Markets Vs. Mandates: Promoting Environmental Quality And Economic Prosperity

>> Terry Anderson: Anyway, I'm Terry Anderson. I'm the John and Gene Donault senior Fellow here at the Hoover Institution or as most of the time I say, the John and Gene Denaut senile fellow. That tells you a little bit about my age. I've been, I got a phone call from John Razian several years ago inviting me to come, and he told me what the gig would be like.

And I didn't want to move from Montana, but living here when we have 8 inches of new snow seemed like a good idea. So when he finished telling me all the great things, I thought this must be a wrong. I shouldn't tell wrong number call. I shouldn't say that with my boss sitting in the front row.

She finds out it's a wrong number call. I may not get my 26th year, this is the third year that Nick and I have. Nick Parker right here. Have put together this program, Markets versus Mandates for the Environment and Prosperity. You don't have to know a lot about the Hoover Institution to know that many of us here believe markets work.

I trained at a farm club of the University of Chicago. I didn't quite make it into the big leagues, so. But when I got here, I got to meet the likes of Milton Friedman and George Stigler. And one of the, once I was asked how did I come to think this way as an economist?

And I thought about it for not very long. Then the person said, 25 words or less dealt with academics. You know why they say that? So I said two words, incentives matter. And that's really the focus of this program. What are the incentives? How do we structure incentives so that we can have deal with environmental issues at the same time promoting prosperity and freedom for people?

So that really encapsulates Hoover very easily. And we, Nick and I especially care deeply about the environment. I always say, do you think I'd live with that 8 inches of snow in Montana? I didn't care about the environment. And for many, many years I've thought about ways in which policy could be improved to make the environment better.

And I have a book, along with co-author, Donald Leal, in its third edition, entitled, Free Market Environmentalism. When that book was published, it was reviewed in a law journal. And lawyers can be kind of smart, Alex. And so in the review, they said Free Market Environmentalism by Terry Anderson and Don Leal is an oxymoron, comma.

And the authors are the moron part. That tells you a lot about where it stood back in 1972. I believe it was the first edition. But I'm pleased to say that we've seen many changes in the way we deal with environmental policy in this country and indeed around the world.

As an example of that, sitting in the second row up here are a few people who are part of a new program at Hoover under the umbrella of Markets versus Mandates, our Enviropreneur program, Enviro Environmentalists. They wear red bandanas, but they also are entrepreneurs, so have little green business visors that they wear as well.

And we had a wonderful discussion yesterday with those people about the projects that they're engaged in and the way they're taking incentives matter and applying it to environmental problems with an eye toward earning a profit from the environment. But while improving the environment, if you have a chance to meet any of them, I guarantee you it'll be worth the time you'd spend with them.

They are really the kind of thing that makes me all the more excited about markets versus Markets versus Mandates. Enough. On the background of what we do, there are lots of other programs, and over the course of the next few hours, you'll learn more about them. But it's my great honor to introduce to you our.

The person who will kick this thing off, and that is Condoleezza Rice, or Conde, as everyone calls her. I feel always a little bit like I shouldn't. Shouldn't say, Conde, I should say Madam Secretary or, hey, boss, something like that. And I, when I meet people and they say, you're at the Hoover Institution.

Almost always you do you know Condoleezza Rice? I say, yes, really? I say, yeah, I was just with her, I sat right next to her at dinner or something. Really, when is she going to run for president? Always the question. So the last time I was in her office, and I think this is apropos the Hoover Institution and this project, I said, what do I tell them?

When are you gonna run for president? Why don't you run for president? She said, simple. I hate politics, but I love policy analysis. And when she said that, I said, of course. That's why she's the director of the Hoover Institution. That is the Hoover Institution. The Hoover Institution is a place where people like myself and Nick and others in the room here come to do policy analysis.

I always resist if somebody says, you mean a think tank. No, we're more than a think tank. A think tank is a place where you can say, well, I think. And then the other person says, well, I disagree. I think. And that doesn't get you very far. If you're doing policy analysis, you have to do research.

And this program, Markets versus Mandates for the Environment, is a research project. It's about how do we take the tools of lawyers, of political scientists, of even economists, and put them into a research machine and come out with hypotheses and answers and put them forward. You don't like what we say, then show us your data.

I always like to say it's a lot better to pound the data than to pound the table. So you won't hear much table pounding. You may hear some real excitement. But this program is an integral part or fits perfectly into what the Hoover Institution is about. And if you know anything about Condi's record, of course you know about secretary of State and you know that she has been involved in some politics but Condi is the epitome of what we do at Hoover.

She has a resume that makes mine look kind of short and not very heavy. She knows and has done research in her life. In fact, I'll close by saying the first time I heard her, I was about as far as she is from me now. It was at a luncheon speech.

And she started to speak, and I am actually speaking without notes, taking a page from Condi's playbook. She stood up to speak, and I was sitting there watching, and I was craning my neck to see was there a teleprompter, Was there nothing? Condi was not winging it, she was speaking from the research that she has done as a great part of her life.

And it's that that drives her. It's that that stimulates me, and it's that that makes this conference, I hope what you at the end will say, this was a great program, a research program, because that's what we're all about. With that, please welcome, bye boss.
>> Condoleezza Rice: Well, thank you very much, Terry.

I just have to tell you, I know that there was snow in Montana in May, but, you know, I grew up in Colorado, and it was quite common to have snow in May or June. It was also I was a student at the University of Denver. It snowed three of the four years, first day of classes in September.

So it's a feature of the Great west. And we all love the Great West. I'm really delighted to be here to kick off this wonderful conference. I think I've kicked off all three. And so they keep inviting me back, which is very nice. I think that Terry positioned the Hoover Institution better than I've heard it in a long time.

It really is a place that, from our founder Herbert Hoover came with a set of values, not a set of political positions, certainly not a set of partisan positions. We are nonpartisan in our work, but we came with a set of values, and those values were very clear.

First of all, we believe in markets. Secondly, we believe in individual liberty. And third, we believe in limited government. And sometimes when you say limited government, people say, well, that sounds a bit. Not very aspirational. Well, if you've ever lived in Washington, D.C., limited government is a really good idea but it also means government that's close to the people.

It means government that can reflect their views and their interests. If you talk to governors or mayors, I'm sure tribal chiefs, they will tell you, you go to the grocery store and somebody wants to know why that water main isn't fixed in their town. And so government that's closest to the people, I think often presents and brings the best policy.

This is really a, this conference is kind of the epitome of putting all of that together. The environmental challenges that we face are real. We are believers here that we have to have something to say about those environmental challenges, but we have to do it in a way that is consistent with the values that Herbert Hoover left to us.

Which means that we believe in markets, not mandates. It means that we believe in individual liberty, that human beings will, in fact, prosper and thrive only if you respect them as individuals who have rights. And we believe in limited government, that it's close to the people. And markets versus mandates brings all of that together.

And through the research that is being done. And I'm glad that Terry emphasized research because we try to shed light, not heat, on issues. And we do that because we will tell you what we found in our data, in our research, in our evidence, and then we can debate what the best outcomes are given the evidence.

But let's at least start from the idea that we have researched it and we know something about it now. I'm also a university professor. I've been a university professor for more than 40 years. Yeah, they hired me when I was 12. And I'm getting to that point that my students come up to me and they say, you were my mother's advisor.

And I think, well, thanks a lot for that. Appreciate that. But in this generation in particular, they will come with very strong opinions. And I will say to them, before you try to solve that problem, let's try to know something about that problem. Because we should respect opinions, but not uninformed ones.

And research informs our opinions. We can still hold them, but you can really Only debate somebody about the best policy outcomes if you're both coming from an evidentiary base. And so this program that you will be involved in is very much, as Terry said, a research program. The ideas for this program have come and fit nicely under the idea of sustainability.

We have a school of sustainability, the door school, with which we cooperate quite a lot. It's the stewardship, it's energy efficiency, in which we are all very interested these days. These are all really important themes. And this conference also renews another long-standing program, renewing indigenous economies. Very important, I think, when you think about the whole country, but particularly if you came from the west, the role of indigenous peoples, their traditions, their heritage, the problems they've been solving for generations upon generations, we want to be able to tap into that and to also help them to prepare to better steward the land.

This conference is also, as Terry mentioned, the launch of our Enviropreneur Fellowship program. Very proud of that program. It's a great idea. Entrepreneurship is at the heart of Silicon Valley. We sit at Stanford University, which has launched more entrepreneurs, I would wager, than any university in the country.

Entrepreneurs bring the ability and the willingness to take risk for new ideas. And in the environmental space, we need new ideas. And so I wanna welcome our new environprenuers. I'm looking forward to meeting you over the times that you will be here. That is just one of the most exciting new programs that we have here at Hoover.

We also, you also, are part of what's been a series of conferences, including one that we co-hosted with the Lane Center on the American West, a long-standing center here at Stanford. They did their conference, interestingly around the Columbia river, which is both a real thing, of course, the Columbia river, but also a kind of metaphor for the importance of the links between Canada and the United States, the shared resources, the shared benefits, the shared prosperity and the shared challenges that we have with our neighbors.

When I was secretary, I would go to meetings of North America Forum. It was Canada, the United States and Mexico. And I called them homeowners meetings because we were always talking about not kind of big geo global politics, but we were always talking about what were we going to do about predatory fish, what were we going to do about the ugly potatoes that they had in Canada and wanted to sell to us, telling us that they're just fine, those potatoes, and what were we going to do about the management and the stewardship of this amazing continent that we were bequeathed.

So this is a very central set of issues for us. It's a very fitting way to address those difficult issues that we face. And I'm very excited for what you will do. I wanna thank Terry, who for more than 25 years, has been a fellow here at the Hoover Institution.

We do wish we would see more of him, but I now know what the code is. I'll just wait until it snows, and then I'll send you that ticket. And Nick Parker, who has been with us for a number of years, we borrow him from the University of Wisconsin on Wisconsin.

And the two of them have done a marvelous job of stewarding this program, but not just stewarding it, pushing it forward, finding new frontiers for it. And I'm grateful to them. I'm grateful to you for being here and being a part of this. And I look forward to what you find.

Thank you very much.

>> Dominic Parker: Thank you very much, Condi. We are so delighted, Terry and I, to have the support of the Hoover Institution behind this program. I can't imagine a better host for it. So because I'm newer to speaking, I still use notes, and my notes say that I should start out by reminding you so On Earth Day 20 years ago, the Economist magazine featured a story, and the story it featured was about rescuing environmentalism.

And the argument in it was that the market forces could be the environment's best friend if only greens would learn to embrace it. So this would be an alternative market forces to the old playbook of litigating and mandating and regulating. And so this raises to me questions that are gonna be addressed throughout today.

Questions like, you know, have environmentalists started to embrace markets? Is that happening in the last 20 years? Have markets become more prominent in environmental policy? Why or why not politicians, bureaucrats embrace them? And how have markets perform compared to mandates? So I'll offer a few thoughts on these, and then I'll these questions and then segue into the session with Gary Libecap and PJ Hill.

When this article came out, I was starting a PhD program about 20 years ago. And so I was familiar with all the arguments, the textbook arguments in economics about why markets fail and why they would come short of providing the kinds of environmental amenities and environmental quality that people value.

And the basic argument, in a nutshell, was that transaction costs were too high for markets to do these things. And I would say that in the last 20 years, the case for markets has strengthened. It's only strengthened. And it's strengthened largely, I think, because of new technologies that are lowering transaction costs.

So 2005 was kind of the Stone Age of technology. I think my professors who were telling me about market failure, some of them are doing so on overhead projectors with plastic sheets. And then I would call my wife on my flip phone and say, this argument seems so sterile and old.

New technologies have made it easier to connect buyers with sellers, and that's what you need for markets to work and buyers of environmental quality with sellers of environmental quality. So technology is what provides a pathway for the enviropreneurs to do their work to solve problems that mandates have proved incapable of solving.

There's lots of examples of this, but one that I like, that I'll summarize is called the Flyway Program by the Nature Conservancy. So the problem is you have these shorebirds that migrate large distances across continents, and they need wetland habitat at certain times that are unpredictable until the time is close in certain places that are unknown until the time is close.

So what has the Nature Conservancy done? Well, it uses crowdsourced data from birders all over the globe to learn where the birds are at certain times. And then it contacts landowners and it asks them through a reverse auction to bid on what they would need to be paid to flood their fields at the right time and the right place to provide the habitat for the birds.

And so this is, I think, a fantastic example of technologies enabling market transactions that really weren't feasible with mandates generally. I think this ease of connecting buyers and sellers has led to a bigger movement in the last 20 years where environmental markets are becoming more prominent both in the US and globally.

You hear more about them in a session on the potential and limits of environmental markets. Certainly, there's markets for carbon. They are taking advantage of new technologies. They don't always work and there's some problems. But this is a trend that's prominent and I don't think going away. But there's signs that other environmental groups still embrace the old playbook of litigate, regulate, mandate.

There's several groups, groups like Earthjustice and Sierra Club spend a lot of money annually to litigate. And I view this as a zero sum game. You spend all that money over time. What's the opportunity cost? What if it had been invested in buying assets for the environment, for example?

If all that money spent litigating would have been used to buy coal deposits and retire them, would those groups have a lot more to show for their effort? Those are the kind of comparisons we think about in this markets versus mandates program. But the old playbook is popular because politicians, bureaucrats are pretty willing to oblige globally.

In the US at the state level, at the federal level, mandates are common. Many jurisdictions ban plastic carryouts, for example. 11 states have committed to ban gas powered vehicles by 2035. The list of federal mandates since 2005 is also long, especially with the rise of executive orders. The Biden administration declared swaths of public land off limits to oil and gas development.

It created marine reserves that were off limits to commercial fishing, created rules limiting waterfall from showerheads. So these are mandates. The Trump administration has reversed those. But it's showing a proclivity to use its own mandates as well. There's a forthcoming ban on red dye number three and food products.

So this is not trusting consumers to choose the risk they undertake. There is not of yet, as of yet, as I know of, a mandate on the number of dowels that families can own, but that may be forthcoming. The Trump administration has banned paper straws and federal contracts.

This is a follow-up to the Biden administration, which banned plastic straws and federal contracts. And so I hate paper straws, but I love consumer sovereignty, so I'm kind of torn with this. Globally, mandates on carbon are much more common than market approaches. Both exist, though there's mixes of mandates, markets and hybrids.

Creates research opportunities to compare and contrast what's better when, how so? How do we compare the two? What criteria do we use? Well, Terry and I like to say that we follow the advice in this markets first mandates program of Hoover fellow Thomas Sowell. And he basically said, policy should be judged on the incentives that policy creates, not the hopes that inspire it.

So a lot of environmental policy is inspirational, inspired by hopes, without a ton of careful thought or a lot of political lobbying in terms of the incentives that it will create. So specifically, we want to compare these approaches to environmental policy. With three and maybe even four metrics, what approach actually leads to environmental improvements?

According to a recent article in the journal Science, only 66.0out of 1,500. 1,500 global policy interventions since 2,000 have actually reduced carbon emissions. So 15 policies that are intended to reduce carbon emissions, only 60 of those have actually done so. Second, even if they're successful, what are the costs?

And do the benefits exceed the cost? Not easy to measure, but important to do so. For example, the Clean Water Act in the US Seems to pretty clearly have improved water quality, but not clearly generated benefits that are greater than the cost. And then third, are there other unintended consequences?

We have climate policies that raise energy prices and cause energy poverty, especially in poor places. Have those policies been successful? And then there's other effects that are much more difficult to quantify and beyond my scope of expertise. But what are the effects of markets or mandates on our conceptions of morality?

What are the effects on culture? So one of our speakers, Peter Hill, is going to comment on the morality of markets. And before that, Gary Libecap, who's like PJ, an expert on property rights, environmental economics, environmental policy, is going to comment on many things from his new book called Where's Coast Transaction?

Cost Reduction or Rent Seeking and the Formation of Institutions. Both Gary and PJ are tremendous scholars, and they're even better people. So with that, I'm going to turn the mic over to Gary Libecap.
>> Gary Libecap: Well, it's great to be here. And whenever you get a positive introduction like that, I'm always kind of wishing that my family was around, get the sense that Dad's a bigger deal than I think, but that's fine.

So as Nick mentioned, we're going to look at really, the history of major US Environmental legislation with regards to markets versus mandates. Okay, a couple years ago, as I was sort of thinking about the book project, and I've always been a big fan of Coase, and I thought, gee, why are we having this discussion in the first place?

Because Coase laid out, as we'll see shortly, such an attractive way of dealing with economic problems broadly and externalities in particular. And so that was among the most. It's among the most cited articles in Economics, his 1960 piece, and it was a primary mover for him earning a Nobel Prize in, I think, 1991.

So in a sense, if you were from Mars and you looked over the positive arguments that he lays out, you might think, well, we'll march forward with those insights. And as it turns out, that's just not the case basically with Coase. Coase focused on decentralization. As it turns out, most environmental problems are local.

And there's some evidence on comparing local and broader range environmental problems, but most of them are local. And these are the places where you might actually see parties getting together to solve air pollution, water pollution, degradation of ecosystems and things like that. And so, he wasn't draw upon specific cases like that.

He had some parables, but basically he laid out how this could get around the market failure arguments that had been presented and really solve solving environmental problems through the assignment and exchange of property rights. So you really had a markets approach. And in a setting like this, as you've heard already, parties capture the benefits of this trade.

And so they have incentives to lower the transactions costs of the residual claimants of the benefits. And so you will get an arrangement that is at that time depending on the technologies available and so forth, the low cost way of addressing a problem. And so, this is a very positive way of presenting things and problem solving.

And it's a way that encourages innovation and response to shifts and costs and benefits. And it can have just kind of broad economic benefits because you free up resources in the way that Nick mentioned to elsewhere in the economy, you're not devoting them in sort of fighting over things in a zero sum game, but actually improving things.

And so, this article in 1960 predated virtually all of the formal federal environmental legislation. And so as I mentioned, environmental problems are local, parties have information and they have incentives to solve problems. Coase wasn't interested in who got the property rights, although those are difficult problems to solve.

But the key thing that I think is under emphasized is that in a market exchange you equate implicitly willingness to pay with willingness to accept. And why is that important? Because it aligns marginal costs and marginal benefits. And shortly, as I'll point out in my overview of major environmental laws, there just is nothing like that.

There are no incentives like that within a mandated standards prescriptive arrangement. That's tied up to most federal incentives environmental laws. But that's pretty important because it then allows us to state whether or not environmental regulations are welfare improving. So you could still have the case, and I think this is the case for most environmental laws that overall benefits exceed costs.

But it's my impression that the marginal costs are far greater than the marginal benefits. So in a sense the environmental rules and standards are far too extensive and excessive and too costly to be actually totally welfare improving at their particular level. So when I began the project, I selected three major environmental laws and began to look at them.

And just I could not find a single case where cosine arguments were the primary drivers. Now there is some cosine approaches to helping previously set standards be adhered to at lower cost, and we see those in cap and trade systems and so forth. But in no case did the local parties have the opportunity to negotiate the cap and distribute the property rights solving the problem.

So I review the Clean Air act, which is probably the most extensive federal environmental law. Endangered Species Act and the Magnus and Stevens Fisheries Act. The problem with these is Coase indicated their polluter pays, so the polluter really has no incentive to comply. Or they're really not part of the thing to bear the costs.

On the other hand, we'll see in a rent seeking setting, polluters can actually engage in the legislative process to channel rents from restrictions on entry to benefit them. So the other important finding, and you're probably aware, is virtually no federal environmental law has been reauthorized or refined since 1990, at least through the legislative process there administrative adjustments, but nothing formally through Congress.

And so you might say, well, why is that? Given that it's supposed to be providing public goods. And a lot has changed since 1990, but they're mired in political controversy. And that alone suggests that these are not always win win, but actually zero sum games. And so the parties that expect to lose want these things revised downward, and other parties that expect to gain just the opposite.

So I'm interested in understanding why. And so what I do is go through the legislative histories, and law reviews, and the relevant economics literature to get a sense for the absence of Coast. And so there are three problems that one of them has been raised already. Are the transactions costs just too high?

And you see this a lot, this argument that makes coast just irrelevant. Secondly, that we have to have standards to avoid kind of a race to the bottom. And then finally, environmental justice, that we can have hot spots that somehow would be leave certain unrepresented or underrepresented parties worse off.

So first off, in terms, are the transactions costs too high? Well, as I mentioned, environmental cost problems are mostly local. So that's the setting where environmental problems might be solved at lower transactions costs. But in the legislative histories I want to point out, I see no case where the advocates for legislation like the Clean Air act and its various provisions over time and amendments.

Where they say, hey wait a minute, the standards that we're proposing are the low cost solution relative to localized bargaining, okay? Almost always it comes up that localized bargaining is too fragmented and ineffective, but there's really no data as to support that notion. Moreover, the Clean Air act, just to re emphasize the local nature of this is in 1970 was all aimed at local problems.

The solving of particulates and ground level ozone, sulfur dioxide. And in fact the most recent EPA cost benefit analysis of the Clean Air act where they find that the benefits far Exceed cost emphasizes primarily the health benefits and property benefits of reducing particulates and ground level ozone. So these are local problems, local issues that might have been addressed by Coasse, okay?

In terms of the back and forth waste, Ravesh has a nice paper in the Harvard Law Review sort of describing the back and forth and forth and back between environmental advocates and agencies and others battling over this. That is very costly even though there's no data to really examine that.

A race to the bottom, this might occur, it's just they're never made explicit. But especially, if we have localized problems, it's unclear why local parties wouldn't address problems. And there's a huge history of how local communities address local pollutants, particulates from coal-fired power plants and coal industrial plants and so forth, okay?

The country where under the Clean Air act we have national standards, air quality standards, it's a very heterogeneous country in terms of terrain, economic opportunities and pollution. So it's unclear why you'd need national standards that requires that all communities one way or another are either adhere to or never fall below these standards.

There's some analysis in the economics literature about the rent seeking nature of this Pashigian, Maloney and McCormick. But I found a nice quote from the Governor of Alabama sort of pointing out that they were restrained in the ability of firms to migrate to Alabama from elsewhere. And he has a statement here, it says bring your industry down here, dump some stuff in the river.

He was talking about the Clean Water Act, we want jobs, okay? So local communities might have been able to make the trade off analyses of extra employment opportunities and what have you, but they're denied that under these standards. And that's a type of environmental justice that really is ignored.

The hot spots, I understand, I don't know or really see why national standards would address and agencies would address that problem more effectively than local bargaining because you never get that trait and it's asserted that it's needed. But one important aspect of environmental justice that you don't see that is what happens to employees and communities when older plants have to be closed because they can't adhere to the national air quality standard, ambient air quality standards.

And there's only one paper that I'm aware of that really tries to get at those costs. And one problem is that especially with older workers, their skills are not easily transferable and they can't move to new communities or to new jobs. And when they do move to new jobs, they're almost always lower paying ones in other types of work.

So that's an example of environmental justice that you don't see very often. The alternative explanation that I rely on is from Ann Krueger as well as Gordon Tullock. And then there's a law review by Kohane Ravish and Stevens. Kruger and Tulloch are really talking about rent seeking in the political process and the use of state to create and transfer rents.

Kohen revision, Stevens are asking really well, why among the standards do we see so limited cap and trade? So they're related, but not quite the same question as I'm interested in. But the point is that through the political process you can identify who the agents are. And that's who I see when I look at the legislation leave histories, firms, unions, environmental ngos, and of course, politicians and agency officials.

And they hammer out arrangements. And if they don't like it, there's litigation, but that's the process and it. It does appear that the process assigns particularized benefits to certain groups and particularized costs to other groups that really do not link with any important trade off analysis. So at the end, US environmental laws are, I think, inequitable, even though public goods are provided.

They provide disproportionate rents and benefits distributions. And this violates Elnor Ostrom's argument that you really need a proportionate one if you want to have successful collective action. Local citizens have more information, but they're not, they're not relied upon typically. And as I said, these policies tend to be over, I think, too extensive and overly costly.

And so this is what we have without, with standards, without total or much broader use of markets. And so the question arises, well, would markets be a more moral arrangement than what we see through standards? PJ?
>> Peter J. Hill: I'll follow up on Gary here. And he's really given us excellent reasons why Coase was ignored and issues that I certainly concur with.

But I wanna suggest that there's some additional reasons that we should think about. And I'm an economist and I think mostly about efficiency. But there are other sorts of issues with regard to efficiency. There's the ethics question, and sometimes in arguments like this, the efficiency issue gets ignored because for some people, in lots of situations, ethics trumps efficiency.

And if a program is seen to be unethical, then the lowering of the transaction costs or saving on resources doesn't seem to be particularly relevant. So I want to take up another part of that. Oftentimes in the political world, markets are morally suspect, seeing that they bring out the worst in human behavior.

You see unfortunate accumulations of wealth, there's exploitation and selfishness. You see that in the first earth day in 1970 in which there was a discussion we need to bring attention to particular problems and we need to deal with them. But the modern capitalism, the argument is, was not dealing with them.

So we need a different sort of a mechanism. We need a mechanism that steps beyond that of markets. Markets might be okay for mundane matters like potato chips and white tube socks, but you certainly wouldn't want to trust air or water or endangered species to that argument. Here he's given us some reasons why rent seekers took over and why markets were often ignored.

But generally, I wanna take up the issue of is the market kind of morally suspect? I want to suggest that there's three reasons why, from my perspective, markets are moral, why they do represent a moral endeavor, and on many margins, actually markets are morally superior to mandates. First, I would say, and this goes Back to Connie's remarks about individual rights, that capitalism really is based on a morally appropriate view of people taking morally appropriate actions with regard to their property, to themselves.

