George Shultz, 100, gives 'young' Biden advice on climate change: carbon pricing

posted by Marsha Vande Berg on January 21, 2021 - 12:01am

George Shultz’s brilliant career as a public servant, economist, Fortune 500 executive, dean of the University of Chicago’s business school and now Distinguished Fellow at the Hoover Institution at Stanford University has helped shape the trajectory of America’s economic and foreign policy throughout the latter half of the 20th century.

At age 100 as of this past December, the economic adviser and cabinet secretary to Republican presidents continues to build on his influential legacy as an advocate for what he describes as a sensible, simple, doable market-based solution to climate change.

Shultz, a free marketer par excellence, advocates a gradually rising carbon tax that is levied at the point of production and economy-wide; the distribution of all proceeds to any American with a Social Security number; and a border adjustment mechanism on imports to preserve U.S. competitiveness.

The objective is to incentivize lower and lower levels of carbon usage, level the economic and market playing field, and incentivize research, innovation and technology on behalf of private sector-led practical and productive clean energy substitutes. 

Billed initially as the “conservative case for carbon dividends,” Shultz argues his initiative is not about partisanship or even bi-partisanship. It’s a non-partisan policy proposal, and it belongs at the top of Joe Biden’s agenda as he takes the countries’ reins as America’s 46th president. 

While Shultz said he had not spoken with Biden, he offered that he had written the president-elect a letter — in a sly diplomatic gesture and with a characteristic flash of deadpan humor. 

“I wrote him, ‘Dear Joe, back in our old foreign relations days (when Shultz was secretary of state and Biden a prominent U.S. senator), we used to spar with one another with mutual respect and friendship.’  Then I said, ‘I had read somewhere that you are 76 years old. From my standpoint, as a 100-year old, you’re a promising young man. Now is the time to reflect on your past and carry forward with your future.’”

The intended reference was to everyone’s future. His encouragement was for Biden to assume the mantle of leadership in the climate change fight domestically — and internationally.

Had Shultz received a reply? No, he said, but his hope was that his letter reminding Biden of his carbon dividends initiative would spur action on what is now an existential threat to planet Earth. Climate change is no longer in doubt. “That’s changed, and there are big repercussions. So doing something about it now is important, and President Biden seems dedicated to that idea.”

Sustainability advocates have long argued that financial markets have not properly priced in climate risk and consequently encouraged a price on carbon as a signal to markets of carbon’s social costs. Under carbon pricing, emitters pay a fee that is meant to incentivize them, together with their customers, to lower their levels of pollution. As a candidate, Biden has voiced his support for a “carbon-enforcement mechanism” to curb greenhouse gas emissions, but it is not clear if that support extends to putting a price tag on carbon.  

The precise direction of the administration’s thinking is yet to gel — apart from the new president’s assertion that on his first day in office, he will cause the U.S. to re-enter the 2015 Paris Agreement. 

According to a November Harvard Environmental and Energy Law Program (EELP) report, an early outline of the debate has begun to emerge. The Biden team’s thinking appears to center on economic stimulus, clean energy investment and sector-specific de-carbonization standards. Clean energy advocates, meanwhile, are pushing for sector-specific standards versus an economy-wide carbon emissions fee.

There is also broad support for a carbon tax on Capitol Hill even as Congress has trained its focus hard on Covid relief, rolling out a nationwide vaccination program and most recently by addressing the violence by supporters of outgoing President Donald Trump. A June 2020 House report has specified the need to “establish a carbon pricing system” that can effectively decarbonize the economy by 2050.  Then in August, a Senate report endorsed adopting market signals — code for a price on carbon — as part of a suite of anti-emissions policies.

Sen. Lisa Murkowski (R-Alaska), the outgoing chair of the Senate Energy and Natural Resources Committee, also was quoted as telling a Stanford audience late last year via webinar that a “price on carbon … should be one of the options on the table.” Murkowski and West Virginia Democrat Joe Manchin successfully co-sponsored the bipartisan Energy Act of 2020 which underwrote federal support for clean energy related technologies. The measure was signed into law in late December as part of the 2021 omnibus Appropriations Act. 

Meanwhile, the private sector also is looking hard at ways to decarbonize ahead of the 2050 deadline set by the Paris Agreement while they also work at pulling themselves out from under the economic impacts of the pandemic. The Business Roundtable with its powerful membership of influential CEOs is now on record in support of a market-based strategy that includes a price on carbon “where feasible and effective.” 

Large institutional investors, including pension funds and private sector asset managers, also continue critically to drive their capital allocations toward sustainable investments. They are anything but shy in reminding corporate America of their deep pockets and their commitment to stewardship when engaging to re-orient corporate operations and governance in line with ESG (environment, social and governance) best practices.

Today, one in every three dollars, or 33%, of the $51.4 trillion in total U.S. assets under professional management reflects a sustainable investment strategy, according to the U.S. Forum for Sustainable and Responsible Investment’s (USSIF) most recent biannual trends report released in November. 

“There is no stronger or more effective policy tool” for addressing climate change “than a price on carbon. Period,” says Greg Bertelsen, chief executive of the Climate Leadership Council (CLC), an international policy institute founded in 2017 as a collaboration by a who’s who in business, opinion and environmental leadership on behalf of the carbon dividends framework. 

