livermore is joined by Paul Stephan, a comparative and international law expert at UVA Law and author of the new book, “The World Crisis and International Law: The Knowledge Economy and the Battle for the Future,” recently published by Cambridge University Press.

Stephan defines the concept of a knowledge economy as the increasing reliance on conceptual work rather than physical labor as a means of adding value to goods and services. He cites the example of container shipping and its impact on the distribution of goods around the world. Stephan argues that innovation is a driving force in the world economy and that international liberalism has emerged as a means of reducing barriers to talent and scalability, which are essential components of the knowledge economy (00:40-9:22).

Stephan discusses how global trade systems like the WTO and GATT were formed to promote international liberalism and reduce barriers to trade. He also discusses the “four freedoms” at the heart of the project of international liberalism, which are freedom of movement of goods, services, capital, and people. The expansion of Western liberal internationalism to other parts of the world after the end of the Cold War is also discussed. In the post-Soviet era, liberal internationalism and free trade institutions were expanded to other parts of the world, like Russia and China, in hopes they would follow (9:23-22:58).

Stephan discusses how the benefits of the knowledge economy are not spread evenly across the global economy with local distribution of winners and losers as well (22:58-28:32). In the 80s, Russia was a high human capital country but they chose a resource extraction pathway instead of disruptive innovation and production. For Stephan, China has a longer term perspective while Russia has pursued a strategy of using force in international relations and attempting to exploit divisions in competing polities (28:33-40:59).

In the context of climate change, Stephan emphasizes the importance of providing incentives for states to develop innovative technological solutions. He praises the transparency of the Paris Agreement and encourages the sharing of technological breakthroughs while still maintaining incentives to innovate (41:00-49:31).

Regarding the future of institutions like the WTO and the European Union, Stephan believes that these organizations can survive through adaptation. The conversation ends on a hopeful note, with the possibility of creating a world where incentives work to induce investment in carbon reduction, and where global cooperation is managed through an evolving but still robust international order.

Season 1, Episode 28

Transcription

On today’s episode of Free Range, Livermore is joined by Michael Greenstone, the Milton Freedman Distinguished Service Professor in Economics and the Director of the Energy Policy Institute at the University of Chicago. He served as the Chief Economist for President Obama’s Council of Economic Advisors and has worked for decades engaged in research and policy development on environmental issues.

Livermore and Greenstone begin by discussion the climate provisions of the Inflation Reduction Act and their policy implications (0:47-4:47) Greenstone offers his take on what the IRA means (if anything) concerning the role of economists in debates over climate policy (4:48-8:49) and the two discuss the relationship between energy prices and politics. (8:50-14:10) Livermore and Greenstone agree that transparency of pricing mechanisms can be both a feature and a bug. Greenstone mentions that while the US is viewed as a free market place, our instinct is to approach the situation as engineers. (14:11-20:20) He then offers thoughts on why the engineering approach won out in the IRA. (20:21 – 25:34)

The two discuss the factors that helped lead to lower technology costs green cleaner energy sources, which helped pave the way for the IRA. (25:35-28:12) The sulfur dioxide trading mechanism in the 1990 Clean Air Act Amendments is a classic example of policy that promoted low cost emissions reductions; R&D funding is another area where government is justified. (28:13-30:24)

The two turn to the question of economic forecasting in climate debates. (30:25-34:17) Greenstone discusses the work of the Climate Impact Lab, which he directs, which is improving estimates of climate damages and the social cost of carbon. (34:18-40:55) The two discuss the role of adaptation in climate damage estimates (40:56-47:05) and the role of distributional analysis. (47:06-51:15) The two then discuss an alternative to the social cost of carbon that is based on “marginal abatement costs” associated with achieving a given climate goal. (51:16-57:11)

To conclude, Livermore asks about the potential path forward for global cooperation on climate change. For Greenstone, he focuses on areas of policy that he can influence, and in particular on driving down the difference (delta) between the private cost of clean energy and dirty energy and looking for opportunities to leverage our policies for reductions elsewhere in the world. (57:12-59:36)

Season 1, Episode 25

On this episode of Free Range, Mike Livermore speaks with Jonathan Colmer, an Assistant Professor at the University of Virginia’s Department of Economics and the Director of the Environmental Inequality Lab. His research interests are in environmental economics, development economics, and the distributional impacts of environmental policy.