That's a moral question. And if you think that there is universal human dignity, human agency, moral agency, what we call self ownership, then that means that you control property and you take actions with respect to it. And so in that sort of a world, you're doing what basically the modern liberal order is based upon, basically a concept of universal human agency.

So if you take that view, then acting appropriately with respect to your property is a moral activity. One of the things that's interesting in that world, then wealth is an indicator of your degree of cooperation, how much you've been able to help other people, the sorts of things that you've done to be a cooperator.

Now historically, wealth has been kind of morally suspect, and that was probably a fairly accurate view. Because in a world in which maybe zero growth, kind of a lot of zero sum activity, and where rights are not well established, then wealth can be an indicator of rapacious behavior.

You get wealthy because you're dealing with stolen goods. And for instance, a market for slavery is not a market that we should justify morally. You're dealing with stolen goods, you're dealing with the ownership, with a person's kind of self ownership. So in that world, and if you go back to the Roman Empire or the Greek city states or the Chinese dynasties.

And when people would view wealth as an indicator of immoral behavior, that was probably fairly accurate because in that world you got wealthy by dealing with other people's rights. Unfortunately, we've taken that perspective and we've taken it to the modern world, which wealth is very different, but we still can see wealth as an indicator that you've been doing all sorts of wrong things.

But in the modern world, wealth is again that indicator of your degree of cooperation. William Nordhaus, the Yale economist Nobel Prize winner, looked at the US from the latter part of the 20th century, actually 1948 to 2001, and he was trying to measure the degree to which entrepreneurs captured their social gain.

I mean, they're producing gain for people by involving themselves in production and trade. And so he called it the Schumpeterian entrepreneur activity. And Nordhaus data says that throughout that period of time, that 53 year period of time, by his estimates, the entrepreneurs captured between 2 and 4% of their wealth.

Well, what happened to the rest of it? The rest of it went to other people in the society. So now in the modern world, massive accumulations of wealth in a property rights framework says you've done well for other people. Now maybe you shouldn't necessarily go home and send Bill Gates or Mark Zuckerberg flowers or notes, things like that.

It could well be that their wealth is an adequate reward for their caring for other people, but they certainly shouldn't be morally condemned. We should not see moral disapprobation for entrepreneurs because they are engaged in a wealth creating, benefiting activity. So that's the first reason that basically a system of individual rights mean you can, you don't have to, but you can participate in markets.

Second, markets limit, limit power. That's a pretty powerful sort of a thing to do. Power can be used badly. It can be used to oppress other people. In a market world market, the only way you can gain power over other people is through rule of willing consent, that's very nice.

And in fact, I would argue that power is more constrained in markets than it is in the world of mandates. Power can be used badly, but it's more likely to be misused in the mandate world. Then finally, I'll just take up kind of the what does markets do to human nature?

And here the charge is an interesting one because the charge is that markets encourage people to engage in selfish behavior. Selfish behavior is basically defined as carrying too much about yourself, not thinking enough about other people. Well, the feedback loops in markets are much clearer. We can be selfish in markets.

Can be selfish in mandates, but the feedback loops in markets are much more immediate, much more signaling to you what you can or can't do than they are in mandates. You can be selfish in markets, but you very quickly get some signals about your lack of care for other people, because that's what markets really are is a signaling mechanism that tells you how.

How well you are cooperating. So basically, as I look at the world of markets and mandates, I actually consider markets to be the one that I'm the most willing to defend. Because that's the one where moral actions are rewarded, taking care of the issues of caring for other people.

Now it doesn't mean that markets are a complete moral statement. We need a robust moral framework to deal with all sorts of other issues. But I do see involvement in markets as an ethically appropriate set of activities. And in fact, I would say that Coase was as a moral entrepreneur.

He was making a moral system work better. And if you think the issues that Gary is talking about as basically conflicting claims over property rights, which was the issue with air, water, species, fisheries. The conflicting claims over property rights is what Coase wanted to try to resolve in order to make the Morrill enterprise work better.

So with that, I give you that as another reason why Coase should be paid attention to, thank you.
>> Dominic Parker: We're going to transition to question and answer for a few minutes, and I'll ask one question of PJ and then I'll put it to the audience. PJ, what would you say to the critique that it is immoral to buy and sell things that are critical for human life, like water, clean air?

Is that somehow different? Is that outside the-
>> Peter J. Hill: Yeah, if you think of marginal analysis, most of those things, I mean, would you want to force a person crawling across the desert and you happen to have a gallon of water and they are close to dehydration? You can make cases, in lots of situations about situations that usually don't exist.

But you can think of hypothetical situations where one person has monopoly power over a resource, and making them pay their last bit of resources in order to get it. You may want to argue in those sorts of cases that markets shouldn't be used. Most of the time they're not.

And it is freedom of entry. The sorts of things that Gary's talking about in terms of a property rights framework that takes care of those sorts of situations. It's pretty easy to construct these hypotheticals about, my goodness, would you want to force that person to sell their child into slavery in order to survive?

Well, the society where people don't sell their children into slavery is generally one where you have markets that are producing wealth. So I wouldn't say that you necessarily want to imply or apply the markets always work framework. We need unselfish behavior in situations. But I just don't think that that's very relevant for any of the issues that we're talking about with regard to air, water, species, any of those sorts of things.

>> Dominic Parker: Thank you, so Tracy?
>> Tracy: A point of information, Gary. Excuse me, and one question. There were actually two more reauthorizations of environmental laws since 1990. The Safe Drinking Water Act in 96 and some people consider the Frank Lautenberg Chemical Safety Act in the 2000s as a reauthorization.

So you just FYI, second is a question did I didn't recall you discussing the asset rain trading program, which the Economist magazine claims it's a cosy in play. OMB of course praises it as the most benefit cost beneficial rule. How do you view that in light of cosine principles?

>> Gary Libecap: Well, is clearly more cocian in the sense that there's exchange. But at least the way I distinguish these is that in those cases the standard is set so the parties are not negotiating what the overall level of environmental quality ought to be. And then allocating a property rights regime to achieve that and a bargaining regime to achieve that.

The standard is there. And these, the sulfur dioxide acid rain and reclaim in Southern California, I mean, they're hosting within fisheries. These are efforts to reduce the costs of meeting the standard. You don't get the opportunity to change the standard. In fact, these standards don't change. I appreciate the information on the other that's always the problem when you say when you step into an area that you don't know everything there is to know, and there's always going to be better.

But the major environmental laws have not been changed since 1990. I'm sorry?
>> Tracy: You don't consider the Safe Drinking Water Act.
>> Gary Libecap: There you go again, I just have to make that 1992 or whatever but I agree. No, that's very good too.
>> Speaker 5: Thanks Gary, I promised I would cheer your talk there so.

But also I was listening and I won't go into various details on fisheries. But I was thinking as you were speaking, do you think there's a fundamental difference between sort of political limits or setting limits between industry and government and science on goods versus bads, right? We like more fish.

I would trust industry and science and maybe even government to work toward a sustainable harvest level for fisheries, much less so than I would setting a pollution limit. Do you think there's a sort of goods versus bads. Does that have an opinion on that?
>> Gary Libecap: Well, I don't see them as fundamentally different, although there may be attributes.

What's kind of amazing at least, and this, I'm sure that for like 25 years, even though Iceland and New Zealand adopted property rights regimes, so these things you can't see and move around the US did not. So it's 25 years before we actually put in a tradable right to fish across these different regions.

And they're explicitly not a property right. And moreover, the assignment and exchange of them is very restricted. The idea is to protect certain parties. Now I see that same pattern, in the Clean Air Act and the Endangered Species Act. The sense of mandated constraints to achieve outcomes that are desired by certain parties.

>> Speaker 6: We'd like to have more fish, we'd like to have less pollution, if there's some difference in them. Yeah, I don't know, I don't have a good. Somebody else may have a good response to that.
>> Speaker 7: Kind of the same question for both of you regarding devolution or taking policies down to lower levels of collective action.

The community, the town, a homeowners association to you, Gary. Why is it so hard to do that? What makes it so difficult for these Largely local problems to be confronted by local collectives.
>> Dominic Parker: And why are they left at the top? I have my own answers, but if you could address that.

And to you, PJ, can you make the case that when we devolve these collective actions issues to lower levels that we tend to have a more just or moral result than if we leave them at higher levels of collective action or government, if you will.
>> Peter J. Hill: I don't know if they're more just, but they're particularly decided upon by kind of whatever their local standard of justice is that usually recognizes individual rights.

But I just think the trade offs are a lot clearer at the local level. And part of the move towards national regulation is a move that says that elites really know better. And so I think the local level thing is relying upon people for sometimes people in higher echelons of power can't believe that the local people can understand those sorts of issues to make those sorts of judgments.

So I do think that as long as you have a robust defense of rights, allowing people to make the trade offs that they think are important is the way to go. But I just think there's kind of a general suspicion of people that on the local level maybe don't understand, you know, the claim would be they don't really understand the science, they don't understand the trade offs.

If you believe that you can give them more information, but you don't need to coerce them to say, doggone it, you are making this sort of a trade off with regard to clean air and income and we know you're making the wrong trade off, so we want to take that away from you.

I just think it was a part of an elitist moral judgment that the people at the top know more, and that makes them, quote, more moral.
>> Gary Libecap: Yeah, these morality arguments blend very nicely for advocates because if you have a private gain that you can actually get through the use of the state, but you can make it sound more moral, then, well, all the better back to local actions.

Now I have to say right up front, you know, I'm not an expert. I have gone through, especially with early particulate regulations in Pittsburgh and other industrial cities, groundwater issues. That local parties, when they could set the standard, they were bargain polluters, pollutees. And they would have a sense of who owned what and whatever.

At least in a Harvard Law Review by John, federalism versus local arrangements, he concludes these things are quite effective. Now I don't know exactly what his standards are, but he's not one that says these are outright failures as you often see. The difference now is, as PJ mentioned, with the standards you have to negotiate within the standard.

And then if you look at the provisions of the Clean Air act, for example, then there are some aspects of that that really constrain what locals can do and for example, the prevention of serious deterioration or significant deterioration of air quality. So a national standard is set and then areas that are above the standard cannot negotiate to have below the standard.

Now why is that, okay? So it isn't a problem with local arrangements. It's the way in which national advocacy parties, firms, unions, environmental NGOs and politicians and so forth have decided that they want the standards set up in a certain way and restrict the ability of communities to bargain around them.

And there are explicit reasons for that.
>> Dominic Parker: Thank you everyone for being part of this session. We'll reconvene in about five minutes.

>> Steven Koonin: Good morning, I'm Steven Koonin. I'm the Edward Teller Senior Fellow here at Hoover, and I am the convener of this session on energy transitions. I'm pleased to be joined by two of the world's leading thinkers on energy, Samantha Gross and Scott Tinker. You can find the bios in the program.

I'm not gonna go through them now, just to say that Samantha and Scott are among the people I turn to when I've got a crazy idea or need to be corrected.
>> Audience 1: She must see you a lot.
>> Steven Koonin: We wanna talk about the energy transition. None of us have a primary expertise in policy.

Rather we are, as Samantha likes to say, energy geeks, Scott as a geologist, Samantha as a chemical engineer, and I as a physicist. But we all three have a passion for informing policy. And that's particularly important in energy where there are certain techno-economic, behavioral, geopolitical realities that have to be respected if you're gonna do effective policy.

And if you listen to the politicians, the media, watch the governments in the us, in Europe, you realize that there's a lot of educating that needs to be done about those realities. So I think we'll spend a lot of our time painting a picture of the energy landscape and energy transitions and only toward the end start to turn explicitly toward some policy in our discussion.

So let me start off, Samantha. The topic is energy transitions. What do we mean by that? And why should one even think about making a transition?
>> Samantha Gross: It's a great question and I think most people out in the world think of it as one thing. They think of it as switching to renewables to deal with climate change.

I define an energy transition a lot more broadly. I would like to see a transition towards an energy system that is better for people. And that means a few different things than just using more renewables to save Mother Earth. It means you need to make sure that all three aspects we talk about.

I hate the term energy trilemma because I think it makes it sound like everything's bad, but I lost that battle. I think of it more as a three legged stool. You need to balance affordability, security, and sustainability. And you need to keep those things in balance for people.

And so I think of an energy system that is more balanced on those three attributes, and I think about one that provides people the energy services that they need while being good for both them and the planet. That is sometimes fossil fuels, particularly in the developing world. But we also, there are reasons to move away from fossil fuels over time that don't have anything to do with the climate, with criteria pollutants like the things that you were talking about.

Things like particulates or mercury or ozone, ground level ozone, things like that. So there are reasons to move away from fossil fuels that aren't about climate. I also care about the climate. Scott and Steve and I have some differences in areas, but I think the science is difficult.

But I do think the science is directionally pretty clear and I think that's something we should worry about and we can get into how far we should go about for the whole rest of the panel. But that's where I wanna start anyway, with what an energy transition means to me.

It's about people.
>> Steven Koonin: Scott, you've been around the world a lot looking at energy in many different contexts. Samantha introduced the idea of this. I like energy trilemma but three legged stool, three dimensions. How do you see those different dimensions getting weighted in different parts of the world?

>> Scott Tinker: Yeah, it's good. Maybe I'll start with this thought that transitions happen when something better comes along and in energy we look at that. I'll give you an example. I drive a 73 Volkswagen Super Beetle. We bought it new when I was in high school and I learned to drive on it.

I taught my wife how to drive on it. She wasn't my wife then. Still have it, and it's awesome. It's loud and it's bumpy and it's slow and it's hot and it's awesome. 70 horsepower in the back, air cooled. And we also have a now a Ford 250 diesel, and it's an incredible vehicle too.

It'll haul our dogs and it has maps that tell me what to do inside and exhaust braking, and it's just completely different. Arguably the 250 diesel's a little better vehicle than the 73 Super Beetle if you're really looking for all the things that cars do now. Same with phones.

The one in my pocket is different than the curlicue one I used to talk to her on with a cord, one in the house and hide in the closet, so it's a better fit, it's a better system. So when we transition, the first form of energy was a sun.

It grew the hay that our vehicles ate to walk around with and pull stuff. And it moved from dung and coal or wood and stuff, all sorts of carbon based fuels. This is thousands of years ago. It wasn't until 1804 that the first coal fired steam engine train in Wales commercialized, 1804.

And that launched the coal, oil, and gas era, the hydrocarbon era for the last couple hundred years. They're better. Why are they better? Well, you get more bang for the buck. Energy per unit weight, energy per unit area, per unit volume, however you like to measure it. It's just better.

They're denser forms of energy. I just get a lot more useful work done with coal and then oil, which is denser, and natural gas, which is denser still per unit weight than oil. You just get more work done and that's allowed civilization to do what's done. So they're better.

So what are we gonna transition into? It needs to be something better. That's hard to find. Uranium and thorium arguably are better for electricity generation. They're denser. I could take a uranium pellet that you stuff a fuel rod with in a nuclear reactor that's about a centimeter tall.

One little pellet. There's enough energy in that pellet to drive my car from New York City to here and back to Dallas, one pellet. That's dense energy. It's better, okay? Has downsides too. So transitions, we're not transitioning from less dense energy to less dense energy. It has to be better.

And so it needs to be more affordable and it needs to be more reliable. That's better energy. Affordable and reliable, that's what drives economics. That's what drives, that's the physics. That's what drives the system forward, affordable and reliable. And it was said this morning, I agree strongly that, back to the three-legged, energy underpins economies.

We just talked about this. We met in North Dakota 15 years ago. Energy underpins economies. Economies invest in the environment. The best environments in the world are where there are healthy economies. The cleanest air, the cleanest water, the cleanest soil. We clean it up because we can afford to the worst environments in the world, and I've been to over 60 countries is where it's poor.

You just can't. They have other priorities. They can't afford to clean things up. So you want to accelerate environmental protection and stewardship and emissions reductions, make people wealthy.
>> Steven Koonin: So I think, you know, the clean leg of the stool has a secondary status relative to affordable and reliable.

If you don't have energy, you're nowhere. As you said, emissions will reduce as people get richer. We should unpack, you know, clean in terms of local pollution, for which all the I learned the new word cossian arguments in the last session seem to apply versus the greenhouse gas issue, which is really a global problem and is not really, I think, amenable to local action.

Does that sound right, Samantha?
>> Samantha Gross: Yeah, I think that's exactly right. I think we were talking just in the back while we were getting mic'd up about some places where the cosine arguments start to fall apart. And I think when you're talking about a global public good, which is what greenhouse gas emissions are, that argument does start to fall apart.

You hear climate change described as a wicked problem and one of the reasons why it is so challenging to deal with. Or also, if you want to look at a more optimistic side, how some easier ways to fix is that a molecule of CO2 emitted anywhere is the same as one emitted anywhere.

It is not a local pollutant. It's fine locally. The problem is if you emit too much of it globally. And so I think what that allows us to do, getting into some of the things that Scott's describing, is to reduce emissions where you can most afford it. Because when we talk about climate change a lot, I think we get really wrapped up around the axle about, you know, everybody has to cut down and we have to make one and a half degrees and whatever.

But the truth of the matter is if we try to solve climate change and we do not deal with energy poverty and we don't deal with the several billion people in the world who don't have reliable useful are well below the level of energy that would maximize their welfare, that's not a solution.

That's garbage. That's not, you know, that's environmentalism for rich people. That's not environmentalism for everybody. And so it is a much more difficult public policy problem than sort of a cossian argument where, you know, people in a specific area can decide how much pollution they're willing to live with.

And what they pay for it.
>> Steven Koonin: So let's talk about how it's going, this energy transition. If you look at the global numbers, fossil fuel use is surging. Coal is at a record high. I think oil's at a record high or close to it. Gas the same, but at the same time, renewables are being deployed at unprecedented rates.

But you also see that mandates, to use one of the words in the title of this conference, are being relaxed. Heating mandates, for example, in the UK and Germany, turned into follies, actually, when the political system pushed back. So are we getting there fast enough? Do we need to get there fast enough?

Scott, what do you think?
>> Scott Tinker: Well, depends on what your objective function is.
>> Steven Koonin: Good.
>> Scott Tinker: And if it's carbon all day, 30 cops, conference of the parties have had zero impact on the trend of global emissions, zero.
>> Steven Koonin: Those are the UN meetings.
>> Scott Tinker: Those are the big UN confabs where everybody gets together and talks about carbon and climate.

It doesn't mean that they're not important. They just haven't had an impact on the actual emissions of those. So fast enough for what? If your objective function is human flourishing, as I think Samantha and I agree, and that's a passion of mine, made a film about it, we've got a nonprofit targeting it, et cetera, for the reasons we just talked about, well, there's progress being made, but it's very slow.

So if you look at all the world's countries, it's very interesting. There's a very strong correlation between energy consumption and gdp. Energy per capita and GDP per capita. Okay, very strong correlation. The more energy you consume, the more wealth. It's not perfect, but it's a really nice correlation.

R squared, probably pretty high, it turns out. Conveniently, the average of the rich world, which is only about 1.3 billion of us, the developed world is 50 megawatt hours and 50,000 bucks. That's the average per capita energy and wealth, 50, 50. As you go down from. And the US is higher than that, by the way.

But that's the average of the wealthy world as you go down there. There's 7 billion other people, as Samantha answered, living in some state below that from a tenth of that or lower to up to that. And those 7 billion people are living in energy insecurity. Energy is not affordable to them, it's not reliable to them.

They don't have the wealth and they don't have any of the other things that we take for granted, any of them. Education, health through refrigeration, food security, water security, as talked about, none of that. So I think the objective function for a transition has to be to stop the growing disparity between these people that are stuck and us who continue to gain wealth and consume more energy.

If you continue to grow that economic disparity, it doesn't end well. Think about the world. Whenever that's happened in the world, how does it end? And so that's not a solution for any of us. We have to unpin that. And as has been mentioned, that's done with access to affordable, reliable energy.

And that's really the transition. Once that begins to happen, better, and it's slowly happening, but not nearly at the pace that it could happen or in fact should happen. It's not an energy limit. There are a lot of other things keeping it there, but one of which is colonialism still.

>> Steven Koonin: So if I listen to the politicians in Germany, the uk, EU more generally, and here in the us, at least in the last administration, existential threat. The world is gonna fall apart if we get above one and a half degrees. Doesn't sound right to me.
>> Samantha Gross: Yeah, I'm happy to say a couple words of that and also respond to a couple of things that Scott said.

It is really unfortunate that people have gotten the impression 1.5 to stay alive is an expression that I find really offensive. The world doesn't automatically fall apart at 1 1/2 degrees. It just doesn't. Probably doesn't fall apart at 2 degrees either. And truthfully, according to the book that Steve wrote, it is very difficult to know when things get ugly.

In my opinion. That doesn't mean that we should just emit great guns because we don't know when things start to get bad. That's a bad idea. But what has happened is the idea has been sold that the world sort of falls apart at these very conveniently round numbered terms of degrees.

And that's problematic. In that vein, I want to talk about something Scott said. He talks about 50 megawatts and 50,000 bucks. When you start to get up into wealthy people like the people in this room, the GDP to energy use starts to fall apart and flatten. In a bit, you're actually seeing that decoupling between GDP growth and energy use and greenhouse gas emissions in really wealthy economies like ours, like Europe and a few others.

And so it is possible to have economic growth without energy growth, but it's something you actually have to be rich enough to buy in many ways. And we are at the point where we're rich enough to buy that.
>> Steven Koonin: Yeah, we have outsourced our energy use.
>> Samantha Gross: We have.

We have outsourced our manufacturing. And that is problematic. But it is also true that there are things that can be done and the wealthy countries are leading in those things. Where I start to get into the problematic immorality about it that Scott is talking about is when you see things like the development banks or the Europeans or others, there are a lot of guilty parties in this who are looking at sub Saharan Africa and going, you can't build any fossil fuels.

Excuse me. It is impossible to develop a country's economy, industrial economy, the kinds that brings wealth and jobs on solar panels. We're not ready for that. There are a lot of causes that played into the blackout that we saw in Iberia and Spain and Portugal a couple of weeks ago, but one of them is likely some of the grid effects of having a ton of solar holding up your grid at that particular moment in time.

And so we need to work on our own energy consumption while making space for these guys to emit because they need to develop, and if we tell them not to, it's immoral in my point of view.
>> Steven Koonin: All right, Scott.
>> Scott Tinker: Yeah, so, look, I've installed solar in indigenous villages in Chuqua, Columbia, the Arhuaco people.

We filmed it, you can go look at it in our film. Over eight days and a year to visit ahead of that, to get baptized in order to be invited to come back and do it and give them. And that's all they could have. I mean, there are no roads that get you there.

There's no power lines, there's no pipelines. That's first electricity, three and a half kilowatt array, half of what you put on one home here. But it was mud huts with light bulbs and some ceiling fans and a community center and one fridge.
>> Samantha Gross: It's a big deal.
>> Scott Tinker: That's a good start.

They asked for that and that helped in the school too. But that's light bulbs in mud huts. We would call that a brown out. It's not electrified. It's light bulbs in mud huts. So it's a start. This is, I think, the big kind of challenge we Face. And it's been hinted at here rightfully.

There's only one atmosphere in the world. So when we come to climate, if our policies, we can talk later, what they are doing is having us export the problem. Essentially the non OECD nations make all our crap and the OECD nations bring it over here. One item at a time on an Amazon truck.

How many got an Amazon delivery in the last week? Put your hands up. Come on, be honest. Okay, just one toothbrush. One a day. One toothbrush. Cool. I got a toothbrush from a truck. Where did it come from? This is a shell game. That's all this is. California isn't green.

You're playing a big shell game. You're importing more and more of your energy, more and more of your products, exporting more and more of your emissions to other people and saying your per capita emissions are lower. That's a shell game. That's not helping the climate because the folks that are making that stuff are not doing it as well or regulated as California does.

>> Steven Koonin: So let's take up this issue of international flow of goods. China has taken deliberate steps to corner the market on a number of things important to the energy transition. Solar panels, increasingly batteries for all sorts of applications and the processing of rare earths which are critical many of the clean technologies.

Should we be doing the same? Should we be getting into industrial policy to make sure that some of those activities occur at home or in friendly nations at least?
>> Samantha Gross: That is a darn good question. I'm not an economist, I know just enough to be dangerous. But I will say that the US has really shied away from, until very recently shied away from industrial policy.

And for good reason. We believe markets work. I think everybody in this room believes markets work. That's the whole point. But it is very hard when you're dealing with a country like China that is really subsidizing, making really long term plays that are difficult for US companies to do with the backing of the government.

If we don't do something about that, I think we're largely bringing knives to a gunfight. And that puts us in a really difficult situation because we're free market people and I mean our country believes that to the core. And so it's really hard for us. And so we're trying to figure out how to act in that environment.

But it is true that China set up a government policy that we want to own the future and we did not. And we are seeing that come home to roost right now and you're seeing the political argument that a transition towards greener, cleaner, more renewable energy involves trading good old American fossil fuels for Chinese goods and raw materials.

And I don't think that's necessarily where we want to be. But we also, to Scott's point, have to think that some of these mining and refining are not necessarily things that everybody wants in their yard. They're dirty, kind of yucky industries that the US Sort of got out of many years ago for some of the reasons you described.

We said, we don't want that here, we want somebody else to do it. And now some of that is coming home. And so you're seeing us making minerals extraction deals with some countries. I don't think much is going to come of the Ukraine deal anytime soon, but there it is.

But we still haven't. And you don't hear enough talk about what to do about the refining side. Even if we were to build mines tomorrow in Ukraine, let's say you'd still be selling many of those minerals into the Chinese monopsony of refining. And so we got a whole lot of work to do.