It was the CLC’s publication of “The Conservative Case for Carbon Dividends” by the two Republican statesmen and political pals, Shultz and James A. Baker III, former treasury secretary under President Ronald Reagan and secretary of state under George H.W. Bush, that put the carbon dividends plan on the political map. They were joined as co-authors by Ted Halstead, CLS founder.

A veritable who’s who in economics, business and the NGO world also have joined the chorus in support of the carbon dividends plan, including Janet Yellen, former Federal Reserve Board chair and now Treasury secretary-designate in the Biden administration; Yellen’s predecessor as Fed chair, Ben Bernanke and former Treasury Secretary Larry Summers. Corporate founding members included oil and gas companies, General Motors (GM), consumer goods giants Johnson & Johnson (JNJ), P&G (PG), Unilever (UL) and Walmart (WMT) as well as Indian industrialist Ratan Tata; and leading NGOs, including Conservation International, The Nature Conservancy and World Wildlife Fund. 

A Washington Post editorial co-written by Shultz and Summers crystallized the political rationale of the carbon dividends plan’s bipartisan appeal and its opportunity for U.S. leadership in meeting the global challenge of climate change. “We are convinced,” Shultz and Summers wrote in their June 19, 2017 editorial, “that the carbon dividends approach … can strengthen the U.S. economy in ways highly valued by both the left and right and simultaneously spur global efforts to address climate change.

“Adopting a carbon dividend approach would pay huge dividends for the global climate, the U.S. economy and U.S. leadership in the world,” Shultz and Summers wrote.

In our interview, Shultz dated his engagement with the carbon dividends plan to key points in his political career and his beliefs as an economist. He first articulated the plan’s conceptual framework in a Wall Street Journal editorial, co-authored with Gary Becker, a 1992 Nobel laureate in economics and like Shultz affiliated with the University of Chicago Booth School of Business as well as with Stanford. The purpose of a revenue neutral carbon tax as policy tool is “exclusively for the purpose of leveling the playing field,” the two economists said in the April 7, 2013 editorial. 

“Revenue neutrality means that it will not have a fiscal drag on economic growth.” 

The two prominent economists pinpointed just how the economics would add up. But despite their efforts, questions about the politics lingered despite proof of concept notably in Alaska and Canada. In Alaska, the Permanent Fund, set up in 1976 to collect, invest and distribute fees on new oil discoveries in the resource-rich state, now has nearly $58 billion in assets under management and pays out an average $1,600 per citizen per year in dividends (based on 2019 figures.) 

In Canada, carbon pricing is now law of the land, having weathered a major challenge during the 2019 federal election campaign. CBS News is reported to have declared on election night that Canada’s carbon tax was “the big election winner” and “the only landslide victor” in the polls.  

Canada’s carbon charge is levied either as regulatory fee or tax on carbon at the provincial, territorial and federal levels. All revenues generated get returned to the provinces and territories, with 90% earmarked for distribution to households and the remaining 10% to support affected sectors, notably small businesses, schools and hospitals. 

The politics just might also line up in the United States, Shultz says. If calling it a tax is a non-starter, call it a fee. What’s important is that the country deals with climate change now. “This is an issue that must be addressed. It’s right there in front of us. It’s easy to see. And we have a way of addressing it that’s simple and would be effective.”

The former secretary of state then recalled lobbying his boss, President Reagan, in 1987 to support an international cap-and-trade treaty that was aimed at the Earth’s fragile ozone layer. Getting Reagan on board meant overruling dissenting members of his Cabinet and then getting Congress to ratify the international deal that had been dubbed the Montreal Protocol. 

Shultz described his own interest in the treaty as a given. The Environmental Protection Agency had been established during the Nixon administration when Shultz was serving with the Office of Management and Budget. Because the EPA was brand new, it had no representative to advocate on its behalf in budget hearings. Hence Shultz picked up the cause, acting as the new federal agency’s “first EPA director.” 

In his memo to Reagan, Shultz underscored the urgency of the ozone layer. Unless ozone depletion was checked, prospects for skin cancer, suppression of human immune responses, reduced crop yields, adverse effects on aquatic ecosystems — and “potentially significant climate changes” would increase. 

“Reagan then did something very Reaganesque, which is not done much these days,” Shultz explained. He gathered those who were skeptical of climate change science and of the idea of an international treaty generally. He put his arm around their shoulders and said, “We respect that you might disagree, but why don’t we take out an insurance policy?” And that, Shultz said, became the way forward. 

“We didn’t get them on our side, but we got them off our backs so we could accomplish something politically.” 

Can Biden do the same? The elder statesman believes he can. “President Biden wants to do something effective. I don’t have any idea what he will choose, but I can assure him that this is the most effective, straightforward way of dealing with climate change.”

What’s more, Shultz says he is willing to do whatever he can but adds that at age 100, engaging in the immediate process is unlikely. 

Ever quick, thoughtful, and expansive, the former secretary of labor, treasury and state was both charming and gallant as he made his final point in his familiar staccato-like way of speaking, also singular in its brevity.

“If you’re interested in doing something about the climate, you have got to have this in the conversation. It’s easy. It’s effective, and it will work.”

So what about it, President Biden?

Published on January 19, 2021 at