Colmer begins by discussing a recent paper of his that examines the distributional characteristics of air pollution in the United States and how they have changed over time. Tracking exposure temporally and spatially, they concluded that while there have been air pollution reductions in the last four decades, the disparities have persisted in the same affected areas. (0:40 – 4:15)

Livermore and Colmer discuss the implications of this work for understanding environmental inequality. Colmer explains that the proportional reductions have implications on the allocation of resources we expend on reducing pollution. He also note that reducing total pollution levels also reduces absolute disparities of racial gaps in air pollution. (4:16 – 13:00)

Livermore notes that addressing harms in areas with the highest pollution concentrations would provide the cheapest reductions and the most harm reduction benefits. The two discuss different policies to cut pollution and their distributional effects. (13:02 – 18:35)

Colmer notes that one limitation of his prior work is that they are measuring place rather than individual exposure. The Environmental Inequality Lab, which he directs, has the goal of moving from a place-based to a person-based understanding of environmental inequality. The lab is building a data infrastructure that provides detailed information on the distribution of exposure from many different environmental hazards. Colmer explains how they use confidential data from the U.S. Census Bureau and I.R.S. to deeper understand environmental inequality and the causes of these disparities. (18:40 – 26:15)

Livermore and Colmer discuss the idea of ecological fallacy in Colmer’s research, observing whether or not the inferences made about individuals using place-based data still hold strong when they move to the individual level. (26:20 – 30:57)

Colmer discusses the questions that arise about the causes of these air pollution disparities from an economic standpoint – is it income? Is it racial discrimination or other considerations? He discusses work in progress that shows how results on disparities differ between geographic-level results and individual-level results. (31:02 – 40:55)

The conversation segues from discussing the descriptive to the causal relationships with pollution. Colmer discusses a core causal question they are examining: how much does environmental inequality contribute to income inequality? (40:56 – 56:35)
Livermore closes the discussion by pointing out how historically, we focus on the primary benefit of air quality improvements by the reduction of mortality risk which affects a small concentrated category of people. However, the work Colmer is doing focuses on effects that are more widely shared over a larger population, which may have important consequences for how policies that address environmental pollution are perceived. (56:36 – 1:01:18)

Season 1, Episode 24

Transcription

On this episode of Free Range, Mike Livermore speaks with Michelle Wilde Anderson, a law professor at Stanford. Anderson is the author of The Fight To Save The Town: Reimagining Discarded America, published in June 2022.
Anderson begins by explaining the subtitle of the book, which draws attention to places that have both high poverty and few governmental resources, challenges that tend to be mutually reinforcing. Anderson discusses the reasons she chose the four places that the book focuses on: they’re exceptional places in terms of rich histories and good leadership, they contribute to a larger story when studied together because of their highlighted differences, and they represent the larger range of towns facing the problem of being poor and broke. (1:17 – 5:28)

Livermore asks Anderson, why she decided to focus on narratives rather than data and policy solutions. Anderson explains that the dominant stories that we tell about these places typically include violence, corruption, and hopelessness. These narratives are destructive to the political will to keep working on these hard problems. She wanted to acknowledge that the hardships are devastating and real, but there are also extraordinary people working on these problems and we can’t wish these places away. (5:29 – 9:40)

Anderson highlights a common way of thinking which she considers the “suitcases solution,” which encourages individuals to move towards growth and jobs to solve chronic poverty. Anderson argues that this has been a failed approach. Ideally, people would have options: to move on to opportunity, or to stay where they are without being trapped in intergenerational poverty.

A major challenge in many of these places is trust. This is especially destructive because poverty requires communities to come together. This is where the other part of the title of the book comes in, The Fight To Save The Town; it highlights how people can weave society back together and rebuild this basic trust.. (9:41 – 24:59)

A problem with the suitcase solution is that people end up unable to move because they lack resources or become traumatized before that becomes a possibility. The experiment of addressing deindustrialization through domestic migration has been tried for the past 40 years and doesn’t work. (25:00 – 34:16) Livermore and Anderson highlight the importance of a town building the foundation for people to participate in the labor market. (34:17 – 41:25)

Livermore asks Anderson about the redevelopment approach in contrast with investing in current residents. Anderson mentions that local public policy is often focused on downtown redevelopment. Anderson encourages pushing aside those kinds of interventions and investing in the people of the town. (41:26 – 49:58)

In regards to these different towns, Livermore asks: Are there broader lessons or general principles that can be implemented in a more systematic way? Anderson responds that she is not confident in a playbook for this resident-centered government or that it even exists. People who work on the frontline of the challenges rarely believe that it is possible to export their model to another town. Anderson emphasizes the importance of mutual aid, social repair, and social cooperation as a universal component of both progress and hope. (49:59 – 56:27)

To conclude, Livermore inquires about Anderson’s thoughts on the relationship between problems of the contemporary era and labor history in the United States. Anderson responds by noting that there are few periods in our history where we have had an explicit language to discuss poverty and a focus on empowerment, solidarity, and progress. The Labor Movement is one example of this language and leadership in writing. She claims that she is drawn to these individuals who discuss poverty as a source of strength and solidarity and who believe in the power of people. (56:28 – 1:00:47)

Season 1, Episode 17

Transcription

On this episode of Free Range, Mike Livermore speaks with Frances Moore, a Professor of Environmental Science and Policy at UC Davis whose work focuses on climate economics. Recently, Moore was the lead author of a paper in Nature that examines an important set of feedbacks between politics and the climate system.