But even though it's against some free market principles, I don't want us to keep bringing knives to gunfights.
>> Scott Tinker: I mean, there's only two regions in the world, if you look at it, that consume a lot more oil and a lot more gas than they produce, China and Europe.

Okay, everybody else produces more than they consume. So there was a demand driver here. China didn't have options. They don't have the oil and gas options. Europe does. They won't produce it. Two different reasons. So they made a decision. Belt and Roads and earlier initiatives to go out and drive the solar, wind, and EV markets.

Guess who produces 85% of the world's EVs in the world today? China and Europe. Who needs them? That's fine. And Belt and Roads was brilliant. So that China is doing what it needs to do to have an energy economy, because they don't have that resource. They have some other resources.

They don't extract those resources in the world. They process them. So through these initiatives, they bought the processing rights for almost 80% on average of all those critical minerals, rare earth elements and other metals. So it's brilliant, congratulations, China. Perhaps we feel more secure with our vehicles not having the oil come from the OPEC and instead all the metals come from China.

Maybe that's more secure. How does it make you feel? I don't know, but I think we better. Darn well understand that's a policy risk and decision that we're making when we do that. And so if you think about the implications of this, and I think we all believe this, but you can tell me optionality really matters.

In energy, you have to have options. A portfolio of options is secure. It's also more affordable and reliable. Not in some aspects, depending on the time of day and, and the resource demands and stresses. But the options, just like in a stock portfolio or real estate portfolio, they balance out to reasonable.

When you start mandating things, you eliminate options. That's what mandates do. They essentially say you can't have that option. You can't drive a internal combustion engine here or you can, but it's going to be an old dirty one. Brilliant. Okay, that eliminates options. That's not a good idea.

Markets don't respond well to lower options. And in energy we need optionality.
>> Steven Koonin: Samantha, did you want to weigh in?
>> Samantha Gross: Yeah, I just wanted to add the sort of a corollary to what Scott is saying. In the international climate world, people like to give China a really hard time about its coal use.

China still building coal plants. Well, they do it for an energy security reason, coal. They have, they are the world's largest coal producer going away. That's the resource that they really have. They're also the world's, I believe, fifth, fifth largest oil producer. You never hear that because of course they use all that they produce because they're such a massive and a growing economy.

They have huge energy needs and for security reasons they use what they have.
>> Steven Koonin: So let's turn to policy for a bit. We have seen in this country great instability in policy. Previous administration emphasized the clean and particularly greenhouse gas leg of the three legged stool. This administration is about energy dominance actually not just abundance, but dominance for energy in particular because the timescales are so long.

Fluctuations in policy are really destructive. And you know, how can we get to a more predictable energy policy than what we've historically. Does anybody have a predictive. You look at-
>> Scott Tinker: Communism works for some things. Very predictable. Yeah but, at a cost.
>> Samantha Gross: Yeah, I mean, I don't love that solution, but it's true.

Yeah. I mean, I desperately wish that we were having conversations about the energy system like we have up here. Steve and I sat dinner last night and we laughed about how many things we agree on because I'm kind of center left and he's kind of center right and if you locked us in a room we could come up with some darn good energy policy.

Whereas I think there's this idea out there that the Trump administration is fabulous for the energy industry, whereas I went to world's largest energy conference back in March and this was before the tariffs were announced, mind you, and the industry was so frustrated because they don't know how to make decisions in such an uncertain environment.

And a decision where the policy swing so rapidly, and they are not making decisions on 4 year cycles, they're making decisions on 20 year cycles or more in some cases. And so they would just like some steady policy punto and that is a real challenge for them. And so I mean, what I would really like to see if we want to be energy dominant, independent, whatever adjective you want to apply to it, the thing that would really achieve that for us is is steady policy that we can agree on, that the two parties can agree on, that doesn't change massively every time the occupant of the White House or control of Congress changes.

And so the US really should be energy dominant. I mean, look at everything we have here. And yet we're not going to be because we can't seem to get the policy right.
>> Steven Koonin: Scott?
>> Scott Tinker: In 2007, this country was importing a lot of oil and we were starting to import gas.

2007, we now produce, we're the top producer of both in the world. 17 years later, 18 years, that's because of shale. So it's not it wasn't a revolution, but the confluence of the evolution of technologies, vertical drilling, horizontal drilling, hydraulic fracturing, putting those together and then evolving a whole lot of other things, including data and art and intelligence, allowed us to recreate a oil and gas production point higher than it's ever been in the past.

I gave a talk a couple years ago in DC, and it was called Houston, We Have a Problem, because seven of those ten big shale basins have either rolled over or plateaued in production. Now there's only three that are still going up. The Marcellus gas in the east, and it won't without infrastructure.

The Haynesville, which has had twin peaks and is starting to struggle a little bit. And West Texas, where the oil is and you produce a lot of associated gas with that infrastructure problems there too. The ability to build and take it away, everything else is plateaued or rolling over.

This won't last forever, the resources there. But to produce that, convert it to a reserve and production is very expensive and very technologically demanding. And it involves a lot of reasonable policy to allow that to happen. So we're about to leave that scene, start listening carefully to most of the CEOs in that industry today and they're calling for production peak next year.

And guess who's smiling in policy sense. I mean, I have to believe that Narendra Modi calls Xi Jinping, who rings in Vladimir Putin and they might bring in Mohammed bin Salman. And every night on Zoom and they just laugh their asses off at us. Hey, they're still doing it.

You know, they're producing all this stuff, it's rolling over. They won't build infrastructure and they keep bringing in all of our manufactured goods. We got this. You know, I think that call must go on every single night. What what I find he asked me to be a little controversial.

How am I doing?
>> Steven Koonin: I didn't really have to ask what what I find. And we're going to turn to the audience in a moment. What I find both a tragedy and a mystery is the reticence of many decision makers to speak up about this. The challenges that have become so evident in the energy transition in the last couple years were well known to technically inform people even two decades ago.

And yet when you talk to the CEOs, the regulatory folks, they're all afraid to speak up and talk about the techno economic realities. And I think that's what's gotten certainly Europe into trouble. And we're increasingly headed in that direction. You know what else we've been reticent talk about?

>> Scott Tinker: And you did it with your book and others were as well. Please do this and email me or text me. Go to the Last IPCC report, AR6 Working Group 1, which is the big working group that looks at the technical sides of things and arguably the least political.

Chapter 12, Table 12.12, okay?
>> Scott Tinker: And when you get to AR6, write it down, working group one, you can Google this. Chapter 12, you have to expand all sections. There's a little button, expand all sections, because you can't find Table 12.12 unless you do that. And there it sits way down there.

These are big reports. And that table summarizes the extreme weather impacts. Of warming with statistical rigor. And bless the IPCC's heart, some of those climate scientists required that to be in there. Others didn't want it because it says what has emerged from the normal past so far, the normal last hundred years of weather past.

What's emerged actually emerged was statistical high level of confidence. Everything that's white in that table hasn't emerged yet. Go check it out.
>> Steven Koonin: 34 different climate impact drivers, of which a few show some statistics.
>> Scott Tinker: Three have emerged and maybe six more will by 2100 at the eight RCP 8.5.

>> Steven Koonin: Most extreme.
>> Scott Tinker: Most extreme. So this is policy. We are hearing that every event that happens in weather, because we hear about it all the time, is the most extreme. Never unprecedented, never happened. We have to act now. There's no time. This is Thomas Sowell's book. I love Thomas Sowell.

The Vision of the Anointed. Go read it again. He lays out the formula for how this happens every single time. It's going to be bad. There's no time to lose. Got to act now. Only governments can solve it. And when it doesn't get solved, well, it would have been worse without us.

That's basically the formula.
>> Steven Koonin: Samantha, last word and then we'll go.
>> Samantha Gross: I want to add something onto that. And this is sort of how people in Washington think. So I went to school out here in the Bay Area and moved to Washington 23 years ago. And I was absolutely stunned at how poorly I started out working for Congress, how people there understood how the energy system works, how energy markets work.

Just engineering facts and science facts in general, like we can certainly break man's laws, but breaking God's laws or Mother Nature's laws, depending on your level of religiosity, that ain't happening. It does not work that way. And I hear people, some here in the US a lot in Europe say things that just are not going to happen.

You know, we'll make that work. We'll make that process more efficient. Well, actually you won't because the thermodynamics isn't your friend or somebody. When I first started in Washington, somebody wanted to build more refineries. It was one of those rare times when refiners were making money. No, this business is a dog.

And we went through all these different permutations of, well, we need them. Well, they're going to build them. No, they're not. And so the level of preconceived notions about how the energy system works, about where profits come from, all of these things and the underlying science of the energy system is really poorly understood and that causes problems.

>> Steven Koonin: And the climate system as well.
>> Samantha Gross: Yeah, exactly.
>> Steven Koonin: Really?
>> Samantha Gross: Yeah. Like I work more on the energy side, you're more on the climate side, but yeah, just the level of technical understanding. And so not to toot my own horn, but you need more people with science background in these decision making, in Congress, in congressional staff, everywhere among where policies are made.

Because right now you have energy security people and you have climate people and none of them are engineers.
>> Steven Koonin: Right. Okay, it's time for you all to get your questions answered or make comments if you agree or disagree. And we'll start over here and then work our way around the room.

>> Audience 1: Stephen, in your book you talk about having a red team. One of the things I'd say I try to look at things and look at the data. I think Condi said you first have to define the problem with data. You had advocated there should be a red team that would actually look at these things.

Any hopes that that will happen under the Trump administration?
>> Steven Koonin: Yes.
>> Audience 1: When?
>> Steven Koonin: That's all I want to say. Okay, okay, stay tuned.
>> Audience 2: Samantha, you, you said that the we need to have steady energy policy in order to move in the right direction. Would you say that California could be an example where energy policy has been fairly consistent over the last few decades?

And how would you, what would you comment on that and the direction California has gone in?
>> Samantha Gross: That's a really good question because you're right. California, because it has been consistently controlled by the Democratic Party, has had steady policy and that has certainly enabled some things to take place here that would not otherwise in a swinging policy environment.

My one critique of some California, California policy is that it does somehow lose, sometimes lose the costs and the thermodynamics involved in the situation, or does as Scott described, said, we're very clean because we don't do that here. Whereas what it means is those industries aren't here. The products have to come in from somewhere else.

And so a lot of it is about, I'm an engineer, system boundaries and where you draw the boundary around California and what do you think of as being in and out? And so there's a bit of hypocrisy in that. Well, the bad things happen somewhere else. So around California we're clean.

But I do think it's true that if you have the policy goal of being as green as possible, California's consistent policy has pushed in that direction.
>> Scott Tinker: Solar and wind have been helpful here. And you're very sunny and you got decent wind. So you Have a good resource for that.

And I love the big grid scale batteries to a point. I'm a geologist. I don't mind mining, but it ain't green, okay? And never will be. So batteries come from mines and they're coming from all over the world mines. And they wear out and you have to replace them.

So we got to get our heads around what green means again with that, but I like that piece. I don't like you shut down some nuclear, get it off the San Andreas system. That's not a wise place, you know, that's tectonically active. But there are some secure places in California for nuclear.

And you've got great oil resources here. Shutting them down just means you're bringing them in. And when Chevron leaves and others are leaving now, there are findings not happening. Your governor's going, wow. And so you pay a lot for gasoline and one of the top two or three states for cost of electricity here.

To the consumer, this is regressive, economically regressive. So optionality matters. I like what some things have been. I don't like some things that have been done. Let's keep those options more robust. Great resource state. Let's lead the world in showing how that works to protect the environment.
>> Audience 3: Yes.

Thank you. There's an interesting quote that I sometimes think about. The quote goes along the sayings of the right to develop is a right for developing countries. The irony of this quote is, it was championed by Chinese leader Xi Jinping during his Belt and Road Initiative. And the premise I believe essentially is once countries finish developing, they then turn their attention to environmental problems.

And people can apply the same framework from an international perspective to a more local economy perspective in certain US States. So my main question is, is there a way to phrase or reap in the dialogue such that environmental regulation isn't some punishing thing that constrains growth?
>> Samantha Gross: I'll say something really quick about that, and that is we talk about the ability to afford, and the previous panel did too, the ability to afford environmental protection.

And there's a lot of truth to that, that your cleanest countries are your richest countries. It is also true that technology is better than it was when the US Developed, when Europe developed. And so these countries may not have to go through the rivers on fire and era, you can chew era.

And so there's got to be a happy balance here somewhere because we, you know, I remember when I would go to LA and you didn't know the mountains were there. And that's just less true anymore. Like air quality in this country has improved significantly. And so we need to find that balance of, yes, these companies deserve to develop and a lot of that development is going to need to happen on fossil fuels.

But can it happen on cleaner fossil fuels? Can it use cleaner technologies? That's where I think we need. That's what we need to find.
>> Audience 4: Hi, I want to pick up on that discussion of industrial policy. So the Biden administration put a bit of money into trying to stand up a domestic supply chain for lithium.

And in response, recently, the firm that runs the only lithium mine in the United States said they're kind of going to pass on that because the price is too low. So I'm wondering what is it going to take to get that industrial policy to work? Will it require price supports?

And if it were to require that, would that be desirable?
>> Scott Tinker: I'm torn, because low priced energy is not a bad thing to me. And if we can't compete on lithium price with other places in the world, okay, maybe that's okay. That's a market's kind of deal in terms of global.

I also am looking at the longer term and the demand for lithium is going to be real, especially if we start putting grid scale batteries onto our grids. These are big things, and right now, lithium is the metal, it's the metal of choice, lithium ion for those. So, the future demand is going to grow, and I'd like to see us be able to supply some of that.

So what are the investments required in policies to encourage people to take the risk? I don't know. I think policymakers have to think about that. And then there's also the reality that some places, like for example, one of the largest lithium deposits in the country is in Spodumene in Maine.

It's a spodumene, it's a rock that has lithium in it. In Maine, Maine will not mine it because they want to be green, and then they're mandating EVs. There's irony here, right? I think there's just a tremendous amount of public education that gets lost. Hey, if you want EVs and you want to play in that world, we got to produce it here some too.

Let's mine. John Hickenlooper is a good friend of mine for a long time. He's the only geologist, only scientist in the Senate. Okay. And I kid him all the time. How's the mining going in Colorado? Hick, you're firing them back up, and he says something short, four letters to me.

But because we're good friends, it's not going, you know, we're not opening new mines. In Colorado. There's plenty of metals there. So this is just the challenge, I think, of what we think we want and what we're willing to do. And policy has to figure out how to bring those things together.

>> Steven Koonin: And so, another general policy principle is that you cannot subsidize to scale.
>> Samantha Gross: Yes, that's exactly right.
>> Steven Koonin: The government just does not have enough money, $7,500 per electric vehicle subsidy times 14 million electric vehicles, 14 million vehicles a year. The math doesn't work, okay? So it's got to stand on its own, and if it doesn't, it should go elsewhere, Samantha?

>> Samantha Gross: Yeah, so I wanna comment on things Scott said, and then come back around. Something that I think a lot of folks on the very green side forget is that we live in an extractive world. If we want a greener energy system, a different energy system, we're going to have to build it.

We're going to need to build things. We're going to need to put things somewhere. Renewables use more land than fossil fuels overall. We're going to need to mine for these minerals. It is true that you need less quantity of them than you would of a fuel, the amount of lithium in your car battery versus the amount of gasoline it would have to run on for its entire lifetime is an important difference.

But yeah, we have to understand that building a system, a boundary around the place you care about, saying I'm only green here means all the brown goes someplace else. And there's gonna be brown because we live in an extractive world. But coming back to the lithium, the biggest question.

So I have a friend and colleague who works at the Council on Foreign Relations, he looks at this a lot. And the things that she's worried about is Chinese anti-competitive behavior and holding prices down in order to sweat out the competition and make sure that that doesn't come.

That's the kind of thing that we may have to deal with with policy. But Steve's entirely right, like we cannot subsidize these things all, so it depends on what your resource is. Lithium is actually pretty common, so we should be able to do this here. But yeah, it depends on your resource and also on the level of anti competitive behavior that we may have to combat with policy.

So it's not a simple question.
>> Scott Tinker: You drill it or you mine it.
>> Samantha Gross: Yeah.
>> Scott Tinker: Some of it you grow, but that's not a whole lot.
>> Samantha Gross: Yeah, it's got come from somewhere.
>> Ken Judd: I'm Ken Judd, senior fellow here. We love to bash China and talking about cornering the market on solar was an example of that.

But my impression is that they also improve the technology. And now, so there's a lot of R&D aspects to it, and R&D is something we don't leave to the market. So I think we need to make a distinction between industrial policy, used to basically control markets, versus R&D.

And it's hard to make the distinction. Nuclear power in this country, for example, was certainly not invented by markets. There's a lot of government subsidy of it. So I think we need to think about technology and how to improve it. Not so much market share.
>> Scott Tinker: Yeah, I didn't mean to bash China, I thought I said that it was brilliant.

They saw their future and they've acted on it. I think they did that brilliantly and effectively, so that's not a bash at all. I completely agree that R and D, and let's call it basic R and D, even before to meet trls, whatever you want, technology readiness levels, whatever you want to call them.

I don't like what this administration is doing, tearing a lot of the research investment down. I don't think it makes any sense at all, okay? Now, some of it was ineffective. Okay, well, deal with that. But let's not tear down the house. And in the meantime, to get that built back again isn't going to happen overnight.

So R&D is one of the most effective things our nation has done and can continue to do. And nuclear, a good example, oil and gas, a great example. A lot of private investment as well as public investment in that, the federal government was investing in shale research in the 70s.

Shale research, so these are the right partnerships to think about here. But then, not going and picking company winners and making $3 billion loans to failing companies. This kind of gets into the program that you had to deal with for a while as undersecretary. Okay, well, what are the governments doing picking winners with all of our money like that?

That's a market thing, let the markets figure that piece out.
>> Steven Koonin: Samantha.
>> Samantha Gross: Yeah, I want to add a little bit to that. And let's sort of take a second and think about what the US Is. And we're sitting at Stanford, for Pete's sake. Obviously, we're very good at research and development and cutting that is bananas, that's part of what makes our country really good.

Another thing that makes this country a fantastic place to do business is our capital markets. Everything from the VCs who are up the road to angel investors all the way through private, private equity and all the different ways that you can start and grow a business here. We are great at that, and I spent some time talking to economists, I spent a lot of time in Europe, I spent a lot of time talking to economists over there.

And they're jealous, they do not have that fully developed ecosystem from soup to nuts to get a new technology to market. And so, that's a wonderful prowl to be in here. And anything we do that puts a spanner in that works is a terrible idea. I'm gonna defend the program that Scott's talking about for just a second, though, because when you think about taking a business from somebody's lab bench to a pilot plant to a commercial plant, those two leaps that I just described are big leaps.

They're big leaps in terms of money and in terms of risk, and it can be quite difficult to get those funded. And that is an area where I do think there is a place for the government to help out. Particularly when you're talking about sort of building first of a kind technology.

Every bank wants to fund the third one. Once you've proven this technology works, they're on it like white on rice. But getting that first one done can be really difficult. And I do think that's an area where the government can be helpful. Not necessarily picking winners and losers, but looking at promising technologies and saying, the valley of death is wide for this technology, but we think it's got some promise.

That's why Tesla survived. And if you look at the loan program office during the Obama administration, they lost some. Solyndra was a political nightmare. On the other hand, that office made money.
>> Steven Koonin: Yes.
>> Samantha Gross: Which I think was very, I think the politics behind that were poorly handled.

And honestly, if they were investing so conservatively that they never lost a company, then they weren't being risky enough because they didn't have a profit motive. All they had to do was break even, and they had the overall goal for our country's betterment and of helping technologies over the Valley of death.

So, I think there's a role there.
>> Steven Koonin: And I like it, since we have found a topic where we could have a meaningful disagreement. Unfortunately, I'm getting the hook from the organizers, but both of you will be around.
>> Samantha Gross: Yeah, all day.
>> Steven Koonin: Hours for individual conversations.
>> Samantha Gross: Happy to.
>> Steven Koonin: Thank you both for really interesting dialogue and thanks everybody.
>> Samantha Gross: Thanks for leading us.

>> Nick: Okay. Welcome back. We are going to keep the theme on energy. We're transitioning to a different region of energy production, but staying on theme. So we're very pleased to host this session on energy wealth of Tribal nations. This session features three experts on mining and energy issues.

And it's also three people who participate in Hoover's project on renewing Indigenous Economies. This is the project that Condi highlighted in her opening remarks. It's one that works with scholars and leaders, tribal leaders, to identify barriers to economic self sufficiency, sufficiency and prosperity, both in the United States and globally.

So there's a bit of a puzzle because energy and mineral resources are abundant, at least on many Indian reservations in the US and by and large, they've earned small returns for tribes and for the country. This is one reason why poverty is still sadly prevalent on Indian reservations.

So why is this the case, what might be done, what should be done, our questions will address. So to help us unpack, we have three leading voices. We have C.J. stuart, who's the energy director of the Crow Nation, which is west of Billings, Montana. He has many accomplishments and you can read them on his bio.

But he may be the only participant in this conference who has been a coal miner. So CJ is a coal miner for 10 years. And he has a phrase that I've heard him say that I think he'll elaborate on, which is for the Crow to get out of coal, they have to mine coal.

Rich Luarki is the director of the Native American Mining and Energy Sovereignty Program at the Colorado School of Mines. Many other affiliations and accomplishments that are on his bio. But one thing that Rich has done is coined a phrase that I really like called sovereignty. It's hard to say, but it's interesting one to think about.

And then of course, Daniel Cardenas, who is the CEO, president and chairman of the National Tribal Energy Association. Daniel has been integrated in our Renewing Indigenous Economies program. So he's been out at Stanford as part of this program. And I was able to spend time with his family in Wyoming a few months ago, which was a pleasure.

So to prime my first question, I want to point out that tribes are supposed to be sovereign nations. And true sovereignty would insulate tribes, I would think, from happenings in Washington, D.C. it would make them a little bit insulated in principle from changes in policies, changes in presidential administrations, changes in the bureaucracy.

So I want to start by asking if this has been true, have tribes been insulated by federal politics and federal policy? And I want to Start by asking CJ Stuart this question in the context of coal, coal mining, coal development, coal energy. CJ, how have federal policies affected coal in your nation and in other tribal nations like the Navajo, that had depended on coal and what needs to change?

>> CJ Stewart: Well, I think I'll just go right into what needs to change. I think. I think the federal government needs to be hands off, allow us to grow, abide by their treaties. You know, in 1825. In fact, this year, August 4, 2025, we are celebrating our 200th anniversary of our relationship with Uncle Sam.

And so that means 49 years into the U.S. constitution, since the Crow tribe became an Article 1 entity, you know, we. We became friends with the United States government. And in that, in that agreement, that friendship treaty is mini NATO, you know, agreement basically stating that the Crow tribe will protect the federal government's trade routes, representatives, their resource, you know, their product, whatever.

And in turn, the federal government is supposed to do that for the Crow tribe, you know, protect our representative, our trade routes, our, you know, our product and resource. And so that, that's always been the understanding from the Crow tribe. And so, you know, we still have, within that agreement, we still have young men, young women serving in the military.

In fact, we have the highest percentage of all Indian country for percentages of veterans. We've served all the way back to my grandfather White Man Runs Him and Goes Ahead, they were both war chiefs. And White Man Runs Him was the lead scout for General Armstrong Custer, George Armstrong.

And so with that being said, I mean, they were veterans and we fought for our land. In fact, the Battle of the Little Bighorn was on Crow tribal land. And don't let anybody tell you any different. I mean, you know, we outlined our property, you know, and there's a property description of all our treaties.

And so going back to your question, you know, how does this affect us? You know, I mean, it affects us drastically, you know, because there's the paternalism of the United States government. You know, they come in and, you know, there might be a hint of a market there, but yet they come in with mandates, and they tell us, you know, you gotta do this, this and this and that or another.

And so it puts us in a position where we're reactive. You know, we can't be proactive to the market because we're reactive to the mandates of the United States government. And going to something that I heard the gentleman say, Mr. Tinker there. Kinda got me thinking about what I remember that they told me one time.

We got a lot of these environmentalists and even within our tribe, you know, that don't. Don't really understand the full, you know, term of that. And so you gotta catch the fish before you clean them, you know. But then you remember we still have to dig worms to catch them.

So there's a cause and effect. You have to do something to get something. You know, you can't go and say we're not gonna do this, but we're gonna go and do this. No, it doesn't work that way. You know, in order to get to, you know, in order to travel this road of renewables, you have to go through Indian country, 90% of all the renewables.

And I know some of those numbers that were on your guys deal there, they're wrong, you know, 90% is on or in around Indian country's ancestral lands. You have to go through the tribes. Same way with the mandates for fossil energy. We have 60% of all fossil resources are controlled by Indian country, yet we're not at the table.

The way the BIA runs things is if you got 51% signature or ownership within a parcel, you've got controlling interests of that property, right? Makes sense? Okay. The Crow tribe is the largest private co-owner in the nation. Yet we don't have a seat at the table when they're making decisions concerning the resource that puts food on our tables.

And that goes to that, when I just heard the gentleman say the cleanest energy, the richest folks, they have the best of the best, basically. They get to afford that. And if you don't have that, then you're gonna have to put out the fires that you can afford to do.

And still try to budget in the ability to make a buck off your resource so you can put food on the table for your people. And that's really what it is. Before we send that out there to the market, our thinking is when we send our resource out to the market, it's gonna generate wealth and subsidize the programs we have for our elders, our youth different folks, our entrepreneurs, our environment.

