Joseph Aldy Shares his Thoughts on Incorporating Green Energy into an Economic Stimulus Package: Lessons Learned from the 2009 Recovery Act

A recording of this webinar is available here.

As Congress and the Trump Administration continue discussions surrounding a second major COVID-19 economic relief bill, many observers are arguing that any eventual economic recovery package ought to include green energy initiatives to help the United States move along a path toward a zero-carbon emissions future.  Drawing upon his White House experience, Joseph Aldy, professor of the practice of public policy at Harvard Kennedy School and formerly a Special Assistant to the President for Energy and Environment during the Obama Administration, shared his perspectives on October 19 on lessons learned from the 2009 American Recovery and Reinvestment Act that policymakers can apply to future economic stimulus negotiations.

Aldy spoke during a virtual forum sponsored by the Harvard Project on Climate Agreements (HPCA), and hosted by Robert Stavins, A.J. Meyer Professor of Energy and Economic Development at Harvard Kennedy School, and viewed by more than 120 people around the world. This series, HPCA Conversations on Climate Change and Energy Policy, features leading authorities on climate-change policy, whether from academia, the private sector, NGOs, or government.

“There is clearly a growing interest in thinking about ways in which we can both tackle the COVID-19 recession, establish an economic recovery, and rebuild the economy, and do so in a way that addresses climate change,” Aldy remarked. To do so, he continued, a plan must be timely, targeted, and in some ways temporary, so as not to outlast its need and effectiveness. “At the end of the day you need something that is politically viable. You need something that is a bill that can then become a law. All of this should play into how we think about the design, crafting, and subsequent implementation of a recovery program.”

Aldy highlighted the successes of the 2009 Recovery Act, pointing to the 900,000 jobs it created through green energy investments, and the subsequent growth in renewable power, particularly solar and wind.

“I think what’s important is not just to think about what was the impact of having subsidies for two or three years during the Recovery Act period for wind and solar, but recognizing that pushing out those technologies in those early years helped drive down the cost over time to enable even more significant expansion in our capacity of wind and solar in the past half dozen years,” he said.

Aldy also pointed out the shortcomings of the Recovery Act, arguing that some elements, like the “Cash for Appliances” subsidy program, were poorly targeted, rewarding those who would have purchased the items even without government assistance. He also cited the fact that some green projects, like carbon capture and storage and high-speed rail, were nixed or downscaled when non-federal partners withdrew from their obligations and the federal government chose not to move forward on its own.

Targeting programs so that they reach underserved and lower-income populations is important, Aldy noted, but so is the simplicity of their design.

“Simplicity is really important, although I recognize there is a tension between wanting to be very thoughtful and how you target. Sometimes you might need to be a little less simple to be more effective in targeting, but you want to try to strike the right balance so that you don’t make the program so complicated that a lot of potential participants in the program shy away from its complexity, or delays the rollout of the program.”

Aldy took several questions from audience members, moderated by Stavins, including one that sought his insights into how a Biden Administration, if elected in November, would differ from the Trump Administration in its approach to advancing a green economic stimulus package.

“If Trump were to be re-elected, I don’t think there will be much that would be meaningful that would be focused on green energy in a recovery package,” he said. “For a President-elect Biden, I think that there could be considerable investment here. He has talked about…a significant ramping up of spending on the order of $2 trillion over four years, and a large fraction, about 40-percent, would try to target underserved communities.”

Regardless of who is elected, Aldy said, policymakers need to be cognizant of the politics of green energy investment and design their programs accordingly to appeal to elected officials in red as well as blue states.

“They may not talk much about climate change, but if it means creating demand for new construction jobs in their district or in their state, that might be something that they find attractive,” he argued. “At the end of the day, there's a bit of the politics and the sausage making, if you will, in how you craft all the different kinds of components into a piece of legislation that effective leaders, people who know how to pass bills in Congress, know how to do that so they can then count the votes and get their bills passed in their chamber.”

The next HPCA Conversation on Climate Change and Energy Policy is scheduled for November 12 with guest Jason Bordoff, Professor of Professional Practice in International and Public Affairs at Columbia University. Please register in advance for this event on the HPCA website.