The discussion begins by examining the key differences between the model development by Moore and her team and other approaches. Generally, climate models take emissions as a given, or as resulting from large macro phenomenon like economic growth. The innovation of Moore’s model is to treat emissions as “endogenous” to political and social processes. Her model includes the formation of policy, which affects emissions and, therefore, the climate system (0:41 – 2:58).

Expanding more on different ways of modeling, Livermore brings up two broad approaches to climate modeling: the process used in the natural sciences, which is relied on by the IPCC (Intergovernmental Panel on Climate Change) vs. the process that economists use that feeds into social policies. He poses the question of how Moore’s model fits into these two broad categories of the IPCC vs. SCC (social cost of carbon) approach in regards to climate modeling (3:00 – 4:51).

Moore’s model is distinct to both approaches. In the economist approach, a social decision maker maximizes welfare by controlling emissions over time. Moore’s model does not optimize anything (4:57 – 6:57). On the other hand, the IPCC takes a predictive approach, but without asking what policies are most likely. Moore’s model integrates policy into the predictive approach.

Moore dives further into details about the feedbacks in her paper (7:00 – 12:49). Examples of the feedbacks explored in the paper are: normative social conformity feedback; climate change perception feedback; temperature emissions feedback; and the expressive force of law feedback. Moore dives deeper into the law feedback, discussing the challenges they faced when trying to qualitative information in a quantitative way for their modeling (13:26 – 16:37). Moore and Livermore discuss different interpretations of the expressive force of law and how it might fit into a predictive model (16:46 – 22:00). Another type of feedback studied involved individual behavior. This behavior is important for global emissions only when it leads to preferences that eventually produce large-scale changes (22:01 – 28:25).

Livermore and Moore discuss the hopeful headline conclusion of Moore’s model, which is the possibility of global net zero emissions by 2080-2090, which follows a 2.3° pathway by 2100. This pathway is very similar to what the 2030-2050 emission commitments look like from the Paris Climate Agreement. Livermore notes that some of the model runs resulted in a 3-4° world. The model features of these worlds included high social norm effects, political systems with bias towards the status quo, high bias assimilations responsiveness of the political systems, and energy systems not evolving (28:35 – 39:33).

Livermore notes some of his work on climate-society feedbacks concerning the potential for climate damages to undermine conditions necessary for climate cooperation at a global scale. Moore explains why they didn’t include this feedback in the model, stating that looking at these tipping points would be involved in the next steps of extending the model (40:00 – 45:02).

Livermore brings up the topic about the philosophical differences between Moore’s fully causal model of the human climate system and other models. Moore’s goal of modeling is primarily understanding and descriptive, which differentiates it from other models. They end the episode discussing that carbon pricing over the next 5-10 years should be a good signal to tell us what type of temperature change trajectory our world will be on: one of reasonable temperature change or one of catastrophic change (50:23 – 1:00:23).

Season 1, Episode 9

Transcription

On this episode of Free Range, Mike Livermore speaks with Shi-Ling Hsu, the D’Alemberte Professor of Law and Associate Dean for Environmental Programs at the Florida State University College of Law. He is also the author of the book Capitalism and the Environment: A Proposal to Save the Environment, which was published in December 2021 by Cambridge University Press.

Professor Hsu begins by discussing what motivated him to pursue a PhD in Agricultural and Resource Economics, having already practiced for several years as a lawyer, and how his experience as a graduate student with a law degree differed from his colleagues (1:00 – 2:58). Hsu then summarizes the basic argument of his new book: that the environmental problems the world currently faces are not the fault of capitalism but, rather, are the result of society’s decisions. This leads to a discussion about the relative advantages of capitalism versus centralized planning when it comes to dealing with environmental problems. As part of this analysis, Hsu comments on the shift away from market-based mechanisms that has characterized recent environmental law (3:00 – 11:30).

This discussion raises the question of what role increasingly stark economic inequality has played in creating discontentment towards capitalism, to the point of blaming capitalism for things that are not, according to Hsu, capitalism’s fault. This leads to an in-depth conversation about the benefits and drawbacks of using capitalism as a means of addressing environmental issues, the intersection of economic inequality and the political undermining of capitalism, and why Hsu believes socialism is not the answer some might think it is (11:35 – 24:45).