All of these things come when we have money. Yet we have treaties that say that the federal government is gonna help us in these areas, but they don't. And they put us in a position where we have to stick up for ourselves. And I bring this up only because it's true.

When you stand up for yourself, and this last four years was tough. They came and they brought a mandate, to your question. They brought a mandate and they said Crow tribe, Navajo and Hopi have to sign this MOU to transition away from coal. I advised my chairman and I told Granholm no.

The White House then again got a hold of us, put together a meeting, we were on Zoom. And I told them no again. And they said, can we ask you why? And I said, well, I said, first of all, I said, we're an Article 1 entity of the United States Constitution.

And there's such a thing called the fair Tekkens clause under Article 5 of the United States Constitution where you're trying to have me get rid of my resource, sign it off, transition away from it, and I just get a data boy? No, that don't work that way. I said, it takes $8 per ton to produce one, or $8 to produce one ton of our coal.

And then you got to think about the 2.6 tons that 1 ton of coal creates of carbon. Now, if we round it down, then we add the tax, the carbon tax to that, that's $51 times 2. And we all know that there's still a 0.6 out there that I'm not, cuz I round it down.

So we're looking at $110 a ton. And so I told the White House as well as Granholm and DOE that I said, might as well cut a check if you want us to get away from coal. Cut it right now because the price is going up. We're at $110 a ton.

Now, better start thinking about this before I monetize the value of our resource. And all our rare earth is in that ash. And so they got upset. They backed off, and they put the Crow tribe under critical high risk and no pay, meaning that we could not go after any funding.

Even the money that's owed to the Crow tribe, we couldn't receive that. We couldn't draw it down. And then they turn around and they said, they had the nerve to say, go after grants. I can't go after grants. And the phrase that the gentleman stated was, we need coal to get out of coal.

You want us to get out of coal? We need coal to get out of coal. And the reason why I say that is because 85% of all our grants were matching grants. Our general fund, the resource revenue is 65 to 70% of our general fund was supported by our resource revenue.

So if they want us to go after grants, we're gonna need resource revenue. Because 85% of the grants that they pose to us are matching. And so where's the logic in all this? It was a spit in the face. It was a total disrespect. And I bring it up because when you speak up for your tribe and you stand up for your tribe, there's only one word they use and that they use it for Indians.

They don't do that for the white folks, our black brothers, our Spanish brothers or whatever. They don't do this. They don't use this word. But when you stick up for your people and you stand up and you say, no, this is not the way we want it. This is the way we're gonna do it according to our sovereign authority, well, guess what?

The word they use against guys like that is hostile. You think about that. They don't use that on any other person, on any other ethnic race. And yet we're dealing in a day and age where everyone's talking about discrimination. And yet they forget about their Indian brothers and sisters that are living with systemic racism.

They told us to become farmers. We became farmers, and we were good at it. They said, we better not do that. They're getting too dang good. So they cut us off from Indian policy there. And they said, you have to be a passive royalty owner. Sit back, get a check.

Get some cheese, some rice, whatever. We'll bring it to you. That's what the US Government has done. You wanna look at failed socialism? Go to a Crow reservation, go to the nearest reservation. You wanna look at failed communism? Go to the reservations. This is where they test their policies.

When they wanna implement it outside of the US they come to the reservations and they implement that. So, to your question, yes, it really affects us.
>> Nick: So, Rich and Daniel are co-authors on a recent paper in the journal Science, and it makes the point that Indian country is completely stocked with critical minerals.

The stats I remember was 60% of the nation's cobalt and lithium are near an Indian reservation. 90% of nickel and copper. These are important for various energy and defense technologies, and they lie beneath Indian country, so much of it. So I wanna ask Rich and Daniel what needs to happen for tribes to benefit from these minerals?

And if tribes benefit, how does that benefit the country? And should we worry that corporate mining interests and federal mining interests are gonna dictate what happens in Indian country with these critical minerals?
>> Daniel Cardenas: I can answer really quick. I'll try to be quick. As a former tribal leader, politicians, we like to talk.

So you're right. Of those top four critical minerals, the vast majority lie in Indian country. And so even though I'm a markets guy, I'm also a security guy too. We need, as a nation, and the tribes would be the strongest partners in protecting our domestic security, our energy security, our mineral security by mining in the United States.

And so although I'm a markets guy and we should be able to purchase these things from our allies, but, you know, increasingly our allies are not there for us now because we're not there for them with these tariffs and stuff. So I think we can't look, we can't near shore anymore.

We need to domestically produce these in Indian country. The path to, I use the term energy evolution, I don't use the term energy transition. We're actually evolving our uses of energy. And critical minerals will play a strong role moving forward into that. But what we need in Indian country, anecdotally we know that these minerals exist in Indian country, but we haven't actually done much of the testing, the research and development.

Taxi determine the size of the reserve and the resource. And then when we can do that, then we'll know what the value, the valuation of those resources are. Are we talking about tens of millions, hundreds of millions, tens of billions of dollars? When we're talking about copper, tens of billions of dollars, most likely we're talking about some of the rare earths and other critical minerals, tens of millions of dollars because their prices are artificially low.

But we don't know. So I'll end with that. Is that Indian country? We need the information. We need our federal partners, usgs, our state partners, our trustee, Interior, to spend those resources in partnership with us to help determine our resource and reserves.
>> Nick: I want to tack on that question rich by noting that Indian country also has lots of wind and sun.

In part because of the history reservations were put on. Land that wasn't very attractive for agriculture, tends to be very windy and arid, so hence sunny. Indian reservations also have a lot of shale beneath them. It wasn't discovered when boundaries were set. Conventional oil and gas was more likely to be known, but not the shale that can be fracked.

So Indian country has a lot of shale deposits with valuable oil and gas. Statistical comparisons, when you compare land next to Indian reservations with Indian reservations, I mean, it's really apparent you almost don't need statistical comparisons. You Just look at a map and there's like a hard boundary and very little development on reservations of both renewables and fossil fuels.

Why is that rich and is it a problem?
>> Rich Luarkie: Well, thank you, Nick. Thank you to the Hoover Institute for inviting us to join you all today. And you know, with respect to everyone here, you know, in my mother language, I just, you know, thanked our mother, our creator, that she gave us another day to all be here together to be in peace.

And I hope that our families, our children, are experiencing a peaceful moment as well, that we're able to see another day of life and that, you know, those that are in our military, that if, you know, overseas or wherever they may be are young men and women, that they're not in harm's way, that they're also experiencing a safe, peaceful moment as well.

So I just thanked her for, for that gift that she's given us this morning. You know, I think that jumping back first to the sovereignty piece, because I think it influences whether when we get to the wind and the minerals and everything else that my brothers have talked about here, like the energy transition or energy evolution, I see a sovereignty transition.

We need to transition from being sovereign to being significant. I think sovereignty has demonstrated our ability to self determine, but significance demonstrates our ability to execute. You can self determine all day long, but if you have $0, you're only as sovereign as you can afford to. And I think energy resources, those are going to transition us to be insignificant.

Why? I also started with our language. I'm from the Pueblo Flaguna tribe, which is one of 19 pueblos in New Mexico. When I think about minerals, wind, sun, everything that's in the earth, everything that's on the earth, including us, everything that's around the earth, the wind, the sun, the atmosphere, the cosmos, we're all created by the very same power that allows our heart to be.

We're all of one source. All those gifts were for our use. That's our teaching. Whether it's uranium, whether it's wind, whether it's water, it's for our use to prolong life. So I believe that the ability to access those resources for our benefit. Again, wind, rain, sun, uranium, copper, we have to be able to use our sovereignty in a way that doesn't position us to be standing there saying, mother may I?

We have to do the things that CJ is talking about. We have to stand up, we have to demonstrate our significance and we have to be able to partner with institutions like this as well as industry. We have to grow our capacity. Capacity meaning our young people. And whether it's engineering, the sciences, research, but we also need a Think globally.

We can't think just right here. When I say globally, you know, in our language, you know, whether it's in ceremonial settings, council meeting starts, formal family meetings, there's this phrase we use meaning all land, all life in this world is the purpose of our work. Doesn't say just my tribe or CJ's tribe, it's all people, all land, all life that our mother carries us in her basket.

That is what we work for, those that are waiting to come into this world. That's the purpose of our work. Whatever's left over, maybe I might get a little of the minerals, the wind, all these things are a part of that work. One of them mentioned the environmentalist.

I've seen our tribe at one point, some of you may know we had the largest open pit uranium mine in the world from 1952 to 1981. And so right now, uranium in our community is the devil, right? Nobody, I mean, you say uranium, everybody blows up. And it has created some challenges, health challenges, environmental challenges.

But when I look at it, our mother put that here on this earth for a good reason. We're the ones that didn't create it. Right? Because when I say 1952 to 1981, EPA didn't even exist till 1970, 71, so we were already 20 years into it with no safety elements.

Nobody said you couldn't take yellow cake home. So I think those are going to be the things that, when I get back to the question of wind, sun, minerals, water, those are all gifts that are here for our use. I say that from a cultural side, from a secular side, how do we use sovereignty right now?

We use it as a shield, not as a sword. Right. So we need to get, we need to make that transition in that transformation from being mere sovereigns to being significant. And I'll close my comment by saying when I think about markets prior to contact, they say our Native nations were vibrant, we had vibrant economies, but it was not because we were just trading and bartering things.

We were trading knowledge, we were trading information. It was an open source society. When contact was made and the atrocities that happened, we went to a closed system. We've not opened back up. So you have this closed society in an open source system. And I think that's hurting our marketability.

We can't scale because we're closed. So I would just share those thoughts.
>> Daniel Cardenas: Can I just say, just add to that, to what Rich didn't mention to fully answer the question, but what we've done so I represent CJ and I, we co founded the National Tribal Energy association which represents the four largest energy producing tribes, Crow, Navajo, Southern Ute and three affiliated tribes in the Bakken.

Our NTA partnered with the Colorado School of Mines, the Pain Institute, and we created the Native American Mining and Energy Sovereignty Initiative, which Rich is the director of. And so this is being proactive, right? When CJ mentioned being reactive. Much of Indian country for the last 150 years plus, we've been reactive.

But this is one of the first proactive measures that we've done in the last year or two is to create this initiative to start being part of the solution towards helping out with this energy transition on the energy and the mineral side, creating the. We raised a million dollars for scholarships for Native students to attend the School of Mines from various mining and energy companies.

And so we're trying to create a pipeline of students to start solving some of our problems that we have here in Indian country. Because a lot of times on a lot of these conferences, a lot of the tribal people that you'll come across, all we're doing is complaining.

We're so poor, we're so dependent on our great white father in DC but we have the means, we have the tools to be self-sufficient, to be truly sovereign, to be significant. Like Rich says, we just need a little bit of a jumpstart from our partners, the feds and our academic partners as well.

So I'll just. Sorry to go long winded, but I wanted to add that.
>> Rich Luarkie: Could I add.
>> Nick: Go ahead.
>> CJ Stewart: I just wanted to say, you know, to, to what Rich has said to be significant, you know, the Crow tribe for ever since. Gosh, I'm 51 years old.

When I was born, I was born in 1973. That was the first year we loaded out a train full of coal and sent it off to the Sherco power plant in Minnesota. So 51 years, you know, we've worked, we worked in this area and to be significant, we brought in fund, we brought in the money, you know, we got away from the going, you know, depending on the federal government, you know, so much, you know, and then we start, you know, generating our own wealth through our leases, through our timber sales, through what oil we do have developed and it was developed before the shale.

So I mean we still, you know, and I'm one of the rare mineral owners on our reservation and I own a share in the oldest on our reservation as well. I mean, so I mean, just to be proactive, we've always wanted to, you know, you know, create, you know, opportunities for ourselves as tribe.

You know, the Yellowtail Dam was built because the Crow tribe created at the time, you know, way back, you know, the Crow tribe created the Crow Diversion Dam. And that created the ability for, you know, the tribe to start irrigating our lands. And so when I went back to telling you that Indian policy, they wanna turn us into farmers, they just want to just turn us into farmers.

You guys do this, you guys do that. And Carlisle did a really good job of, you know, you know, checking out all the, like, following up on all those students, you know, how much moccan, you know, draft horses, how much money they have in the bank versus how much homes.

I had a grandfather named Joseph Stewart, he owned three homes, he owned a store, he owned 12 oxen, he had 2,500 in the bank. He had cattle, he had draft horses and equipment. And that was all because, you know, Carlisle documented that and afterwards. But it comes to a point where you're doing so good, they take it away from you.

And, you know, speaking to these issues, I mean, it just, it's a problem we face that, you know, it's a different story on Indian land to try to develop these resources because at a time when you're dealing with 49 steps, you know, when we're dealing with any other resource, it's four agencies.

And the review process is 180 days per agency. And when you were dealing with coal, you're dealing with another 180 days with, with MSHA or OSHA and all, all of them, you know, and, and dealing with, you know, Smacker, dealing with all of this, it's another 180 days.

So, I mean, after you get to the, through the revealing process, all your estimates, all your stuff is all outdated. And then it's just, you know, it's back to square one. And, and so when being the largest, you know, owner of the largest deposit in a nation, a private owner, yet we're only averaging 6.5 million tons of coal because of the bureaucracy, because of the, because of the policy, our neighbors to the south of us were enjoying our ancestral lands and pumping out 250 million plus, plus coal off, you know, coming out of the Wyoming there.

And yet the Crow tribe was the one being demonized for the use of our coal. And yet we weren't just doing it to make money. We were doing it to feed our families and subsidize our programs and prop up our governments so we can be a productive group in society that didn't have to depend on the federal government for everything.

We wanted to create, you know, wealth for ourselves that we're able to create the ability to benefit ourselves so everyone else around us benefit. And we have studies, I paid for studies from Harvard. And they've looked at, and we've took it to the hill. And just in our little coal mine in our region, to the fifth ripple, we were in the billions.

And when you look at Navajo, when you mentioned Navajo, Navajo had ngs, Crow tribe had our coal mine. And then they have Gallup, Walmart, and then you have King Avenue, Walmart in Bellingsville, Antenna. They're both superstores. They're not just the little Walmart you see around here, they're both superstores.

And so one year Gallup will be Global One. One year, the next year maybe King Avenue will be Global One. But it was always like this. And the comparisons were because Navajo was pumping coal and they had workers there, they were all buying from Walmart and they were doing and just the market.

And same thing with Billings Montana. The Crow tribe contributes so much money to that town. Billings Montana, we're only three miles away. The corner of our reservation is just only three miles away from Billings, just right there. And so everybody comes to Billings and guess what? Everybody goes to Walmart.

And so when the coal years were good, even as little coal as we were pumping out, yet we created a Global One and Global Two scenario for Sam Walton. And I think he was pretty happy with that. So I just wanted to mention that.
>> Nick: Thank you. I have one more question and then we'll go to the audience.

But my question is a doozy. So universities across the country are scrambling in fear of losing lots of federal grants. And so too are some in Indian country that are worrying that funding sources that Indian country has had for decades, federal grants through the Department of Interior, Department of Energy, the epa, are going to be gone.

And you know, this is particularly significant, I think, is because tribes don't always have clear taxing authority. So I want to ask if the fear of losing grants means American Indians really want some dependency rather than full self sufficiency. And I want to ask if federal grants have been the route to prosperity and energy development, and if not, what's the pathway?

So a provocative question to end with.
>> Daniel Cardenas: So, I tell you, I'll start. I said, as we mentioned, the mandates, just like in our normal society mandates or our limitations, they don't provide options, as the other speakers have said before. And it's the same for Indian country. I mean, you know, I've thought a lot about this, about this, what's going on with this administration.

And C.J. and I, we advise the first Trump administration on a lot of energy issues in Indian country. And so, but it's really is thought provoking because I think if the cuts that have been proposed stay, it's going to be, it's like throwing a kid or a person into a cold bathwater.

You know, that's what's going to happen is that Indian country is going to be at a fork in the road and decide, are we going to stay dependent? Do we want to continue to be dependent on the federal government, or are we Going to go and make our way and truly be sovereign.

But like Rich said, it's really, do we want to be significant again? We were significant once at the beginning of this nation. We were in the Declaration of Independence. We were merciless savages is what we were called, right? I'd like to be, I don't mind being called a merciless savage because that means you're significant.

They're afraid of you, somebody's afraid of you and takes you seriously. And so we haven't been taken seriously for a long time, for over 100 years. And so I think this, we're at that crossroads. Do we want to be taken seriously and be significant or do we want to be continue to be dependent on the federal government?

I think 574 tribes, each of those leaders have to make that decision. And I opt for to be significant. And that's difficult, right? It's having an impact on my business as a private business, as a consultant, I depended. A lot of my business is dependent on Department of Energy on federal government contracts, subcontracts and awards and things.

And so it is affecting me. And so we're having to take a hard look at our finances and tighten our belts. And so, but Indian country as well. And I think, even though it's not something that I would have wished upon us, but I think that now that it's here, I think it's a wake up call that we need to take seriously.

>> Nick: Rich.
>> Rich Luarkie: I had the benefit or the curse, however we want to look at it, to serve as governor for our tribe for a number of years. I've also served as lieutenant governor, I've served in our tribal council. We don't have a system of if you, you can't declare candidacy, you can't campaign.

As a matter of fact, if you do those things, you're kind of shunts it, you're not looked upon very kindly. It's up to the people to decide who they want to see on the ballot. Once your name goes on the ballot, you still can't campaign. It's up to the people, but you still get all the challenges and all the criticism.

I didn't spend one penny to be governor, right. So I share that because for tribes and into the question of the resources, if one tribe, one tribe, we're all different. There's 574 tribes across the country. Some are doing very well, some continue to struggle. Politics, resources, all these different things come in.

And so, about 10 years ago at the reservation economic summit in Vegas, President Begay was there from Navajo Nation. Matter of fact, I was governor at the time. And he made an interesting comment because there were challenges that BIA was facing with federal cuts at the time. And he told the audience there, several thousand people, including tribal leaders, this is the beginning of the end of the Bureau of Indian Affairs leapfrog to today.

And you're seeing all these cuts, right? And it does beg that question, how dependent are we as tribes? Whereas on one hand we're saying we're sovereign. The other hand we're saying we need the federal dollars. Which is it or is there a balance? Because even states rely on the certain amount of federal or yeah, federal dollars.

So it's not a bad thing. It's how do you create that equation? The right equation, right? And so I always say, in Indian country, sovereignty is a mile wide and an inch deep because the sovereignty only applies to the tribal government, doesn't apply to us as individuals. We're not sovereign tribal governments tribes, we don't have economies.

We have programs and services. Our tribal entities or tribal enterprises, their primary purpose is to generate revenue to give to the tribal government to provide services. The tribal government doesn't invest in my company or these guys organization. The innovators don't reside in the tribal council. They're in our communities.

When I was governor, I would always remind that our tribal council chambers are really designed to say no. They don't empower, they don't enable. So this year, last time I was here in January, we were talking about the Public Law 93638. This is Public Law 93638, for those of you that may not be familiar with it, is the end of Self Self-Determination and Education Act that was put in place in 1975 with the idea that this is a tool to address poverty.

To help tribes build economies and do on their own. Here we are 50 years later. Are we any better off? Some pockets yes, some others no. And so I think this is gonna be a really important time to reimagine how do we go forward? Do we go forward on the idea that the government's supposed to do for me.

Well, let's stop talking about sovereignty if that's our mindset, and really let's hone in on the dependency model. Now, if we want to be sovereign, let's figure out what that means and what's going to be my responsibility to that outcome. And like I said, I started with my comments with my language.

Language is powerful. Words matter tribes are defined by poverty. CJ Mentioned grant funding. You go after grant funding, the worse off you are, the better chance of funding. They don't fund success. In our language, we don't even have a word for poverty. You can describe it, but we don't have a word that directly translates to mean poverty.

By the same token, we don't have a word that directly translates to mean sovereignty. You can describe it the closest I come to OUK, meaning our obligation to do our part, to contribute. So we really need to think about it differently going forward. And so resources, the federal funding resources are definitely a help, but they shouldn't define us.

And so I think in a long winded way to answer Nick's question, we need to use this opportunity or this crisis, if you will, to identify unprecedented opportunities. So I think it was Churchill that said, right, never let a good crisis go to waste, right. And we'll, this is a great opportunity to reimagine how we go forward.

So that's how I would respond to that.
>> Nick: We have time for one or two questions.
>> Speaker 5: So this was very interesting. But it all sounds like there's sort of a unity or uniform objective across tribal nations in terms of development. And I've been following a big copper mine opportunity or whatever near Tucson and it's been controversial.

It gets closed anyway. But the reason I'm mentioning it is one of the arguments that's presented against it is that the mine will despoil sacred lands. And so it seems like there is at least one, a constituency in the neighboring tribes not to have development. So I was wondering, how do you deal, how important are those and how do you deal with those differences of opinion within a tribe?

>> CJ Stewart: I could, I'll answer a little bit to that. I'll leave a little bit for my colleagues here. But we were looking at an area there, and of course, our energy partner is Westmoreland. And so coming into the reservation, we've never really tapped into the reservation coal reserves just yet, because all of our reserves that we were getting was in the Ceded Strip area.

And so when we started tapping into the reservation, then there was an area there where, just right within the reservation not even half a mile in, just right there where it was probably one of the biggest cultural sites. And I don't know in the nation, I don't know about the world, but there was over 40,000 tools there that they found.

There was over. I think there was an estimated roughly like 2000 Buffalo. And they broke up all the bones. I don't know what was done there, but they put it in one pit. There was no heads. And then it was a ceremonial site. It was a mega site.

And when they went in there, they started digging it up, you know, to try to, you know, establish, you know, the. Take the topsoil off, get to the A topsoil, get to the B topsoil, and then, of course, you know, separate and get ready for drilling and blasting and, you know, so forth.

That place got damaged and they got, you know, kind of. The government tried to blame the tribe. The tribe, it was like, whatever, you guys are the one signs off on this place. So it wasn't a tribe. Then they tried to pin it on Westmoreland, but the government signed off on the whole thing.

So the deepest one in the pockets is the one that's saying, no, it's not me. So, yeah, I mean, we're dealing with stuff like that. And there's times we can go in and around those areas like that, and there's. It's up to the tribe. It's up to the tribe for these sites.

Now these, these, this area here was developed. They're putting it. They're not doing this, they're putting it back. They're putting it back. I don't know if they're putting it back in the right way because no one knows the old ceremony back then from when they did all this, and they don't know what ceremony it was, but it was definitely crow.

And it's just something that every tribe is gonna have to deal with if you wanna develop, and get resources, and get off the federal, whatever. So this is something that we're dealing with as well. And so to your question, it's basically up to the tribe. And, you know, then again, I can say, shoot, this is sacred to me.

You know, I mean, I don't know, what do we say here? You know, we want to develop, we want to get away from the federal government. And as Rich said, I mean, I'm in total agreement. The federal government should be a help. We've already agreed in treaties back, you know, when we first met each other, to agree to help each other.

Now, why are we depending on the federal government. And why is the federal government stymieing us from development where we can't be a help to the government, we can only be a ward and we can only depend on them. And that's what it seems like they want us to just depend on them and not be a help.

Now, some of this money can go to research and development, you know, to help us and assist us. But then you look at MHA Nation, you look at the Southern Utes, they're making their wealth off their resources and they created this, these big accounts, these growth funds and huge monies, you know.

But then again, there's the federal government saying, why don't you try out for this grant? We'll give you this, we'll give you this, we'll give you that. It's not so much where they're trying to compete now, the federal government, because these tribes have more money than them, they turn around and say, let's help you.

Whereas if you don't have the resource revenue, you're not there yet. And you depend on the federal government to go after some of this money to try to get the ball rolling in some areas, then they turn around and they're kind of ornery to you about things. Then they wanna say, what you gonna do?

You're going to hurt the environment, you're going to do this, you're going to do that. In this last administration, the federal government under Biden hit the crow tribe with $75 million in penalties because of environmental issues, penalizing on money that they owed us, that they would not release to us because we could not draw down and we were under critical high risk and no pay sanction.

Two of the federal government they created that you see BIA comes in and they'll start all kinds of trouble with the tribes, with particular tribe or tribes, and then they turn around and back off. And when you don't go to your trustee and say, hey, help us out with this issue, they'll be like, no, that's a tribal affair.

They're the one that started it, you know. And so this is, this is something that I think we need to kind of start thinking about and getting away from. And it's true, you go to any of these, like ncai, everybody gets up and they get on their soapbox and they, they preach about what their issues or what's important to them.

But if you have the most suicide on your reservation, you're going to get the money. You have the most cancer, you're going to get that money. You have the most diabetes. You're gonna get that money. You get the point. So we're not for a race for the top.

They don't put you and they don't create a system that allow tribes to want to come to the top and be partners, as we have agreed to with treaties. They put us in a position where we have to fight for the bottom. And I refuse to go to NCAI anymore.

And so, thank you.
>> Nick: So CJ And Daniel and Rich will be around for the rest of the day. I'm sure they'd love to talk with you more. Thanks to the three of you for a fantastic session.

>> Tracy Mehan: Good afternoon or good morning. My name is Tracy Mehan. I'm executive director for government affairs with something called the American Water works Association. Got 50,000 members, all of whom work in the drinking water or support the drinking water utility sector. I moved to Washington 2001, 68 square miles surrounded by reality.

And it's been an experience working in the safe drinking water area and the clean water act area. I feel coming to a conference like this like I'm a drowning man who just broke the surface and got a deep breath of fresh air. It is probably the two areas with the most consistently command and control approach to the regulatory regime.