Professor Livermore then asks Professor Hsu about the libertarian argument against taxation, both in terms of environmental law and more generally. Professor Hsu explains that some libertarian arguments about reducing the size of government may be misguided, drawing on his experience of working on environmental projects with the Canadian government. Hsu also explains why he believes taxes are more beneficial than subsidies, with Professor Livermore pointing out that the unpopularity of taxes when compared with subsidies means that taxes are difficult to use in environmental contexts. Hsu suggests that a compromise might be reached in which nascent renewable energy technologies are subsidized, leading to a political economy in which taxation is more palatable, and then proposes other ways to reduce the apprehension towards taxation (25:00 – 42:05).

Professor Livermore questions whether a carbon tax will ever be widely accepted, which leads Professor Hsu to suggest that the United States has simply not yet reached the point of crisis that may be necessary to shift the emphasis from subsidization to taxation, which leads to a discussion of the Green New Deal (42:07 – 48:33) Professor Livermore compares carbon taxation with the various “glide-path” policies that were used to reduce cigarette consumption (48:35 – 50:50).

The conversation ends with a return to Professor Hsu’s book, and what effect he believes the work will have on the current debate surrounding environmental economics, and who the argument in his book is appealing to (50:53 – 59:19).

Season 1, Episode 5

Transcription

On this episode of Free Range with Mike Livermore, Mike speaks with Boston University School of Law professor Madison Condon about the interaction between corporate governance and environmental concerns. Condon has written extensively on how corporations are changing their approach to the environment in the face of climate change issues and the rise of ESG investing, which incorporates Environmental, Social, and Governance considerations into larger investment strategies.

The conversation starts off with a discussion of the influence of massive investment funds like BlackRock, Vanguard, and State Street in the world of corporate governance. These funds are so large that they are now capable of exerting considerable influence over corporate decisions. Condon introduces the concept of Universal Owner theory in the corporate world: institutional investors have such diversified portfolios that it is now in their best interests to care about the environment (1:04 – 7:18).

This leads into an analysis of activist investment fund Engine No. 1 which, in 2021, engaged in a successful proxy battle to gain seats on ExxonMobil’s board of directors. Condon also touches on broader questions of whether the strategy employed by Engine No. 1 to win the proxy battle opens the door for potential antitrust violations, and the benefits and drawbacks of shareholder primacy. Expanding on these questions, Livermore and Condon discuss a hypothetical situation in which an institutional investment fund acts to benefit itself at the expense of a company’s continued existence, and what this behavior might implicate more generally (8:40 – 21:50).

Condon then talks about one of the potential outcomes of activist investment — a rise in shareholder derivative suits alleging that boards have breached their fiduciary duties. This part of the conversation hits on various aspects of corporate law, including the scope of the business judgment rule and the significance of Delaware in America’s corporate legal regime (23:43 – 31:45).

The conversation then shifts to a discussion of the divestment movement as a strategy to influence corporate behavior in the environmental context, the way corporations have engaged in greenwashing in response to the divestment movement’s demands, and the rise of ESG in corporate decision-making (31:51 – 48:52).

The conversation concludes with Condon clarifying her position regarding just how influential investment funds can actually be in affecting action to slow climate change (50:21 – 55:30).

Season 1, Episode 3

Transcription

On this episode of Free Range, Mike Livermore speaks with sovereign debt experts Lee Buchheit and Mitu Gulati. Buchheit is a retired partner at international law firm Cleary Gottlieb Steen & Hamilton, whose practice centers on international debt restructuring and project finance. He has worked on more than two dozen sovereign debt restructuring deals, including leading the team that advised the Greek government during its 2012 debt crisis. Mitu Gulati is the John V. Ray Research Professor of Law at the University of Virginia School of Law. In addition to his academic work, he is the host of Clauses and Controversies, a podcast which examines the intersection of international finance and contract law.

To start off, Buchheit and Gulati provide a bit of background into their careers and how the field of sovereign debt restructuring re-emerged in the 1980s, fifty years after it first appeared in the wake of the Great Depression. Buchheit then provides a detailed explanation of what, exactly, sovereign debt is, how it functions on the international stage, and its advantages and drawbacks, and then describes the kinds of circumstances that can cause nations to seek to restructure their debts (1:15 – 21:22).

Continuing on from this, Buchheit explains the sovereign debt restructuring process, like the one Greece went through in the early 2010s, when the situation was so dire that some even suggested Greece sell the Acropolis (22:10 – 27:40). The conversation then shifts to analyzing broader questions about the current structure of global debt, and the potential sovereign debt crisis that looms over the global economy (28:52 – 41:00).

The podcast concludes with a long discussion about a recent debt restructuring deal Buchheit worked on for the government of Belize, which incorporated certain environmental conservation goals as conditions of the restructuring. The specifics of the deal lead Gulati and Livermore to raise questions about whether sovereign debt contributes to economic disparities between the Global North and Global South (42:00 – 1:20:18).