And that's layered on top of a sector which is, and I say this in a very clinical way, a very socialized sector that is embedded in government, primarily municipal government with a small sector of investor owned utility. So to hear these rather inspiring conversations about markets and incentives matter, it reminds me of going to a PERC meeting.

And I and I appreciate that very much. So today we're talking about, could be a very broad topic, regulation and theory in practice. But the context for the discussion this morning will be on climate energy transition permitting and tax incentives and disincentives. And we have two very fine speakers.

Some of you may be familiar with them. Starting on the far left. Andrew Waxman is assistant professor of Economics and Public Policy at the LBJ School of Public affairs and the Department of Economics at the University of Texas in Austin. He was a visiting scholar at the Belfer center at the Harvard Kennedy School and he also has an affiliate relationship with Cornell Institute for China Economic Research.

And I understand he's a graduate of the fine institution here in Palo Alto. So let's welcome Andrew and he's going to talk about some issues involving tax policy relative to areas of climate policy. James Coleman, on my immediate left is law professor at the University of Minnesota and a non resident fellow here at AEI in Washington.

He's taught at several schools and he practiced with Sidley and Austin, a very prominent national law firm in the Washington D.C. office. And he clerked in my home circuit at the 8th Circuit for Judge Colloton for the 8th Circuit Court of Appeals. He was a biology major at Harvard and with his undergraduate thesis actually was able to have a Central Asian butterfly named after him, which is a pretty remarkable distinction that most of us cannot claim.

So with that the program is going to be pretty simple. I've introduced both our speakers. They're going to give two 10 minute or so presentations and then we'll enter into some discussion either here or with the audience, depending on who gets their hand up first, me or you.

So, James, do you wanna kick it off?
>> James Coleman: Wonderful. Yeah. I'll just, I'll step around here. Great. Thank you. So these I, by the way, I have these slides. I just posted them on my Twitter or X what have you. So if you if you're looking for those slides, they're right there at Energy Law Prof and I'll be focusing on why permitting has become such a central topic for our energy future, for all of the new energy sources that we wanna build, and to whether we're able to build a more secure, affordable, and cleaner energy system.

And I'll really have two big topics. One is something that may be a little bit surprising, which is this paradox that as we've had global policy shifts, as well as economic shifts toward more use of electricity for life, critical services like driving like heating your home, and technology to renewables within the electricity sector that has maybe ironically, increased our dependence, particularly on natural gas and our reliance on new pipelines and increase the need for, in some instances, new fossil fuel infrastructure.

And I'll talk about the example of natural gas, but I understand Andrew's going to be talking about the example of carbon capture and carbon pipelines as well. So and then I'll talk about some of the challenges that we're facing as we try to build infrastructure to support those new energy supply chains.

So let's start with this sort of paradox that as we've had this increasing use of electricity, as well as a transfer of some services that have traditionally relied on burning fuels to electricity, that has maybe ironically, increased our dependence on natural gas and natural gas pipelines. Now, of course, some of those electricity shifts is a result of this increase in electricity use.

A lot of it is about new data centers, artificial intelligence. And we've seen the location of that have kind of been localized in a couple different places around the United States, particularly Virginia. But you see not too far behind, you see Texas and California as a second and third leader in data centers.

And I think we'll see a lot more in some of those places going forward, as well as maybe broader distribution around the country. You can also see that for those places that have increased their have been installing data centers, those are also some of the places that we've had the greatest electricity load.

And that electricity load has largely come from natural gas as well as from solar and wind. And you can see a place like Virginia, it's mostly come from natural Gas. You see that in orange there on the right side of the graph at the top. And then you see in Texas a lot of natural gas.

Increasing electricity production from natural gas and orange, but even more from solar and wind. We've seen just yet at times last year Texas was adding more solar and wind than every other state in the nation combined. So at the same time that we have seen this boost in electricity use, a lot of it tied to data centers, tied to crypto, we have also of course, have policy pushes to, to take parts of our energy system that have historically relied on burning fuels like gasoline in your vehicles or natural gas to heat your house and shifted them to dependence on electricity like electric vehicles, like heat pumps for your house.

Now, one big challenge that we'll talk a lot more about today is that as we go towards more dependence on electricity for those life critical services like can you heat your house? Like if you can't heat your house, can you drive to somewhere safe? At the same time, our electricity system is growing less reliable.

And we can see that in multiple ways. So one way is if we look at our reliability watchdog, NERC, you can see it puts out these regular reports and increasingly we're seeing areas in orange that are at elevated risk of blackouts or shortages of electricity, as well as red, which are at very high risk for those electricity.

And those regions change from season to season and from year to year. But we're seeing increasing danger of that. And that's also showing up in our data on electric power interruptions, which is that over time, as we are trying to grow more dependent on electricity, our electric system is growing less reliable with more and more outages.

All right, now if we look at where is that electricity come from, it's relatively easy at the current moment because this is showing our sources of electricity in the United States. And two fifths comes from our biggest source, which is natural gas. Then we get a fifth each from coal, from renewables and from nuclear.

And you can also see in this chart a trend which is toward more use of natural gas, more use of renewables, and you can see coal falling off. Now, those trends are projected to continue. In fact, they have continued. This chart ends in 2020. If you were to go forward a couple more years, you would see that continue.

Continuing, and they're projected to continue for decades to come. Because if you see what kind of power sources on the left side of this chart were built over the past 20 years, it's mostly in light blue, natural gas, as well as solar and wind in green and yellow.

And the projection is for more of those to be built going forward. You can see what's being shut down below the line. A lot of coal, as well as some nuclear and more projected to be shut down in coming years. Now, the interesting thing about that is that in some ways, this increased use of renewables has actually led to more dependence on natural gas.

And the reason for that is a fundamental fact you need to understand about this electricity system that we're moving to dependence on, is that the electricity system always has to exactly balance how much power is being used by millions of consumers. Every time they flip on a light switch or plug in their electric vehicle or turn up their electric heat, has to balance that with the power that's being provided by thousands of power plants.

And that's very challenging to do. How do we do that? Well, this is just a day of power use in Texas a couple weeks ago. Just a random day. Nothing went wrong this day. And what you can see here is the overall use of power over the course of the day from midnight to midnight.

You can see that after midnight, people go to sleep, power use drops. Then during the day they wake up, and you get a peak of demand, often either in the middle of the day or in the early evening hours. Now the colors are showing you what sources of power are meeting that demand over the course of the day.

And you see in the middle of the day a huge amount of solar coming on the grid in Texas, you would see a similar story, even more solar proportionally here in California. But here you can see how natural gas and renewables work very well together, because when that soldier solar comes on the grid, you can see natural gas ramping down to basically make room for solar on the grid, because you can't have more power than demanded or less power than demanded.

And you can see that in the early evening hours, when we're still almost at peak demand, solar goes away entirely. And so that's why you still need to have sources on the grid that can meet the full demand, even without help from source solar. And you can actually, you know, I think a lot of people may have an intuitive understanding of that with respect to solar.

So if you're looking at these GIFs on the top right, you're seeing a wave of Solar power going across the United States from east to west during the middle of the day. But there's also a diurnal or daily pattern to wind power over the course of the day, which you might be less aware of unless you go outside at 4am in the morning, which is that the wind power tends to peak in the early morning hours.

And unfortunately, that's when we least need. That's when we least need power. So neither of these power sources tend to provide power when we most need power in most of the country, which is those early evening hours. Okay, now that creates a challenge every day. But there's a bigger challenge seasonally.

And to understand that, I think it's important to understand what happened in Texas in 2021 during the major outage. So this is a picture of, of power being provided to the Texas grid over the first two weeks of February 2021. And what you see on the left hand side that first week of February is the Texas grid operating as it's supposed to.

So often the biggest source of power in red is wind power, but when wind isn't available in orange, natural gas ramps up to take its place. You can see that something changed dramatically in that second week of February 2021. And what changed? Well, basically it got very cold.

And often when it gets very cold in Texas, that means you don't have very much wind power available. It's not because wind turbines freeze, although there was a little bit of that. It's mostly just because there isn't wind. It might have a high pressure system sitting over. And so sometimes you don't have that wind power when you most need it.

So what happens? Well, natural gas began by doing what it was supposed to and ramping up to meet all of that unprecedented demand. Because Texas is ahead of both of those trends that I talked about. We use more likely to use electricity for heat and we're more likely to use renewable power.

But you can see that after natural gas ramped up to unprecedented amounts in the early morning hours of February 15, something bad happened because everybody stopped producing so much power. Well, what happened? Well, remember how I said that the grid always has to exactly balance how much power is being provided by millions of being used by millions of consumers with how much is being produced by thousands of power plants?

Well, those, as people use more and more power, those fell out of balance for a couple minutes in the middle of the night on Valentine's Day, February 15, 2021. And so you can see here that this is basically from 1:20am to 2:00am so it's about a little over a half an hour.

And you can see the frequency of the grid changing. Why is that important? Well, the frequency of the grid always has to oscillate at 60 times per second, 60 hertz. And by doing that, it maintains all the machines, all the power plants connected to the grid in sync.

If the frequency falls at all, which it does, when power demanded and supplied falls out of balance, everything connected to the grid starts to break. All of those machines, all of those natural gas power plants, and to protect themselves, they'll often trip themselves off the grid, which creates an even bigger chain reaction because even less power provided to the grid.

Well, there was a 10 minute chain reaction that changed the frequency in the middle of the night on February 15th, and that led to, to four days of outages because we found another chain reaction in the grid, which is that our natural gas supplies, which are increasingly our only dependable supply of electricity, are also dependent on the electricity system.

So to stop this chain reaction, the Texas grid regulator had to turn off power to half of Texans. But the problem is that also turned off natural gas supplies to a lot of Texas natural gas power plants. And so we're increasingly seeing these two chain reactions. One is power used and demanded falls out of balance.

And two is if we have any kind of outage, it can take longer to recover from because the natural gas system itself is dependent on constant electricity supplies. Okay, so this is the challenge. We're moving toward more dependent on electricity, but toward less dependable electricity sources. And the only way we're able to address that is by massively increasing the capacity of our natural gas system to meet some of those peak uses of demand.

Both the natural gas system and the power system basically have to be sized to meet peak demand. So lowering average demand doesn't actually help you that much economically. It only you have to be able to meet that peak demand. Okay, so another giant challenge that we're facing, along with assuring this reliability of supply, is also the security of supply.

In the case of oil and gas, we maybe have taken for granted the fact that the United States for most of the past 120 years has been the biggest producer of both oil and natural gas. And as you heard two presentations ago, there was a time when we were importing a lot of oil, but with the real development, further development of shale resources, the US kind of came roaring back and now is by far the world's number one oil producer and natural gas producer.

That gives us a lot of strategic strength in many senses. One is that we have huge stores of oil. We have those government stores of oil that we kind of half emptied over the course of 2022 in the strategic Petroleum Reserve. But we also have private stores of oil.

Together, those could meet about three months of US Oil demand, even if you didn't have any production stopped, which it never would, but went to zero immediately. And that provides a lot of security that we take for granted in our energy system. Think about the contrast between that system and the electricity system.

In that system, for the year of 2021, for that entire year, we were producing 2 million barrels less per day than we consumed as a globe. How did we get through that? Well, we had stores that we drew down over that time period, even though we were two million barrels short every day.

By contrast, think about the electricity system. There is an imbalance for just 10 minutes in the middle of the night and it causes this giant catastrophe. You think of Spain and Portugal, where the shortage was really, it's more like five seconds, right? So that was only about an imbalance of five seconds.

And it caused a day long giant not to the extent of what happened in Texas, but very, very concerning. Okay, now how can we introduce more flexibility into the system that we're operating? One side of it, of course, is natural gas pipelines to access these resources and ensure that we have the throughput capacity to meet peaks in demand.

But another huge and important part of it, of course, is waterborne natural gas and through liquefied natural gas. And the reason that's so important is because those, those vessels, they're a quarter billion dollar refrigerated vessels, can be sent wherever they're needed overseas. And that played a crucial role in allowing Europe to survive the cutoff of Russian gas because the US basically went to the number one producer of liquefied natural gas, exporter of liquefied natural gas overnight, and that allowed Europe to survive those winters after Russia's cutoff.

Okay. There's other hugely important parts of infrastructure that we need to be focused on building. So one is, of course, carbon capture pipelines to try and reduce the carbon impact of these continued burning of fossil fuels. Now we'll hear more about the tax credits, but I think the important thing to understand right now is these pipelines are having a very difficult time in the regulatory process because they're permitted state by state.

And we've seen increasing opposition to all kinds of infrastructure that are needed for all these new energy sources. So that includes these carbon capture pipelines to have, which of these projects have already been, have already been shelved. And you know, we can see, I mean, I would say maybe the pessimistic future is that carbon capture ends up like solar and wind, where mostly it just happens in Texas.

And it's really isn't able to get off the ground in the same way around the rest of the country because of the challenge of coordinating interstate infrastructure. Okay, so I will note that this is also a giant challenge for power lines. So if, in the Inflation Reduction Act, basically we authorize over a trillion dollars in spending that was supposed to get us 80% of the way to achieving the goals that the Biden administration had in terms of carbon reduction.

After they passed that more than a trillion dollars in spending. There was a new study that released that said, by the way, sorry, we're not going to get any of those benefits. We're going to get maybe 20% at best, unless we start building 10 times as many power lines as we're currently building.

And you can see that the trend in our power line construction over time has not been positive because again, these projects are so difficult to permit. And I hope we'll talk about more about that in the Q and A. So here's my last slide. And it relates to, it relates to something that Samantha and Scott were talking about earlier, which is that that of course, the US has maybe taken for granted this incredible strength in oil and gas production where we've been the number one global producer, both oil and gas.

We don't have anything like that kind of strength in any of the mineral markets that we need for any of these new projects that we're contemplating. We're not in the top 10 producer of most of those important commodities like cobalt and lithium. And as I believe Samantha said, the story is even worse when it comes to processing.

So when you look at those supply chain, where are those clean energy metals produced? Well, they're mostly not in the United States, but if you look at where they're processed, those supply chains, basically a plurality of supply chain processing goes through China. And so China is, obviously strategic competitor and that creates massive insecurity for the US And I think it relates, it sort of raises this question which Scott maybe mentioned, which is, so to what extent does this mean, do we that mean we need to sort of double down in producing these supply chains here as fast as possible?

As we know from all the permitting challenges we've talked about, that will be very difficult. Does that mean we have to slow down in terms of our dependence on, move pushing our dependence on these minerals, or are there ways that we can friend source some of these mineral supply chains so that they happen in friendly countries and provide us with, with something approaching the kind of security that we've long taken for granted in oil and gas.

So with that, I very much look forward to the discussion.
>> Andrew Waxman: So first of all, thanks very much, Terry and Nick for inviting me to be here. This is great. It's great to be in this audience and with a mixed group with very different and interesting backgrounds. So I'm going to narrow into a very specific topic, one that I mentioned earlier, and it's been kind of recently rebranded as this thing called carbon management.

And so Let me talk about what that means. So you mentioned earlier carbon capture. So carbon capture is one form of carbon management which is sort of a broad mosaic of different ways of managing CO2 or greenhouse gas emissions. Up in the top left you can see what's called point source capture.

So that's sort of what we have in mind when we think about that. You have a large power plant or a large cement clinker. You've got a capture chemical tower for which the CO2 gets scrubbed and then compressed, put in a pipeline, which is where you see transport and was the permitting issue they mentioned earlier.

And then piped underground principally into two types of uses, one, in saline aquifers, in which case it gets stored in the pore space, ideally indefinitely, or number two, in the case of enhanced oil recovery, into oil and gas wells, which is used to bring oil, principally oil, enhanced oil resources that are more expensive to remove without CO2 and that gas brings them up to the surface.

There are other things that fall within this, including green cement. And one thing that I'll touch on briefly is, and some of the other talks we'll talk about a little bit as well is carbon dioxide removal or direct air capture, which is another way of trying to reduce CO2 in the atmosphere.

So, there's three basic parts to point source carbon capture. And I'm an economist, so I'm going to try and keep it brief because the engineers and geologists do a much better job of talking about this. You've got CO2 that is otherwise coming from an industrial facility or power plant.

It goes through a chemical process that then gets transported in pipelines and then pumped underground into some form of a well. This is what direct air capture looks like. This is a demonstration facility in Iceland where you have these fan jets that pull CO2 from the atmosphere. It goes through a heat transfer and then CO2 comes out.

So why are we talking about this? One of the things that was discussed earlier is that in these plans that the UN, the IPCC or this is the International Energy Agency have for their sort of net zero goals, whether they're realistic or not, they all pretty much agree that some, and in some cases a significant amount of this needs to come from converting existing fossil fuel generation into fossil fuel, where the CO2 gets captured and put underground.

And the focus of this in particular are in what are called hard to abate sectors. So this is a number of things and you can see this on the right side of the graph. So at the bottom, what's called load falling electricity, which is the type of natural gas and coal plants that were mentioned earlier that need to come online in response to international intermittency with solar and renewables.

One of the challenges maybe we can talk about during the break is that actually at the moment, we don't have the ability to ramp carbon capture on and off. And so that's actually still a really hard problem. Other applications are industrial things that are really hard to electrify.

You can't very easily electrify a cement plant or a metals facility or a paper plant. And so trying to figure out ways or the transportation sector is a third one Trying to find ways to deal with the CO2 emissions from those sectors are a big question. So this is a really confusing graph that's part of one of those IPC reports, but basically argues that it's going to be almost impossible to reduce CO2 emissions to our mid century climate goals without relying substantially on carbon capture in a real substantial way.

And so what are we doing in the U.S. well, there is a federal tax credit that was put into effect in 2008 under the Obama administration. It was subsequently increased during the Trump administration and again in the Inflation Reduction Act in the Biden administration. And so many have argued that this tax credit is the only true bipartisan climate policy because it's one in which both Democrats and Republicans seem to some degree to agree upon in order to reduce CO2 emissions.

And so you can see on the graph on the right here, this is the level of the credit. It varies depending upon what the form of capture is. That is to say, whether it's on directly on a power plant or industrial facility or doing direct air capture, which is a higher level.

And then depending upon whether that CO2 goes into a saline aquifer where it stays indefinitely or it goes into enhanced oil recovery, well, which gets a lower credit. So currently under the Inflation Reduction act, the amount of the credit is $85 per ton of CO2. If that's going into saline aquifer, it's a lower amount if it goes for enhanced oil recover, about $180 per ton if it's used for direct air capture.

So these are substantial amounts of money. And you can see in a study by the Congressional Budget Office as well as researchers affiliated through the Brookings Institution, they've shown that the order of magnitude of the outlay of federal revenues is on the order of a few billion per year.

Could be as much as 10 billion by 2030. So sorry, I lost my slides. There we go. So how does this credit compare to alternative policies? This is a session about versus mandates. So this is in principle a kind of price mechanism that allows the private sector to adjust.

If the subsidy incentivizes adoption, they may adopt. If they don't, they may not. But it doesn't do quite the same thing as something like a carbon tax. Because essentially, while they may on the margin do similar types of behavior, a carbon tax is going to make it expensive to CO2 emissions.

This makes it profitable to store those emissions underground. If you're a firm that's barely profitable, a subsidy is going to help you be profitable. And a tax is going to hurt your profitability. And so this is a subsidy that has the potential to kind of make what are quote unquote gray industries more profitable and expand the size of their market share, which could be good or bad depending upon your perspectives.

But that's a difference in the design of this. One thing that was mentioned earlier in the session with Samantha Gross and others was about the importance of research and development. So one of the arguments of this credit is that it's an early investment by the federal government to try to develop the technological resources to, to make this technology cheaper so that industry can use it at large scale.

One thing I'll point out is that in the absence of a subsidy, industry in most cases doesn't have any incentive to continue to do it. So this is something that the federal government is going to have to be on the hook for indefinitely. They can get some revenue back in the form of enhanced oil recovery, but otherwise, if it's going underground in Degua aquifers, we're going to have to keep subsidizing it.

Oops, sorry, I keep hitting the wrong button. So a few more things before I finish up here. So at the moment there are 19 operational large scale carbon capture projects. Projects large scale means 800,000 tons of CO2 per year or more. And this is being used on a number of things.

There is one fossil fuel coal plant that's operational, that's the Petro Nova facility in my home state of Texas. But it's being used for other things like ethanol production and biofuels. That's part of what's happening in the Midwest. Those pipelines that have been challenging the permit have been associated with fertilizer, coal, gasification gas, compression hydrogen.

The majority of carbon capture at large scale is used for enhanced oil recovery. So of those 19 projects, 15 are enhanced oil recovery. The sort of climate, net climate impact calculus is going to be a little bit different because you're getting a barrel of oil out. Now that barrel of oil generates economic benefits and profits, et cetera, but the net CO2 reduction is going to be smaller depending upon whether that barrel of oil displaces a barrel of oil, international markets that doesn't have EOR or whether it's additional.

And one last thing I'm not going to spend a ton of time on. But a really interesting aspect of this coast problem that was mentioned earlier by Gary is the question of, where do you put the CO2, all right? And so this is there's a federal permitting program, the same way we permit oil and gas wells.

It's called a Class VI primacy. It's one of the most onerous permitting processes to go through to get these injection wells cited and set up. And there's a huge question about who owns the pore space underground. And folks in law schools, you know, have done a ton of research trying to figure out, in part based on different state laws, about who owns that subsurface pore space.

How do you think about coming up with contracts to deal with that? And I hit that button again. Another thing that was mentioned by Samantha Gross is ignoring the role of thermodynamics. And one thing I just want to mention is while direct air capture, which is sort of a zero emissions technology, you're pulling CO2 from the atmosphere sounds very appealing, it's very expensive because you're using something that is much lower concentration of CO2 than what comes out of a CO2 pipeline.

I mean, the cheapest thing is to reduce CO2 emissions, at the beginning. But if you can't do that, pulling them out of the flue gas from a coal power plant is going to be the cheapest thing to do. If you want to do DAC, which is up at the top left, this is going to have the highest cost because the CO2 is the most diffuse in the atmosphere relative to other applications.

Where is it most cost effective? So I have some work doing this and this is why, as James mentioned earlier, that the Gulf is one of the places where this is the most likely to happen because you've got increasing returns to scale and, and the technology itself is heavily capital intensive.

And so the places where the federal subsidy, which is that red line you can see at the top at $85 per ton, is the most effective, is for applications in particular clusters around the Gulf in Louisiana and Texas. And I think with that I'll just mention a few other things, which is that there are a few technical issues about who owns the pore space that I mentioned.

How do we deal with long term liability of the wells associated with the carbon capture? How do we coordinate to deal with permitting issues of the pipelines and then what happens after the credit expires? It's not really an investment tax credit, it's not really a production tax credit.

It's somewhere in between. And so the federal government's going to have to figure out how to thread that needle at the end. And last but not least, they have a little bit of work looking at the air pollution, co benefits or co damages. So if we want to think about those impacts, environmental impacts that Gary mentioned earlier.

In some cases, carbon capture may reduce pollution, local air pollution, some cases may increase it. Thanks very much. Look forward to questions.
>> Tracy Mehan: James and Andrew, thank you very much. Quick question, Andrew. This is regulated under what, the underground injection program? Yes, that's right, the Safe Drinking Water Act.

And is it also regulated under the Clean Air Act? Do they have to get clean air permits?
>> Andrew Waxman: So power plants have to get as part of the new source and existing source review process under the Clean Air Act they have to get, if they're going to use carbon capture, has to be part of that.

And the when they redid section 111D in 2024, part of that was about it was initially going to mandate that both coal and natural gas plants move on to transition paths that involved carbon capture and then the gas plants, because it's more expensive, they decided to take them off.

And there was a lot of lobbying against that. And so what came out of that was that coal plants were on a transition, I think by 2033 to start to have to have that. And that's an interesting aspect of a kind of mandate under the new presidential administration.

We have there's a different approach to thinking about that. And so that's kind of off the table.
>> Tracy Mehan: Very different. Yeah, James, I'm gonna call an audible here and ask a little different question than maybe we discussed. But if I'm hearing you right, the problem of building out the necessary infrastructure is both a NIMBY and a federalist problem.

Would you agree with that?
>> James Coleman: Yeah, that's absolutely true. So I think there is. Everybody understands that if you have to get interstate infrastructure built, you're going to have challenge because most of that infrastructure has to receive state approval. So if you're talking about power lines or oil pipelines, carbon capture, hydrogen pipelines, those are all going to need approval from each state.

And that creates natural hold up problems where states feel like they're getting a big bad deal and are going to try and stop those projects. So one common solution that's proposed, we saw Senator Manchin proposes is well, maybe we should federalize that so we should have more federal approvals for interstate power lines Preemption.

Yeah, exactly. Or more federal approvals for hydrogen pipelines. Now as somebody follows this closely, that doesn't look like much of a solution to me for another reason, which is that the federal permitting process itself is notoriously slow. As we know with the National Environmental Policy act, there are efforts to improve it, but right now it's a slow process.

And the second reason is that there is one kind of interstate infrastructure that already receives federal permitting and that's natural gas pipelines. It already gets federal permitting. And, those projects have not had an easy time with the federal process because included in that federal process is an ability for states to basically veto those projects under the Clean Water Act, Section 401.

And so I think, there's some of this naive sense. Well, if the states are holding it up, let's just give it to the federal government. That itself creates some problems. So I think you need really to have a two step where one, maybe you give more federal authority, but then two, you make it easier for the federal government to approve those projects, even if maybe one state doesn't like it.

>> Tracy Mehan: Yep, very good. Let's, we've got about 15 and a half minutes. Anyone in the audience want to posit a question? We'll start with Gary.
>> Garry: So help me understand the incentive or the rationale for the, for the federal government to subsidize carbon capture. If China and India and probably Africa as they grow, are going to and are releasing more and more carbon into the atmosphere.

What's the net effect of this expensive operation in the US, since this is a global externality, elsewhere they're dumping lots and lots of stuff into the atmosphere?
>> Andrew Waxman: Yeah, it's a great challenge. I mean part of this relies on kind of, kind of global coordination and the question is whether that happens or not and we're not in a great era right now of coordination.

I will say that China is already doing carbon capture itself. Part of that is sort of for, you know, in part for audience effects, for kind of global environmental and climate policy. I would say a little bit more in terms of rent seeking. There are states that are have pursued this technology as a way to try and keep particularly coal online because you can use the subsidies for carbon capture on coal technology which generates a ton of CPU to help keep those plants operational.

And so states like Wyoming and states like West Virginia have been really gung ho about moving forward with this technology because co coal plants are retiring because independent of environmental policy, they're not as economical relative to natural gas as they used to be. And so this is a mechanism to try and keep those plants still in line.

That's not necessarily an economic efficiency argument, but it is a political economy argument.
>> Tracy Mehan: I was going to raise one question on NEPA, which is the National Environmental Policy Act. This was the first of the first wave of 19. It was actually 69-
>> James Coleman: Right.
>> Tracy Mehan: Environmental law.

This is where the phrase environmental impact statement comes from. Could you talk about the convergence and the argument and the concerns from sort of left and right in terms of the old industrial concerns with 7,000 page EIS studies and now environmentalists concerned about the same problem with their favorite projects.

>> James Coleman: Yeah, I think it's important to understand the US has gone to a very different model of climate regulation based on spending. So most of the world has, and I think we're gonna hear talks about this maybe coming up, has looked at cap-and-trade, carbon pricing like you see in British Columbia or actually across Canada, there's different models.

The US for a combination of reasons including the perceived unpopularity of carbon pricing as well as the need to do something through reconciliation so you could do it with 50 votes plus the Vice President has chosen a basically spending mostly or spending only approach to reducing carbon emissions.

And because as we talked about that means subsidizing cleaner sources of energy effectively that's only going to result in carbon emission reductions to the extent that those new sources out compete fossil fuel sources and as a result they potentially shut down. So it puts a huge premium on deployment.

In particular, the nightmare scenario here is something like high speed rail where the federal government spent Billions of dollars on it starting in 2009. And, you all can tell me if we're going to have high speed rail anytime soon. I guess so. The big concern is this expenditure.

$1 trillion. I mean, it's 1 trillion, 2 trillion.
>> Tracy Mehan: And the point is, if you got federal money, you got to follow NEPA as opposed to a private compliance well.
>> James Coleman: And at the basic level, you need to get things permitted. So if you're building a solar farm, you can often build it on private land.

So maybe you're going to avoid an extensive NEPA process. But the reality is the limiting factor for solar and wind is transmission, building the power lines to connect it. And a lot of it's supposed to be in the west where it's going to cross federal lands. And so you're going to either go through these onerous state by state permitting processes or you might have layered on top of that a federal process that's extremely long.

So I think the permitting challenge for solar and wind often, I mean, absolutely applies to the solar farms and the wind farms, but the bigger challenge is the transmission, which is what they really need to deploy on a large scale.
>> Tracy Mehan: Yes sir.
>> Speaker 5: One of the things I've noticed in the levelized cost of solar, if you, if you go listen to almost any, any news program, it'll say solar is the cheapest there is.

I have solar on my house and I'm happy with it and I'm saving a lot of money. But also, I'm an engineer and I guess, looking for truth. Why in the levelized costs don't they include something for the natural gas backup or batteries or something, or even the cost of all this grid?

I know it's a little bit more difficult to calculate, but it, it doesn't look like we're getting the truth from a levelized cost. Is that correct?
>> James Coleman: I think it's important and I would encourage, any reporters in the room distinguish between the levelized cost of electricity and the cost of a system based on that.

I mean, I always think it's like somebody told you, hey, hitchhiking is free. So I'm gonna sell my car and hitchhike. And if sometimes there's not somebody going to pick me up, well, I'll just Uber, right? I mean, it's true, hitchhiking is cheap. I mean, I think you should pay for gas, but still, it's very, it's quite cheap, right?

And, but the reality is you might spend up more money over that, given how often you're relying on Uber or Lyft rather than just your car that can take you wherever you need to go. And so I think it's just, you know, I do think levelized cost has its own unique things, but it really has nothing to do with what percentage of power sources we should be using.

And it should be made clear in that context. I think often people will say something even more colloquial, which is just, solar is very cheap. And I think that is, that's too simple, that's too simplistic. To, I mean, I do think that is deceiving if you don't say something about.

But of course it doesn't provide us. We can't build a system based on solar or at least we'd have to spend a lot of money on backup.
>> Speaker 5: Well, you wanna weigh in on that, Andrew?
>> James Coleman: I think a lot of times it's not done with the intent to deceive.

I think a lot of people don't understand. I mean, having talked to a lot of people who should know better, I think a lot of times they frankly just don't understand that. That hey, we always have to. I mean they think of it like gasoline, right? Go to the cheapest station and you can fill up another week later.

That's not how our power system operates. I think it's very poorly understood. The consequences of the fact that it always has to be exactly balanced and if it falls out of balance for five seconds, the whole country loses power.
>> Tracy Mehan: Andrew, do you want to weigh in on that?

>> Andrew Waxman: Just the levelized cost is a useful engineering calculation. But that the social cost that when I plug my car in and pull, a kilowatt hour of electricity out is a different cost. It's going to reflect the set of energy that's kind of on the margin that's economical at that particular time of day at that particular location.

That may not be the same thing as levelized costs. It also may not be the same thing as a rate payer is what I pay my electricity utility. And the fact that there's differences between those has different implications for how we make ideal investments in the grid and also how people make choices about what they want to use.

Yeah.
>> Speaker 6: Thank you. I wanted to ask Andrew to elaborate on the local air pollution effects of carbon capture. Like how does that process work and is it a big deal?
>> Andrew Waxman: I think it is a big deal in a number of different ways. So one of the big legacies of coal and Gary had talked about kind of local versus, global or national kind of costs from energy use is that we know that sulfur dioxide and secondary particulates that come as a result of that actually can travel long distances.

And coordination around that can be a challenging policy issue. And dealing with coal and its impacts has been a huge part of kind of environmental policy and environmental health impacts. Carbon capture, in order to capture the CO2 from a coal power plant, you have to deal with the SO2, you basically have to scrub it.

And so one of the co-benefits of running coal with carbon capture is that you remove the majority of the air pollutants associated with it. In particular, the big killer, the silent killer is the secondary particulate matter, 2.5 microns and smaller. When you use carbon capture on other applications like natural gas plants or industrial plants, you don't have as much sulfur dioxide because it's actually the burning of coal that produces all that.

So two. And as a result in particular air basins I have a little bit of work that essentially the conventional technology so was mentioned earlier was about kind of what's technologically ready right now for the market is this thing called amine based post capture, post combustion capture, which is basically a nitrogen based solvent that pulls a CO2 out that produces ammonia emissions which have real human health impacts.

And so you can get potential air pollution damages as well as benefits. And so there's a really interesting question about how do you balance global benefits from doing carbon capture with local air pollution costs benefits.
>> Tracy Mehan: Isn't that going to be covered in the air permits?
>> Andrew Waxman: So ammonia is not a criteria air pollutant.

Right. And so-
>> Tracy Mehan: But can't they add that on the permit as a matter of state delegated authority?
>> Andrew Waxman: If, if there is regulatory will not Texas. Yeah, yeah, yeah, exactly.
>> Tracy Mehan: I'm sorry, that right here in the, sir.
>> Speaker 7: Just a comment About coal, right? We're forgetting that under the Obama administration we had this onerous mandate that was eventually the Supreme Court ruled illegal.

The Obama's clean power plan, which, which nudged, that's saying it politely, the utilities to start getting rid of coal. So it wasn't the market. It wasn't like we woke up one day and said coal's just more expensive and so let's just start shutting it down. It was this clean power plan that was the culprit.

So there's that. And then back to the point about the reliability of fuel sources for Texas. Had Texas not took the nudge from the federal government to get rid of their coal plants, then you would have reliable coal baseload production. And so now you have Texas having to.

What was pointed out by the, the other speaker was Texas having to create all these pipelines for all this natural gas that they're gonna, that they're gonna need. And now we're even talking about more for AI and data centers now. And so an added cost which you didn't have with coal.

And then, and then the point about the carbon capture for natural gas, it's not necessarily more expensive. It's because natural gas has less of a, of amount of CO2 that's emitted. So the stream of CO2 is less. So just like with director capture, it's more expensive to capture, but doesn't mean that the natural gas industry shouldn't have been, that that mandate shouldn't have been on them as well.

But I just wanted to make those points because I think that, you know, tribes, a tribe is the largest coal owner in the country. And so these, these attacks against coal are important that some of the set that there are some more, you know, truths out there rather than this, this whole idea that, you know, coal's just, just expensive.

And we finally woke up the issue that we're going to have. And one of the other earlier speakers this morning said that we're gonna have peak oil next year potentially. Which means we're gonna have peak gas too, because most of the new gas that we produce in the US was associated gas, right, produced with oil.

So the Shell oil with gas, a lot of dry gas. So, gas before Shell was primarily dry gas, just gas that you went looking for. We haven't really prospected for. So we don't have. We haven't looked for it and there's not a lot of production from that anymore.

And so we're gonna have also probably peak gas too, so-
>> Tracy Mehan: You have a question, sir?
>> Speaker 7: So no, it was a point.
>> Tracy Mehan: Okay, thank you. Yes, ma' am.
>> Speaker 8: I think it's Professor James Coleman. You talked about the crisis that happened with the snowstorm in Texas.

You didn't cover the aspect where, because the Texas grid is isolated from the rest of the interconnected grids, would that have played a role? Your analysis and explanation completely eliminated that portion. So could you shed some light on that?
>> James Coleman: It could have played a limited role. I think it's important to understand.

So it's funny because within the United States, I think we think about the Texas as its own grid, is an east coast grid and there's a West coast grid and there's a Texas grid, which makes it seem like, it must be a very small grid. Internationally, it's actually a quite sizable grid.

It's a big grid. And so it's possible that around the edges of Texas it would have helped. It wouldn't have addressed the central problem, which is that basically you would have had outages. And in fact, on many of the edges in the neighboring areas, this wasn't true in El Paso, but on the eastern and northern side, you did have outages as well.

So I'm not sure it would have solved the problem. But I do think it points to a broader solution, which is that as somebody who spent a lot of time talking to Texas policymakers across the spectrum, I mean, I think there's a naive view if you don't live in Texas.

Texas are a bunch of cowboys. They just don't want. They just don't want federal regulation, et cetera. I would say there may be some truth to that, but it's kind of like they're wind power cowboys. I mean, because basically they are. So I saw no interest across the spectrum from Democrats, Republicans in connecting more because they're afraid of federal regulation, because the rest of the country has to deal with this layered permitting system where you have to satisfy both the federal government and the states.

And that creates giant problems for building new transmission, for building, for deploying new power sources. Texas is a very unique approach to connecting with the grid, like connect and manage makes it much easier for solar and wind farms to be built. And basically no Texan wanted any part of that federal regulation.

So I think everybody understands economically would be better. It might help around the edges of the reliability problem to connect with those other grids, but that because of this problem of federal permit, it's really. I mean, there. It's kind of a cost allocation thing. There's a bunch of aspects of it.

The people don't want any part of that federal system. Which I think says something about some of the improvements that we may need to make to the permitting system. I also think it's important to understand that, you know, it wasn't. Texas is not the only place. I mean, we saw similar reliability problems in the US Southeast.

Now, Spain, I mean, Spain wasn't having. It was a beautiful day in Spain. Right. And so this is a problem that's happening to a lot of places that like Texas, have been successful in building a lot of new renewable power. And frankly, Texas faces a great greater degree of difficulty because it's one of the very few places in the wealthy world that is having rapid electricity demand growth.

That's not a problem that's widely faced around the world. And Texas says, has it been successful or not? I mean, that was a giant failure, but it's had huge successes, too. And I think for people who follow electricity policy closely, you'll find a million different views on how successful Texas has been in meeting that.
>> Tracy Mehan: 1700 people a day moving into Texas.
>> James Coleman: Yeah, it's amazing.
>> Tracy Mehan: God save Texas and please thank our panelists.

>> Terry Anderson: Thanks again for great morning session from the speakers and thanks to all of you for participating. And we've got more good stuff to follow after lunch. But I don't know why I scheduled a session I'm helping with after Kim Strassel. That was a mistake. So Kim is a longtime friend.

I think we met in Montana. No doubt. If you ever look at the Wall Street Journal, you know she's a columnist for the Wall Street Journal and writes a column titled Potomac Watch. Now I knew Gordon Tullock was a well known economist, probably should have won a Nobel Prize along with Jim Buchanan, but didn't.

I went to visit Gordon once in Alexandria and he said and he had a nice high floor apartment and he said the reason I live here is I like to be able to look over my money. And he would have been able to see the Potomac well from there too.

And so no doubt if you follow Kim's writings and her column Potomac Watch, you probably would just assume she lives in a suburb like, you know, Alexandria or some other suburb of Washington. And it is correct. She does live in a suburb, but it's not a suburb of Washington, D.C..

it's a suburb of Anchorage, Alaska. And she actually backing up one moment. I went to visit Kim in her suburb of Anchorage, Alaska and was on Fox tv, well, not quite totally on tv. I was at least on the TV screen in the studio that Kim has where she has the uplink so she can do her Fox program from, from a suburb of Anchorage, Alaska.

And so after I visited her, I kind of wondered how do you watch over the Potomac from that far away? It seems a little difficult, but you know, in this age of telecommuting, that's a piece of cake. And the more I've gotten to know Kim, the more I think a suburb of Anchorage is right for her, not someplace looking over the Potomac.

She has a wonderful family and they have a beautiful home. I won't give you the coordinates of it because I want to always be sure the light is left on for me. Kim is, she's obviously a great writer. She obviously has her finger on the pulse of the Potomac.

But most importantly, she's a dear friend, Kim Stratz.

>> Kim Strassel: Good afternoon, how is everyone? Having a good morning so far. And by the way, you can eat loud when I'm up here because I'm a mom, so I'm used to talking very loud and having actually nobody pay attention to me while they're eating.

So you can do that too if you want to. And that was a really nice introduction, Terry, and kind of perfect because I wanted to start out by talking about Terry for a minute. I need to say something about him, you know, Those of you who know Terry know that he has been an extraordinary mentor to dozens upon dozens of scholars over the years, leading them not to just new heights of thinking, but to new careers and new life experiences.

But what I don't know if everyone appreciates is that he has also been a great mentor to not just scholars, to people like me in entirely different industries. When I was a very, very young journalist at the Wall Street Journal, Terry not only introduced me to the exciting world of free market environmentalism, but he gave me some of my first opportunities.

One of the first speeches I was ever asked to give in front of a public audience at a time when I was definite qualified to speak in front of a public audience was actually in Perk in Montana. And I have a few, couple very distinct memories of that trip.

One was the utter relief of finishing the speech, having not thrown up on the audience. And don't worry, I'm better at it now. None of you have to worry. The other was that at the end of this speech, and Terry will remember this, this random former fighter pilot came up to me and offered to give me a ride in his biplane through the Bridger Mountain, which of course I said, hell, yeah.

And Terry later sent me a picture of me with the whole leather cap and goggles and the scarf, the whole nine yards. And then finally. And those of you who really know Terry will appreciate this story. Terry at one point asked me if I wanted to go on a big adventure with him.

And I was like, yeah, probably like up there with the biplane. At which point I found myself for many hours with Terry in his truck scouting for elk. These are the kind of encouragement and life lessons and experience and support that this Hoover Scholar has given so many people.

And I just want to take a quick minute to thank him and applaud him for putting this together. My only regret with this speech is that I have to begin with a correction. The last time I had the honor of giving a speech to a Hoover audience was a couple of years ago at Jackson Hole.

And I bet you guys all wish you'd been invited to that one, right? And the topic of that speech was how much I had come to despise and worry about the use of the word unprecedented, at least in the context of Washington. And my argument at that time was this, that whenever we heard that word in Washington, it was never used in any way that signified anything good, right?

We were not getting headlines in Washington that said, in an unprecedented effort at reforming Social Security, Congress did this, or Congress came together in an unprecedented bipartisan fashion to tackle our spending problem three years ago. Most of the headlines we were getting that used that word were referring to the unprecedented dismantling of longtime public political standards and norms, an unprecedented FBI raid on a former president's home, Nancy Pelosi's unprecedented veto of the Republican picks to the January 6th commission, the GOP House's unprecedented use of the motion to vacate the chair, leading to a House with no speaker for years, weeks on end.

This was not good stuff. So I said in the speech that I would be very, very happy if I never heard the word unprecedented used in the context of Washington again. And what a difference a couple years makes. I take it all back. That's my correction. We are still getting all kinds of unprecedented in Washington, and not all of them are good, I would hasten to note, but at least some of them are.

Are good these days. And that is actually very exciting. Why is it exciting? Because I think there's a very. Important difference in the rule breaking that we are seeing right now. And it's a distinction that's really important that we all understand. Donald Trump's predecessor, Joe Biden, was mostly interested in breaking rules when it came to politics and political advantage.

Trump so far is mostly proving interested in breaking business as usual when it comes to policy and to moribund government. And I think this is just such an important distinction, one that is too often getting lost in the coverage of this president. If you look at the past four years, Biden and Democrats mostly broke the rules or threatened to break the rules for political advantage and in unilateral ways in which there was no real remedy or oversight.

Why did nearly every second Senate Democrat threatened to blow up the filibuster so that they could ignore the political minority and impose a political agenda? And had they done it, there would have been nothing that anyone could really have done about it. Why did Pelosi refuse those Republican picks for the January 6th committee?

Because she wanted a committee that would craft a political narrative that she thought would be helpful to her party and there was really nothing anybody could do about it. Why did Biden's DOJ engage in the first ever in history prosecution of a former president? There might be some who would argue that this was legally called for, given Trump's actions after the 2020 election.

I would argue if you look at what special counsel Jack Smith did was attempting to do, it was a huge and novel stretch of existing laws, as was in fact confirmed at least in part by the Supreme Court's decision decision reaffirming certain perimeters of presidential immunity. Why put the country through that drama?

It was for political reasons, a pretty naked attempt to use lawfare to disqualify Donald Trump from running for the presidency again and again. No one could do much about it, at least until the time clock ran out on that contrast. This to the China breaking you are seeing in Washington right now, which this administration is engaged in, which has mostly been about reexamining and resetting policy.

And one big example, and I consider it such a good contrast, is Trump came in and he immediately fired a bunch of commissioners on what we call independent agencies. Specifically a member of the National Labor Relations Board and a member of the Merit Systems Protection Board. Congress created these agencies very much and by the way, agencies that have a lot of executive like powers these days.

They can issue rules, they can take disciplinary actions, but Congress nonetheless deliberately created them as independent agencies that would be largely beyond the reach of the executive, at least when it came to the executive's ability to hire and fire the people who sit on them on this grounds.

They thought that those independent agencies would somehow therefore be insulated from politics. Trump came in and fired them anyway. And of course, Democrats and many in the media have suggested this is all about gaining political power, an authoritarian move. No. You know, my 13 year old could look at the statutes governing this and understand that they very clearly said Trump did not have the authority to do these firings.

And believe me, his lawyers are at least as well read as my 13 year old. They knew exactly what they were doing. They knew they were breaking the rules and they knew that they would immediately get sued. And they did it on purpose. Why? Because they wanted finally for the Supreme Court to have to readdress this key question of executive power.

Who gets to run the executive branch? The Supreme Court 90 years ago issued decision in a case called Humphreys Executor signing off on these independent agencies. But that was way back when, when most of these agencies had far more modest powers than they have now. And the Supreme Court over the years, especially recently, has given hints that it's no longer comfortable with that Humphreys Executor's decision.

So thanks to this administration, we're finally going to get an answer about who runs the executive branch. We're going to find out if these structures are allowed under the separation of power. And more important, it will be up to the court to decide that there is oversight in this process.

This is the right way to go about things. If you're going to break some China, you ask some basic questions about really big topics and then you put it in front of the Supreme Court or another outside agency arbiter. These are the kind of healthy debates we ought to be having in a country where way too many things have been running on autopilot for way too long.

And we're seeing that in other ways too. The President is also teeing up an almighty court battle over the question of whether or not a President doesn't have some level of impoundment powers over the legitimacy of inspectors general. Another one of these Congress created institutions that potentially intrudes on the power of the executive branch.

He's asking the courts to look at the outer boundaries of what the federal government can demand in return for grants given to institutions of higher learning. Will he win all of these? Will he lose all of these? We don't know. Stay tuned. But again, this is an administration provoking some really important policy questions.

Don't debates also among the China you hear crashing all over Washington. And man, it is loud right now. Is this administration driving to light a fire under a Washington D.C. that has way too long ago settled into a bloated, self satisfied and corrosive rut? We have, for the first time in history, unprecedented, a Department of Government efficiency which is digging into the operations of the federal government in a way no prior congressional committee or commission has ever bothered to do.

We have an executive branch that's completely rethinking the nature and the obligations and the size of our federal workforce again. Something that has been on autopilot for longer than I have been alive, given that the last real civil service reform was back under Jimmy Carter, which, by the way, is making me a little younger than I actually am.

But I'm gonna take that. It's raising huge questions about the quality and type of international aid we give. The use of billions of dollars in federal grants and the limits on them, the merit of the existence of the Department of Education, the basis of immigration procedures and immigration law, our role in international institutions, the level of waste and corruption that exists in our Medicaid programs and our food stamp programs and our Social Security programs, the very mission of the irs.

And what all of this has in common is, it is a direct rejection in so many ways of the policy status quo in Washington. Not of core institutions, not of important traditions like the filibuster, but to a brittle, antiquated, and yes, again, on autopilot status quo. Do I love it all?

Absolutely not. The tariff policy is terrifying. Okay? Little girls do deserve more than two Barbies and five pencils. I grew up really poor and I had more than five pencils. All right, I am. I'm highly doubtful that this administration can, under the guise. Vviolations of civil rights law dictate Harvard's viewpoint diversity.

It would be nice if someone in the administration occasionally vocalized the two words due process when it came to deportations. They should try it. And by the way, yes, Robert F. Kennedy is literally 1000 shades of insane. So I don't love all of this, all right? But my view, I guess, and this is, I know, a bit of a long opening, but I just think it's important to set this as a basis as we go on to talk about markets and mandates.

My view is that if we are going to have unprecedented all the time in Washington, I welcome that, at least now some of it is unprecedented in a good way. And that's the conversation for today about markets and mandates and environmental policy and energy policy. Again, I think it's just really important that everyone keep that distinction as mine as you get these headlines over the next four years by all of these media types that are suddenly now very concerned about unprecedented actions in Washington that you just keep running it through that filter.

Is the upheaval in aid of naked political gain or is the upheaval in aid of resetting our policy? That's a distinction that should be made amid all of this China breaking and new thinking the Trump team is bringing to Washington. China, few things in my mind actually do compare to his blue sky opportunities with regards to setting aside decades of stultifying views and mandate based regulations of energy and the environment, an old fashioned view of the way we manage our public lands.

And the amazing news is that that has already started. Trump obviously by this point has issued more executive orders than I have minutes in the day. Can I just mention, by the way, that covering this administration is like drinking from a fire hose. I deserve hazard pay. I haven't like slept since January 21st.

Okay? If you have to carry me off the stage, that's why. But all of these executive orders, to me, the one that deserves far more attention than it has been given so far because of the potential for broad based long term economic benefit and a new way of thinking about government is his energy agenda.

Trump, on day one issued an executive order entitled Unleashing American Energy. And behind that order is his understanding that this country is sitting on the opportunity become an energy powerhouse in a way that makes Saudi Arabia look like a punk. Okay? This was already happening in the first Trump term by 2020.

And I know this has probably been discussed already today. The United States for the first time in its history had become a net energy exporter, a swing player in the Market able to influence prices to some degree. Biden certainly stood in the way of that. But Trump is now doubling back down on that agenda, and that's a difference.

The first time around, it was kind of just tacked on to everything else he was doing. This time he is making it a centerpiece of his agenda. And this kind of makes sense if you know Donald Trump at all, because he loves nothing more than to dominate. Right?

And this is an area he realizes that if we are unleashed, we can do so. Our resources in this country are boundless. Oil, natural gas, coal, rare earth minerals, geothermal, nuclear. And the benefits to us are hard to even enumerate. Cheap energy is the lifeblood of a domestic economy, for starters.

Fuels, household economic growth, new manufacturing, innovation, energy dominance means that we do not have to bend the knee to dictators and authoritarians who control the resources and in the past have dictated our policy by threatening to withhold them from us. It allows us to assist our allies to forge tighter bonds with them and also allow them to break their interdependence with the bad guys.

And it's also just, and this is especially on a president's mind who goes to bed every night obsessing on the trade deficit. It's a good export. It kinda helps in that regard, too. What he's already proposed is extremely heartening. He's reopening my state of Alaska, one of the more remarkable and untapped sources of wealth in the country.

This is something that is hugely underappreciated. You know, everybody always talks about Texas, but as we like to tell the Texans all the size time, we are more than twice your size. He has, reversing Biden's orders penalizing Alaska by reopening ANWR. The National Petroleum Petroleum Reserve is giving his support to an amazing new project to create a natural gas pipeline in Alaska.

He's issued executive orders reversing Biden's order to put off limits millions of offshore acres for drilling, restarting pipelines. The House and Senate are finally getting in on this. Just last week they passed the Natural Resources Committee, did their portion of the reconciliation bill, $18 billion more in in revenue with onshore and offshore lease sales, restarting the federal timber industry, opening up areas for mining and unleashing geothermal and nuclear energy.

But here's the exciting thing. It's more than just the actions. It's the mindset and the language that we are now hearing his team use to describe what they intend to do in this area. Three names I wanna give to you. Chris Wright, our new Energy Secretary, Doug Burgum, our new Interior Secretary, and Lee Zeldin, the new head of the Environmental Protection Agency.

These guys are the appointment of this agenda for Donald Trump, and they are highly motivated. I've had the privilege to meet and know them all. The first thing that you should know, too, about these gentlemen, two of them, and this alone is almost unprecedented, especially in modern times and especially by comparison to this last administration.

Two of them hail from the private sector. They are not lifetime politicians. Chris Wright, our energy secretary, prior to being sworn in as energy secretary, actually ran an energy company called Liberty Energy that does fracking. Seriously, folks, we have an energy secretary who get this. And if you think this sounds normal, you do not spend time in Washington.

We have an energy secretary who knows how to produce energy. I can't even think of the last time that actually happened. Doug Burgum as well, prior to being a governor of North Dakota, ran $1 billion business. Lee Zeldin. Okay, Lee Zeldin's a lawyer, but I'm going to try not to hold that against him right now, even though I do generally hold the Shakespearean view of what we should do to lawyers.

But he has so far been just as energetic as the other two, and they are bringing this new mindset to Washington. And that mindset and the words that go along with it matter. Doug Burgum in particular, is now using three words all the time, everywhere he goes. And the idea behind them is just revolutionary.

Again, if you spent much time in Washington, those three words, America's balance sheet, why do those words matter? Because those are the words of a leader of a government agency who is finally and correctly looking at the federal government as a player in. The market as somebody who actually has something to contribute.

And what does he mean by it? When Bergen was first elected governor in North Dakota and he told me this story, his team started presenting him with all these papers showing all of North Dakota's obligations and liabilities. Hello, sir. This is how much we owe in employee pensions.

This is how much it's going to cost to run the schools next year. Here's what our Medicaid budget is. Here's how much we need to put into our roads and our infrastructure. And as a businessman, he looked at his team and he said, okay, thank you very much for showing me how much we're in the hawk.

But what are our assets? What do we owe? What do we own that can make money for us? What's the black side of the ledger? And of course, because this was a political team, they looked at them completely vaguely, and said, well, obviously the thing we can do is raise taxes, because that's the way politicians think about their power.

Just go rape the people. And he said, no, no, no, that can't be possible. Look, we've got buildings, we own resources. We have talented workers. What are our assets? What is our balance sheet? Go out and make me North Dakota's balance sheet. And Doug Burgum created North Dakota's first balance sheet.

I would argue. I think it's one of the first balance sheets any state has created in the nation. He's now secretary of the interior, and he is bringing the same mindset and idea and approach to the federal government. And of course, the same problem applies. Everyone at this point knows what we owe.

I mean, raise your hand if you haven't heard. 36.5 trillion in national debt, right? But what is the value of what we own out there? What are our stores of oil and coal and minerals and timber? What is the value of the vast property portfolio on which all of those resources are held?

Burgum noted at a conference just last month that if you looked at America's land holdings alone, it would have. The country would have the largest balance sheet in the world, which is not a surprise. The Federal government owns 480 million surface acres, 2 billion offshore acres, 750 million acres of subsurface minerals.

And the remarkable thing is, like North Dakota, we have no idea how much it's worth. I actually went and looked this up. Every year, the treasury part puts out an annual financial report that claims to have a balance sheet in it. But when you look at it, the only thing that is listed among our assets, our cash and our loans, Receivable and certain government office buildings.

The rest of all of our land holdings are nowhere to be found on that balance sheet anywhere. And while Interior does do some things like update its oil and gas revenue estimates, huge areas of what we own remain unmapped and other areas are completely ignored. One example, Bergen came in and said, how much do we have in coal?

What is our assets in coal, given especially right now that there is surging overseas demand for US coal? Turns out the US Geological Survey has never done anything more than a back of the envelope analysis of what we might or might not have in coal assets. And that number itself, which is surely understated, $8 trillion.

That's what they think. Some of the government's better estimates, even from things that we look at more closely like oil and gas, are vastly under describing what we have because they're so retrograde and based on regulations that no one else in the industry uses. Just a couple of weeks ago, Interior, thanks to some of the things Doug Burgum is doing, announced it was going to allow new parameters for what they call downhole commingling in the Gulf of Mexico drilling.

That alone is expected to boost oil production by 10% or 100,000 barrels of oil a day. Just from changing some words on a government document about how we're now going to allow what is a standard industry practice, this mindset, it really, really matters. Think about what it opens up for you once you view the federal government through that lens as an actual going entity.

And simply to acknowledge that it doesn't exist in this bubble, that it is a part and parcel of this bigger thing called the US and world economy. Not that you can, and let me hasten to say, I see some faces out there. You can't run it like a regular company.

Right? We all know that we do view federal lands differently because they serve many purposes, including recreation and preservation. And that is all for the good. But even our original conservationists, you think back to the Teddy Roosevelt days, they always had another plank in there alongside preservation and enjoyment of the people and recreation.

And that was that the lands were spent, meant also be there for the benefit of the people. So what it says right there in Roosevelt Arch in Yellowstone Park, for the benefit and enjoyment of the people. That's the piece that's been kind of thrown aside and memory hold by a lot of the green activists that have exerted so much influence over our public lands policy in recent decades.

And yes, there are certainly limits on all of this. No, we are not about to go and value Federal lands and then offer up Yellowstone as collateral for Chinese debt. Okay, nobody's suggesting we do that. But we are not using our public lands for the benefit of the people.

Not only that, we're not only not using them, we're not managing them. We're squandering them in ways that are actually destroying them so that we can't even use them for preservation or for enjoyment either. You have a going entity balance sheet mindset. It opens up two really big opportunities in my mind.

The first is simply making our lands benefit us from a financial perspective. And they aren't doing that now, which is absolutely stunning. Stunning because nobody else in the whole world views their land, property this way. It's remarkable the private sector views land as one of its greatest assets it has because it almost always appreciates in value.

It's like that old Will Rogers' line. By land they making any more of it, right? Even the states understand the value of their land and how important it is to their revenue and their finances. I can promise you there is no western state with a lot of resources that doesn't make measure of those resources.

I come personally from the People's Republic of Oregon, which is, you know, right up there with the People's Republic of California. And here's a dirty little secret about my original home state. You know all those big beautiful trees we have up there, the ones that everyone thinks of when they think of the Pacific Northwest, that are on all the postcards?

The state owns a whole lot of them and they cut them down every year. Lots of them, Lots of them. All those trees. And the reason they do that, because it pays for Oregon's schooling. And it's why over the years, despite many, many calls from the environmental community, that state get out of the lumber and timber business.

Oregon has never done so because to do that would lose them tens of millions of dollars of school funding every year. The other thing that makes it useful is guess what? They manage that land extremely well. They replant it, they take care of it, because it's going to pay for their future school revenues as well.

Montana in 1994 Four, they do this as well. Their logging contributed $94 million to Montana public schools. That's just a remarkable number. So you have to leave it to the federal government to be the only entity on the planet that can make their land a money loser. And I'm gonna steal something from Terry here.

He recently wrote a great piece in my paper and he noted that he spent days looking into this. In 2023, the Bureau of Land Management lost $734 million. The National Park Service lost $2.8 billion. The U.S. forest Service lost. Anyone even want to take a guess? Almost $10 billion lost money.

And Terry noted that if you just applied, you know, a simple long term government bond yield to our land assets, we should be making $100 billion a year, not losing $14 billion from these different entities. If you start to treat the federal government like a going concern, it puts a whole new cast on, makes it so that you have to think like people everywhere else.

If you were in the private sector, how would you make that land work for you in the administration? We know what the energy piece of that is. Okay, we've already talked about that a little bit more. In terms of resource management and some of the things they can do, I would argue that they're going to have to do a lot more.

I'm hoping that that's one of the next steps because it's one thing to offer leases. At some point, I think Republicans are going to have to rethink the way we collect royalties on some of this if we are really realizing the actual value of some of those resources.

Because Americans deserve to have a real return on some of these resources that are being made to the private sector. But other things that this opens up, you could lower costs. Terry noted in his piece, we have 60,000 employees that work for those three agencies alone. 60,000 employees.

And they still can't manage it correctly. It's astonishing. I don't know how many of you saw a Washington Post headline recently. It was a whole story squealing about doge and cuts it was making to the government. And it pointed out this terrible mistake that had been made. The chaos at the national parks because Trump administration had fired the only locksmith in Yosemite park, quote, with all the keys and institutional knowledge to rescue visitors from locked restrooms.

Can we just think about that for a minute? I mean, first of all, how many people are actually getting locked in Yosemite bathrooms all day long? I don't know the answer to that, but it's kind of a disturbing question. But secondly, nobody in the national park system ever considered that it might be a problem having only one person with, with the institutional knowledge and the metal hardware to handle every lock on a 750,000 acre park.

Nobody ever considered that. To me, this said so much more about how we do not manage government efficiently than it did about the problem of Doge actually cutting a couple of positions. We could raise some prices. We talk endlessly about the sanctity of our national parks of beauty, the crown jewels, Yellowstone, all those names.

But if they really are all that, we are selling them way too short right now. For $35, no matter how many people you have packed in the back of your car, you can get into a national park all day. And you know, I can just tell you, most of the backpackers I know, they spend 10 times that much buying a backpack to go camping from REI.

Just charging an extra. Now Terry mentioned $15 a car. Would it bring in $23 million a year? And no, we don't want to make these things too unaffordable for we also have to have a reasonable price. I would also note we don't charge anything more for non Americans to go into our park, which I find stunning because it's not like the Roosevelt Arch says for the benefit enjoyment of the Swiss and the congales.

It says for us. And the states are on to this, by the way. I mean if you come up to my state and I think this is, I mean, and this happens in most states and you want to use another one of our valuable natural resources if you want to go hunting, Terry can confirm this for you.

As an Alaskan, it cost me practically nothing to get a hunting and fishing license and I don't even need a tag. If you're a non-Alaskan, a non-resident and you wanna come up and go on the glorious, amazing, incredible experience that's called a moose hunt, which you should all do, we will let you come do it for the price of your newborn child.

It's that much money and we're not embarrassed by it. And by the way, we make that foreign distinction too if you want to come up. So just on the moose thing, it cost me 40 bucks to get a hunting license for the years in Alaska. Nothing for a tag.

If Terry wanted to come up and hunt, it'd be 800 bucks for a tag and another $360 for a license. If you're a foreign non resident. So you do not have American citizenship. And you want to come to Alaska to hunt, and you put in for a musk oxen tag $3,000 just for the tag, another 650 bucks for the license.

And here's the thing. We have to limit the number of people who we let do this every year because they are lining up to come take part in this. Now, that's called a state using its managing, like managing its natural resources in a very, very efficient way. We raise those prices every year because the demand for it is huge.

We could be offering so much more in our public lands. We Alaskans are just, I'm on Alaska stories now, we laugh. Every year, thousands and thousands of buses and cars go up our parks highway to Denali national park, okay? And we Alaskans drive up behind you and we laugh when you turn left into the park.

And the reason why is that when you get into the park, it is the most boring thing in the whole world, at least from an Alaskan perspective, right? What can you do when you get into Denali National Park? You can drive a little way along the road and park your car.

And then you have to get on a government run bus where you can trundle 92 miles down a road in a park that is more than 9,500 square miles big. And they might let you off on a couple of little stops. You can get off and look, don't touch anything.

And then you get back on the stuffy bus and come back out of Denali National Park. We Alaskans go up and while you're turning left, we turn right onto something called the Denali highway, which is state run land where you can do fun things like camp and fish and hunt and ride your four wheelers and go hiking and do all these things you're not allowed to do in Denali National Park.

And I just don't understand why we're even doing this. There's so much we could be doing. And I know everyone says, well, you know, we can't pave over Denali. I'm not suggesting we pave over Denali. But, you know, people, have you been to Alaska? Come up here. We need some road, we have 11 roads in the whole state.

I think we could probably open up a little bit more of Denali national park to be making some use of it and charging something. And on that level, why do we offer nothing fun in our parks really, other than getting on the stuffy bus? You know what you can do in Texas State Parks?

You can go on trail runs, fun runs, owl prowls, alligator watching, wildlife safaris. You can go on a longhorn cattle drive in a Texas state park. What can you do in a national park? You can drive and read all the signs that tell you not to touch anything in the park.

Park, and again, it's beautiful, it's nice, but maybe we could be doing a little bit more with all this. I don't know. There's also an opportunity here to rethink our federal land holdings. There's always a collective gasp when this is brought up. You can't sell federal land. But you know, again, folks, Federal government owns 61% of Alaska.

It owns 80% of Nevada, 63% of Utah. We're right now finally having a discussion in Washington about maybe making a sale of some small pieces to areas that, right, butt up against communities to maybe allow for some more home building. But I think we need to have a much bigger discussion, because honestly, we have too much right now for the federal government to even manage, okay?

Tens of millions of acres of federal lands are just going up in smoke every year from mismanagement and insects and diseases and lack of planning for floods. We don't have the manpower to take care of all of this. And you can see the difference in the way state parks are run versus national parks.

You know, an example, I have been waiting for years now to hike the Chilkoot Trail out of Skagway up to the Yukon, which was a trek my great grandpa did when he went up on the Gold rush. I have not been able to do it because the trail flooded out of the national park system four years ago.

And they still have not. They haven't fixed it yet because they don't have the people or the money to do so. So we need to think about some sales, we need to think about some land swaps to deal with pieces of property where we can't effectively manage it or do anything for habitat or preservation of species.

Right up next, against developer properties where they can't do anything because these parcels are landlocked to do anything from a commercial nature. There's a lot that can be done to be making this better quickly. Been going on too long. But there's a second really great area too, that this whole mindset and way of talking open ups.

And that is also starting to look at not just the energy side, not just our private lands and how they work for us, but from our environmental regulatory perspective, in particular, free market environmentalism. I'm not going to get into a really big talk about all of that. Terry can do it a lot more eloquently than I can.

But when you're talking in the language of using markets, this is an opportunity to take some of these statutes that have been on the books for decades and clearly are mandate based and are not working. Endangered Species act, probably some of you have heard this statistic before. How many species have we successfully managed to remove from the Species act in its entire existence?

And this law, again, is as old as I am, 3%. That is pathetic. And there are so many better ways. They're being proven already, especially by nonprofit groups and think tanks that are engaged with private landowners on some very creative ways to change the way we do this.

But we need the federal government engaged, too. And I put that out as a challenge for people because we have guys there at the moment that are thinking about this. They are open to it, but they need to also be nudged and made aware of some of the broader universe of potential that is out there for us to change the way government does business.

And this is the moment to do it, because I will leave you with this. One of my favorite jokes about Donald Trump actually goes back to July of 2015, when he was running in the first Republican primary for his first term. One of his rivals at the time, some of you may remember, this was Lindsey Graham.

And things have become a little bit heated. And the senator from South Carolina made the mistake of calling Donald Trump a jackass. And apparently he had not learned what everyone has since learned about Donald Trump, which is if you throw a punch, he will respond with what the World Wrestling foundation calls a package pile drive.

And he did respond by recounting a story on live TV about how that senator had asked him for some help with something and then finished by reading out loud Senator Lindsey Graham's private cell phone number on national television. And afterwards, Seth Meyers said the following. At a campaign event today, Donald Trump read Senator Lindsey Graham's cell phone number aloud on live tv.

It's the craziest thing Trump has done since whatever he did right before that. You know, that was even more funny back then because nobody actually thought Donald Trump was going to be president. But he is. And while I would not classify him as crazy, I would classify him as incredibly bold and very determined to shake some things up.

So if we're going to be living in an unprecedented time in Washington, now is the time for those of us that have the innovative and unprecedented ideas to get them to the ears of those folks and push hard. And I wish you luck in that process. Thank you very much.

>> Joshua Rauh: My name is Josh Rao. I'm a senior fellow at the Uber institution and a finance professor at the Stanford Graduate School of Business. And it's a pleasure and honor to have been invited by Nick and Terry to moderate this panel on the potential and limits of environmental markets, which I think of as being a very central part of our conference day to day on markets and mandates.

And Nick and Terry just done such a terrific job of organizing this conference and building it year after year, and I'm very honored to be involved. So today we have two speakers, each of whom will be giving some remarks with slides. And what I'm hoping that we're going to be able to get at are what are the, what are both the realized and unrealized potential of environmental markets and what are some of the policy obstacles to putting them in place?

And in terms of their potential we've known for a long time as we think back to the work of Ronald Coase, that when there are externalities, as long as you can assign property rights, markets will be a solution. But of course, critics have sometimes said that the invisible hand does not always pick up the tab.

So the question is, what are the limits of those markets and what are the limits that are inherent versus those that are imposed by policy? So without further ado, I'm going to turn it over to our first speaker, who is Will Rafe. Will is a professor in the economics department at ucla.

He teaches environmental economics there. He works on environmental markets at the intersection of industrial organization and environmental economics, using high dimensional new data sets, modern econometric techniques, and studies water conservation and property rights. He's also been a technical advisor on President Biden's national climate assessments and advises clean tech startups in various ways to try to bring his research to markets.

So I'll introduce Jonathan before your talk. I'll just turn it over to Will now and take it away.
>> Will Rafey: Cool, yeah, thank you, Josh. Thank you, Terry and Nick for having me. This is some work I wanted to talk about that looks at some specific environmental markets, specifically those to do with environmental offsets.

And these offsets you should think about as activities which often involve new technologies and can substitute for more traditional forms of direct conservation or abatement with alternative remediation strategies. And from a sort of first principles economics perspective, these kinds of markets for offsets offer a tremendous promise. In particular, because if you can trade these offsets among people who have very different values, it's possible to attain very large private gains from trade, which equivalently you can think about as A significant cost savings while attaining these original mandates, which relate to one of what Gary suggested as a potential market that we do see.

Despite the history of these more mandate based rules. On the other hand, there is often concern that these markets can lead to potentially adverse outcomes. And my view, from a kind of theoretical perspective is that typically these arguments reflect the fact that there are many dimensions of environmental quality.

Often they're hard to observe. And when not all of these dimensions of environmental quality are included in the way we design our rules for trade or for regulation, it's possible that equilibrium outcomes in these markets can be quite inefficient, in particular when those qualities are correlated in certain ways with the cost of market participants.

And so, for the rest of my comments, I want to talk about a large set of markets for wetlands in Florida based on some work that I have with a collaborator that's in. It's an NBR working paper. And this is a study of what are known as wetland mitigation banks, which are very large scale restoration projects.

This picture is based in 22. It's in Indian County, Florida. It's about 2200 acres. It's a project that over its full lifetime, which would be several decades, is slotted to produce 297 offset credits. These are credits that typically transact at between 100 and $150,000. So this is a project with a lifetime revenue stream of between 30 and 45 million dollars.

Not all places are good for this kind of restoration. So you can see this is zooming out of Basin 22. It was a parcel of land that was part of a much larger ranch, much of which is still operational. This is degraded wetlands. And there were a number of activities that were undertaken to do this kind of restoration.

The incentives to do these kinds of restoration projects arise from a long history of mandates going back to the 1971 Clean Water Act, 72 Clean Water act, the section 404A which spelled out language that was a prohibition on, quote, substantial degradation of the waters of the United States.

And so one interpretation of a prohibition against substantial degradation of the water resources of the United States is that we should do nothing with water resources because that would be one way to enact that mandate. Of course, that kind of very extreme interpretation of the text be very hard to implement.

And so since the 1980s, the Army Corps of Engineers, through a series of memorandum of understanding, have interpreted this statute to mean that as long as the water resources within a region are providing the same level of quality, then there has not been a substantial degradation. And Florida statute mirrors this in Florida statute 373.

And so these developers need permits to develop on their private wetlands, and they buy offsets from these restoration projects as a way of meeting their obligations under these laws. And in particular, it's important to think about the fact that in order for these markets to work right, you can't get a wetland that's exactly where the development's happening.

There needs to be some distance between the wetlands that are being developed and then the restoration projects. And so what that has led to are these markets, which correspond to hydrological regions. So if we zoom out, you can see this is the boundary of the ranch and the mitigation bank.

Zooming further out, you can see the bank site relative to coastal region of Florida. And you can see. Now, zooming even further out to a map of Florida, we can see some recognizable landmarks that trade is allowed within this full region. And more broadly, if you look at Florida, you can see that it's partitioned into about 30 different markets that correspond to these hydrological regions, which are about 1400 square miles.

And so the opportunities for these markets depend on these market boundaries being large enough to accommodate many different kinds of opportunity costs of conservation, but not too large as to potentially lead to very unexpected or inadvertent environmental outcomes. And so I wanted to tell the story of these markets and the results of our research in two quick sets of figures.

The first set of figures are a collection of maps. So we use 30 meter by 30 meter. Satellite data that goes back to the mid-1990s, and we can track changes in land use over time. And so this map is showing for one of the markets in our data, Hillsborough, a suburb of Tampa.

Two colors that are important. Really the most important is this light green. These light green pixels were wetlands in 1995, prior to the introduction of these offset markets. The gray pixels are existing development, and it's useful to think about where they are, because one can then look at where development happened on these wetlands, and that's what these red pixels are showing.

These are pixels which were wetland in 1995 and by 2016 have become developed. So these are the kinds of places particular, like 99.2% of these are on private lands. These pixels that are being developed, these are places where developers would have needed to get permits. And in particular, they would likely purchase offsets to offset that development.

And so the story of these markets is seen here with a lot of development on wetlands. And of course, the counterpoint are these large scale restoration projects. And so these purple polygons are the exact boundaries of every single wetland mitigation bank in this market. So we see all, all of them in all of Florida, because we have the administrative ledger data with all the contracts that each of them have signed.

About 107 right now in Florida. These purple polygons, you can see, are quite different than the red pixels that we had before, right? They're much larger because these rules reward contiguity. And they're also, if you kind of squint, much farther in the periphery in the exact sense that they are farther from these gray pixels where there is existing development.

And when you put the two pictures together, one can see a very clear pattern that is something which holds across all the markets in our data that development on wetlands happen in these places that are already pretty developed, whereas restoration happens in the periphery. And that's not so surprising.

I mean, that really is very exciting from the standpoint of the private gains from trade of these markets, because the places where there's already development are places where the opportunity cost of conservation was very high. And so we have wetlands moving away from those places. And that's the sense in which we can attain the objectives or the stated objectives of these conservation rules at lower private cost.

Okay, so I said I would show this story in these two sets of pictures. These are the first set of pictures, just sort of giving you a sense of the spatial pattern of distribution. Now, the second set of pictures are the results of the modeling that we've done to really try to capture the private values and the gains from trade and also some of the environmental consequences of these markets.

And then finally, some ways you could design these trading rules slightly differently to account for these other environmental effects. And so this is showing now a map all of Florida on the left, and it's just shaded with redder local watersheds, places with more development on wetlands measured in the way I showed you with that map before pixels that were wetland in mid-1990s and become developed by 2016.

On the right hand side are our estimates on of the private values associated with every one of the offset trades that we see in the ledger. So There are about 14,000 credits that were traded in all of Florida over this period across these markets between 1995 and 2018.

And with a model of demand, we can actually construct estimates of how valuable those transactions were for the private land developers who undertook that development on wetlands. And so this corresponds to about private values for this development of approximately $2.8 billion. And the total transactions in this market were 1.1 billion.

So we end up with $1.7 billion of consumer surplus, which is suggesting that even though these offset credits are very expensive relative to the kind of like Nature Conservancy conservation buyback programs you would do, there's still a lot of money left on the table because there are people who have very high values for doing development on these private wetlands or equivalently, very high opportunity cost of conservation.

And every one of these trades is something that would not have happened under a prescriptive regulation. So you should really think about this as the value of flexibility of this environmental market. The flip side are the restoration projects, which enter at different rates across places. Of course, the key trade challenge for us econometrically in this is that when you see a bank enter, that tells you something about its costs, because if you see a lot of banks enter, their costs are likely lower.

But banks also enter precisely in those places where there's a lot of unobservable reasons to be profitable. And so we have to deal with that endogeneity concern, but that's something we do in the paper. And we're able to construct estimates of these wetland restoration bank costs. And they're about 4 to 500 million dollars.

Of course, I told you transactions were about 1.1 billion. So that's about 700 million of consumer surplus or producer surplus for these banks. And so the value of this market is accruing to both sides of the trades. The total private Gains from trade can be just constructed by integrating under these two curves.

And that's the total value we estimate associated with flexibility in these markets. The final thing I want to say about the consequences of this sort of reallocation. Is that there are so many different values that wetlands could potentially have. And we don't think we're experts in those values.

There are very complicated ways of assigning credit for different types of ecological improvements. Removing invasive species, introducing the right number of alligators, et cetera. We're not experts in that. The way the regulator has written these rules, it's supposed to take into account these features. And so this is, in that sense, attaining these ecological objectives for wetland conservation.

But at the same time, and this is something that we really became interested in as we spent a lot of time talking to civil and environmental engineering people at MIT when we started this project. There is increasing concern that wetlands, in particular, wetland disappearance, can change flooding and flood events near that wetland.

The reason is that wetlands are very rough. And so they slow the rate at which water flows. They also are quite spongy, so they absorb water. So they act as these sort of natural levees and detention ponds. And so the distribution of flooding, in particular, the probability of these peak flow events, which is what a flood is, can change when you change wetlands.

And so the other part of our research is to ask kind of, what were the flood protection benefits of some of these trades relative to the new flood protection provided by these wetland banks? And there we find a less optimistic set of findings. Because it turns out that, on average, many of these offset trades led to increases in flood damage.

Because they removed flood protection from places where it had previously existed. The intuition for this should be really the same from these private gains from trade. In particular, the value of wetland, from the standpoint of flood protection, it's really the value on these surrounding properties, right? The way we construct this estimate is we take every single property that was built before 1995, before these markets were introduced, and see how flood damage changes in those places.

And so this is something which you could expect to cut against the gains of trade. And it, to an extent, does, so that it doesn't fully lead these markets not to have created value. I will close by saying that one could very naturally think about expanding the set of property rights further.

And introducing some definition of the rights to not create flooding. For other people. And that's what we do here. And the wonderful thing is that it turns out that much of the flood protection value is concentrated in a small number of watersheds. And that's not the case for the private gains from trade.

And so if you redesign the rules such that you can account for this flood protection value, it's possible to preserve most of the private gains from trade and eliminate most of the flood damage. And it's of course, easier to do that if you can define a richer set of property rights.

If you define a much coarser set of property rights and you just say, well, you know, every single person who engages in this market needs to buy a single uniform sort of flood right, which would correspond to a uniform tax on the full state of Florida. You don't get results that are as nice, although you can shut down some of the value.

And so that's what I wanted to talk about. I think this is really strong evidence and it's exciting about the value of new technologies to allow us to take existing regulations and comply with them in ways that are lower cost. And with all kinds of environmental problems, there are always new things.

We're learning about the way these systems work. And so it's important to have iterative and adaptive regulation that can take into account this new information and sort of constantly reform.
>> Joshua Rauh: Next presenter is Jonathan Kollmer. Jonathan is a professor in the economics department at the University of Virginia.

He is a co founder of the Environmental Inequality Lab. His research combines data with insights from economic theory and environmental science. And he's the winner of a 2024 National Science Foundation Career Award in economics for his work on the extent, causes and consequences of environmental inequality in the United States.

Jonathan, thank you.
>> Jonathan Colmer: Thank you. It's great to be here. So I think whilst we're on the balance sheets discussion, I think Will's given us a few more assets to add to the balance sheet there with flood protection and wetlands. So I'm going to talk about markets for pollution promises and pitfalls a little bit more though, on the air pollution side of things.

So I'm gonna start with progress, cuz I think that's a really important place to start. So over the last sort of three, four decades, we have made substantial gains in human flourishing, like Josh earlier was talking about. What's the objective function? Firmly of the belief that the objective function should be human flourishing.

And we have had expansive gains in economic activity in the United States, but also substantial reductions in air pollution. So improvements in air quality that includes a sort of Leveling out of climate emissions as well, and a relatively stabilizing sense of energy consumption. So what's quite, I think, remarkable here is the sort of decoupling of these two events.

And I think that's sometimes missed, right? We've had huge gains in GDP at the same time as having huge reductions or huge improvements in air quality. And so that is a huge win. So why this matters? Well, because these are assets to us as well, right? Air quality is an important asset, improvements.

You know, when we think about improving air quality, that has important consequences for life expectancy, our health and well being, which I think we all value. You know, educational attainment. There's, you know, strong evidence that air quality affects people's ability to concentrate, to learn and evidence on test scores as well.

It affects the productivity of our workforce, which I think we're all in favor of more productive workforces and in turn affects the earnings that we make. And so all of this in terms of these improvements in local air pollution. I'm going to talk about particulate matter, ozone, things like that have had huge benefits to the American population in terms of flourishing.

Further, these improvements have been largely driven by environmental regulations mandates. But there have been markets in there as well. And I'll get to that. But that's evidenced by Joe Shapiro and Reed Walker at UC Berkeley have sort of done decomposition of the gains in air quality in the manufacturing sector.

We had some discussion about this earlier regarding how much of it is to do with environmental regulations versus outsourcing to other countries. It's almost all been driven by the Clean Air act, almost all of it, which is remarkable. We are incredibly good at improving air quality in the United States.

We've done a really good job at it. Could we have done better? Could we have done it at a less costly way? Almost certainly, I am Team Markets. But we have done a lot, and we've done so in a way which has not completely crushed economic growth. 341% increase in GDP versus nearly 80% reduction in criteria air pollutants.

That is just something we should celebrate. And that is American excellence. That is a good thing. So the side note is that that has also contributed to reductions in greenhouse gas emissions without much of an active effort to reduce greenhouse gas emissions. So there are benefits there without maybe focusing on those considerations.

And I think that this matters insofar as, what is our goal? If we're trying, I'm an economist, unapologetically, but our goal, I'd say maximizing human flourishing. We should be caring about net benefits, right? So the traditional view has always been, well, you know, environmental quality, but at the expense of economic growth.

Okay, but we've seen that not only have there been reductions in air quality alongside economic growth, but those reductions in air pollution have improved people's lives, their health, their ability to work. All of that contributes to economic growth. Despite increasingly stringent regulations over time, these regulations have also driven innovation and efficiency improvements.

I might even go as far as to say that perhaps environmental regulation is good for the budget deficit. We earn more money, we put less pressure on our health system, reducing indirect costs there. So there is, you know, I think a lot to be said for clean air.

So improving environmental quality creates benefits. But what I might say to a previous administration is we shouldn't ignore the costs. Regulation is costly. What I might say to a current administration is but we shouldn't ignore the benefits. So we care about maximizing net benefits. That's what I think our objective function should be.

So it's not just been regulations. There have been a lot of market based mechanisms within the US over the last sort of four decades. We've seen the lead gasoline phase down in the 80s, the acid rain SO2 allowance trading program in the 90s, Knox Markets in the 1990s, and then the Northeast trading.

There's Reggie for climate as well. And evidence suggests that the flexibility of these trading schemes is where cost gains have been quite remarkable. We've managed to achieve environmental goals at 50% less basically than it would otherwise would have cost. I'd say that now in terms of average particulate matter concentrations in the United States are well below the national ambient air quality standard on average.

So we are below that because of the innovation and the technologies that we've invested in, which have been in turn driven by the regulations. So my sort of slide. Slightly more devil's advocate perspective on this is maybe that it's not mandates versus markets, but it's markets on top of mandates.

Is the reality that we're in that mandates are kind of needed to create that scarcity which markets then allow for cost reductions. So climate is a different ballgame, right? Talked about the local pollution benefits. The benefits for reducing particulate matter in ozone are local and they are immediate, right?

Anyone who's experienced wildfire pollution, that's another session to come. But anyone who's experienced wildfire pollution knows what it's like to breathe. It's harder. Those are immediate consequences. The benefits from mitigating climate change are global, as it's been mentioned. It doesn't matter where those emission reductions happen. They are uniformly mixed within the atmosphere and they are in the future.

But the costs are local and immediate. That is a difficult coordination problem to address. This exacerbates the free riding incentives resulting in underregulation relative to a social optimum. Again, human flourishing, global human flourishing, if that's your objective function, requiring other people to rely on others to act and coordination problems.

And it requires that international coordination. Transboundary pollution problems are just more difficult to address. It's of course also not aligned with political business cycles. And so that becomes difficult. So climate is harder. I'm actually going to focus a lot on the climate side of things because I'm going to show you some successes where markets have played a role and some failures.

But I want to just note that doing nothing is also a policy choice. I think at this point we are aligned in direction that climate. I think there's less of a debate as to whether climate change is happening or not. I think the real debate and is one that we should have is how much do we want to do about it.

And that is the economist's question. The choice to not mitigate is a choice to invest in adaptation. That is a fine choice to have, but it is the choice that we're making. The choice to do nothing is going to be costly in and of itself, but that is again a choice.

So these are the debates I think we have to be having going forwards. So market based approaches, again team markets like carbon pricing are a way that we can reduce emissions at a lower cost. But that starts from a mandate effectively of what is our goal going to be.

We have to set a cap or we have to decide how much do we want to reduce emissions by. And so the success of how we then whether we are successful in this is going to Very much depend on how we design those markets and how they are implemented.

I'm going to give you three examples. One success, one adaptation of a success, and one, I would say, pretty remarkable failure. So starting in terms of what's happening around the world in terms of carbon pricing, there's been huge growth, a lot in Europe as well. The first and largest cap and trade scheme, the European Union Emissions Trading Scheme, as was discussed earlier, China has large ETSs implemented now Canada has taxes and cap and trade schemes.

Is that unclear why you need both? But anyway, we can get into that on another day, but lots going on all around the world. I'm going to talk to you about a little bit of work that we did on the European Union Emissions Trading Scheme. In a paper that's just been published in the Review of Economic Studies, we wanted to sort of set out to understand how firms respond to these types of programs, like what are the choices they make, does it deliver emission reductions, what are the consequences on the balance sheets of firms as well?

And so we were looking at the ETS. It was launched in 2005, the world's first and largest carbon market. And the premise, again, here is it's a markets and mandates kind of combination, right? You set a cap, that's what you want to achieve. And then the choice of trading through allowances allows the realization of that cap to be realized at a lower cost than if everyone had to sort of face the same reduction.

It covers a large number of power and manufacturing plants accounting for more than 45% of EU emissions, about 5% of global emissions. And they started off doing a very bad job. They over allocated the cap, it was a classic case of hot air. And they didn't design the market very effectively.

They didn't allow banking from phase one into phase two. So what happened is that the price went to zero because you did have access supply. Everyone could achieve the cap without any sort of cost. So I don't think of that as success because you didn't really do anything.

So the price went to zero. In phase two though, there was a tighter cap. They allowed to do some, they did more auctioning of permits rather than free allocations. And that's where we started to see more action happening in terms of reductions in emissions. And, and then more recently in phase three and phase four, the price has been continuing to rise.

That's because the cap is continuously tightening in order to be aligned with EU goals. There's been more auctioning and there's been an emphasis to try and create Stability in the market as well. Through a reserve system. We found that the ETS induced firms to reduce emissions by about 15%.

And we found no detectable negative effects on the balance sheets of firms. So a sort of evidence of, again, well, lack of evidence of this sort of inherent trade off that we've discussed previously. We didn't find evidence of outsourcing to other countries, not much anyway. But what we did find was that firms made targeted investments reducing the emissions intensity of production.

And what we find is that these energy saving investments that they made reduce the marginal cost of production as well as emissions. And so you might ask the sort of Chicago question of, well, why didn't firms do this before the policy if they're leaving money on the table?

But the premise was that these are fixed cost investments and it wasn't worth their while. But with the policy turning on, they now had this new calculus of well, now maybe it's worth making these fixed cost investments. And they benefited from that through lower marginal variable costs as well.

Unclear whether that has continued as the price has gone up. You know, low hanging fruit to begin with. But that's what we found, at least in the first stage. We got actually a non trivial reduction in emissions with relatively low costs to the firms. The extension of this is now a new policy that the European Union is implementing called the Carbon Border Adjustment Mechanism.

And this is to sort of engage with three critiques of what I describe as unilateral climate port policy. So these domestic carbon pricing mechanisms, they're subject to concerns about competitiveness. It's not fair on domestic firms competing in a global market. Concerns about leakage, One might expect that as the price goes up, you start outsourcing production to unregulated markets a little bit more.

And then the free riding concerns, which is the EU is doing all this, but the global benefits exist. What do we do and what this mechanism tries to do effectively is to create a price at the border which levels the playing field on all these margins, right? It levels the playing field because now it's the case that outsourced, like firms in other markets, have to pay the same price on carbon as domestic markets.

That addresses the competitiveness firms competitiveness concerns. No point to outsource to China anymore because you've got to pay the taxes. You come back in. So it addresses leakage concerns. And one of the things we find in our analysis is that it actually induces crowd in of climate policy.

Because now if you are India and you're deciding I've got to pay the EU's carbon tax when I export, you can actually now raise tax revenues with no reduction in producer surplus because the firms are paying the tax whether they like it or not, but they can actually now raise revenues.

And then the choice is, do I want to send money to Europe or do I want to keep it at home? And so this is sort of an interesting crowd in a climate policy that we're seeing all around the world now as a consequence of this new mechanism.

So Will's talked a little bit about carbon offsets in the context of water markets. Carbon offsets, as I'm sure you're all aware, are a very popular tool in the context of climate, especially with all these net zero goals that we've all committed to with absolutely no idea about how we're going to achieve them.

So theoretically, they're a win win, right? In principle, the idea is compelling. It's costly for me to reduce my emissions, but Judd at the back is very good at reducing emissions and so I'm gonna pay him to reduce emissions for me, right? It's kind of a similar idea with a cap and trade scheme as well, right?

And the reason this works is because it doesn't matter where the emission reductions happen. They can happen in India, which allows firms in the EU to continue producing. And as long as those emissions are real reductions, you can achieve the cap at a lower cost. But this requires two key considerations, additionality, whereby you have to ask whether emitters are paying for emission reductions that would have been happening anyway.

Yes, almost always. And this is not actually verifiable, despite a huge industry of third party verifiers. So, you know, if you have a supply side that wants the transaction to happen, a demand side that wants the transaction to happen, and a third party that wants to facilitate, facilitate that transaction, shocker, the transaction happens.

The second point is a sort of slightly more science focused one, which is permanence, which is when a firm emits a ton of CO2 that's there for hundreds of years. If you plant a tree and then the tree gets knocked down next year, that's not 1000 years reduction in CO2 emissions.

So permanence is another consideration. We explored this in the context of the Clean Development Mechanism, which again is the world's largest carbon offset program under the Kyoto Protocol. And we basically found that 50% of projects were blatantly non additional. Now we had to come up with this and we called them blimps.

We were very proud of the acronym. But the idea here is that because additionality isn't verifiable, it's a counterfactual context, you can't really find additional projects, but we could find projects that were subsidized that were just more profitable, blatantly so, than the projects that weren't receiving the subsidy.

And so if you give a subsidy to a project that is just so profitable without it that you can find other projects that were successful without the subsidy, then that cannot be possibly additional. More than 50% of these projects were, and we actually find that they are so blatantly non additional that if you'd use a lottery mechanism rather than picking projects that you'd have done better.

Not a good case for having these. And part of the challenge is that the design of these programs with adverse selection, with the non additionality is that you have this adverse selection problem. Looking into it, we found WikiLeaks reports where governments were basically like, yeah, we want these things.

Our objective is not climate change mitigation, we just want the money. But basically looking at the whole process, you see that host projects were basically picking the most profitable projects to receive support. And then the un, the CDM executive board basically didn't have the resources to actually vet these things properly.

Again, you hired a consultant, that's part of the process. The consultant wrote a report that said these things are additional. They give it to the UN and the UN goes stamp. More than 95% of applications were approved. I think we calculated that they were making a decision once every five seconds.

So this is a problem, this is where an example of where a market is not designed and implemented effectively. And the consequence was that basically if you take our results seriously, which I think you should, although we do a bit of a sort of back of the envelope thought exercise at the end, and here we basically find that the cdm, if you exactly, if you extrapolate our results, may have allowed regulated polluters to emit an additional 6.1 billion tons of CO2.

This is a policy which the objective was, was to keep emissions down at lowest cost and instead increased emissions relative to if this program didn't exist, which is not great for the human flourishing argument, especially given scarce resources to mitigate climate change. So I think sort of the key take home of the point I want to make is that when we're thinking about designing effective environmental markets.

Measurement matters. We have to be collecting data. We have to have the structures in place to be able to monitor and verify what's going on as much as we possibly can. We obviously need to create the right incentives, which require strong, clear price signals. And we need to build trust and transparency.

Regulatory certainty is important. Confidence in institutions is important. And we need to have sufficient resources for oversight and implementation, which gets to the idea of low transaction costs effectively. And if we can do this, then I think there's a lot of hope and a lot of scope for tackling many of the complex environmental challenges that we face.

So thank you very much.
>> Joshua Rauh: So I'm going to kick off the discussion with a question or two. And my first question to both of you goes to my introductory remarks, which is, I think from the starting point that I think a lot of us in this room like the idea of environmental markets and would like them to be successful.

I was hoping each of you might be able to just comment briefly on the extent to which you think that the how close are we to reaching the potential in the markets that you study? Are the limits to more markets? Are they somehow fundamental or are they practical in terms of we just need better design, or are they political in terms of it may just be impossible for them to be properly established by government.

So Will, in your case, I mean, I sort of, I heard that these markets are increasing value, but they're also leading to more flood risk. So one answer I heard from you was we just need more markets. So how much further can we go? How much more potential is there, and what are the limits to reaching it?

>> Will Rafey: Yeah, I think it's a really important question, and I think one, I guess two comments. First, one of the things that was really exciting for us, I mean, there really hasn't been any economic analysis of these wetland restoration banks at all. And part of that is because it's a relatively new thing in the timescale of the way academic research views.

What are the questions and the reason it's so, I guess, novel or arguably. I mean, the technology goes back pretty far. But the reason why it's been so, I guess, interesting for us is that these are really kind of new remediation technologies and the fact that the government can have this open ledger where every offset that goes on the ledger that can be sold.

Is only something that has been verified before it can be sold is a really cool feature of the market. And the extent to which you can expand the scope of things, we can monitor and define the more opportunities that there exist. But I think something that our findings about these flood protection things emphasize is that the markets are only infrequently revisited.

And so it makes sense that we would see a gradual use of these trading schemes because we want to kind of wait and see and learn as we proceed.
>> Joshua Rauh: Great, and Jonathan, for carbon markets, how close are they to achieving their full potential and what are the true limitations?

You sketched out a number of ways in which they could be better designed. So do they just need to listen to economists more or are there other inherent limits or political limits?
>> Jonathan Colmer: I mean, I think the constraint, and this has been true of all environmental improvements that we've seen in many different contexts is that there's got to be political Will.

I mean, China has made insane progress in improving local air quality since 2040. The war on air pollution has been been insane to see. So I think there always has to be political will to want to try and engage in these issues. But I think that the scope for markets is very bright.

I think, as Will was noting too, the advances in technology and measurements and the information that we have, all of this feeds into being able to design and implement better markets. But of course, it's always gonna depend on the context and the institutional features that we're engaging with.

But that's where, yeah, listen to economists more.
>> Joshua Rauh: Okay, that's a good takeaway. I'll open it up to the floor. Yes, sir. Back here.
>> Speaker 4: I have two questions, and they're really primarily for Jonathan. One has to do just with the interface between mandates and markets. And you mentioned that you needed mandates in the context of air pollution control and so forth in order to create scarcity and therefore kick off the potential for markets.

Earlier you had described all of these important health benefits for productivity and longevity and birth weights, all those kinds of things, if I'm understanding this correctly, those are primarily local. And I'm just wondering why, or if you have some insights, is why we would require federal mandates for problems and benefits that are largely local.

In other words, what is the skepticism about local governments and regional parties to address this kind of pollution? The broader ones I can understand somewhat better, but it's the local ones. Why do you need mandates? And then the other thing I wanted to ask you had to do back with your discussion of the adoption of technology in order to Address these climate change concerns and sort of suggesting that they are overall productivity improving.

And I wonder, are there studies about the opportunity costs of this kind of forced technological change? And what I'm thinking about in the debates over the early Clean Air act, the automobile industry was really opposed. Now they got all sorts of stuff, but at the end of the day they adopted what was called technology forcing to design engines and vehicles and so forth to meet this.

But what would have been the options for other kinds of technological changes by these firms? Have they not been forced to engage in this particular type of activity? And I don't expect that you, but maybe you do. I just haven't seen studies that have looked at this opportunity cost.

>> Jonathan Colmer: Yeah, I guess I'll start with the last one. I would sort of push back that they weren't forced. They had the choice as to how. One of the brilliancies of having a trading system is that you have the flexibility to choose how to comply. And so it was, I think by revealed preference in their interest to adopt these technologies.

And it turned out that there were savings associated with that. Yeah, the technological forcing is one that I think is an interesting question. And I think it comes down to distributional considerations as well. You talked about the automotive industry. The costs are concentrated. Think about de-leading of gasoline.

Leaded gasoline did a pretty good job at improving the efficiency of car engines. Did an awful job for people's health. I think on net in terms of aggregate human flourishing, the benefits substantially outweigh the costs. But those costs are concentrated and the benefits are diffuse. And so I think that's one of the challenges that we face in terms of decentralized approaches, which is concentration of voice and power.

And I always think, when I'm teaching my graduate students public economics, the core question is, well, the fundamental trade-off is between market failure and government failure, which I think, in a market-oriented room, that's what we're really interested in. Sometimes intervention is more costly than the problem. But to your federal versus, I think my point was more that that's the situation that we had, not necessarily that it was the best situation.

I think there are reasons to have federal mandates, especially when there are transboundary reasons for pollution. You have to sort of gesture that one of the kind of classic quotes or the reasons the EPA was created was as the gorilla in the closet, that this threat to state firms that if they weren't going to comply with state environmental boards that they would get sent up to the EPA and that would be sort of this federal oversight that would sort of help for reducing the frictions between state governments and firms.

But I think you're right, a lot of the benefits are local and I think you could have local targets. But then there's still a mandate there to some degree. I think I'm being a little bit more colloquial in the use of the term mandate, right? Which is that we're setting a goal.

If you set a local goal and then have compliance with that through markets or otherwise, that's fine. I don't know if that.
>> Joshua Rauh: I'm going to collect two more questions here and then here and then we'll response.
>> Speaker 5: My question is also for Jonathan. I just wondered if you would apply some of your well reasoned and well tested skepticism about offsets to the border carbon adjustments.

Because another area where we see border carbon, you know, trying to measure the emissions from a supply chain overseas. Think about, you know, Milton Friedman's eye pencil, something as simple as a pencil. You're talking about countless supply chains across the world. Another area where we try to do that is in California's low carbon fuel standard where they try to assess all those emissions.

And what happened there is they did things like well, they found that California fuel tend to have a lot of emissions in its supply chain so they simply exempted it or they found that there was a standard measure of the emissions associated with ethanol production that was had been done by epa, which is called greet.

And they said well that doesn't really give our, our ethanol production the same amount of credit. So we need to lower the scores for California ethanol and adopted separate model. And so I wonder how in practice this idea that we're going to have. Tariffs border carbon adjustments or tariffs on, on every product that enters our country based on our own estimates of their far flung supply chains.

I wonder what kind of problems that creates for a trade system that's currently under some stress.
>> Jonathan Colmer: Yeah, I think that's, this is an issue that they're having to grapple with is the CBAM is being sort of rolled out. But the key issues they're trying to figure out right now are how do you measure these things in terms of embedded carbon, what are the accounting frameworks that you use?

And of course that is ripe for manipulation. And I think this gets back to sort of the limits and potential, right? With better technology, with more information, maybe there is more that we can do, but transaction costs may be non trivial here. You'll be surprised to hear that a lot of the backroom chats are about exemptions.

And of course if everyone gets exempted then what is the policy doing? But I think at least the spirit and idea behind the policy is encouraging. And the fact that there is so much discussion about introducing their own, like many countries are discussing introducing their own climate pricing to offset the CBAM is sort of to me a reveal preference that folks aren't thinking.

This is just something I can easily get by. I think there's actually opportunity here for me to benefit.
>> Joshua Rauh: Related to this I think are some of the challenges inherent in cost benefit analysis. As you mentioned, right, in order to maybe create a market in many cases the government has to implement some regulation that creates scarcity.

How do they go about measuring what the right amount is, you know, where the cap should be and so on. Or even appropriate social cost of carbon.
>> Jonathan Colmer: Yeah, I mean just on that last point, I think over time we have systematically continued to overestimate the cost of regulation and underestimate the benefits as we have got more information and better data and being better able at estimating the benefits of air quality and other things.

And I think that's sort of the evidence base as it's evolved over time. We've seen that the benefits side of the ledger as we've got better data and better methods has got larger whilst the cost sides, our measurement on that side has been sort of more stabilized.
>> Joshua Rauh: I'm not sure.

Do you want to jump in?
>> Jonathan Colmer: Certainly in air pollution?
>> Speaker 6: With air pollution, yes. But I would say generally a big advancement in environmental economics has been away. Move away from stated preference techniques, evaluation to revealed preference techniques and valuation and you know, stated preference. That was what environmental economists did in the 80s and 90s, even in the early 2000s, and it was notoriously overvaluing.

>> Jonathan Colmer: Yeah, yeah.
>> Speaker 6: Because it's cheap talk, people.
>> Jonathan Colmer: Yeah.
>> Speaker 6: What they'd be willing to pay for something. And so
>> Jonathan Colmer: I guess
>> Speaker 6: the air quality benefits seem pretty clear cut, but like the Clean Water act is, it's not clear the benefits exceed the cost, for example.

>> Jonathan Colmer: Yeah, no, I should be clear that I'm referring to the air quality benefits, but yeah, I think that your broader point is that the methods and the tools that we're using have become more refined and so our ability to get a clearer sense of what the benefits and the cost are has improved in the.

>> Speaker 6: I'll continue, if I may. The benefits of, of air have been dominated by health benefits, which are not things that would be asked in stated preference surveys. So the benefits of environment for, you know, or policy for ecosystem services, etc. Things that are hard to value. It's still kind of open.

Open question, if that's. I wanted to ask a question since I have the mic, which is I really appreciate your point about, you know, the, the caps create some scarcity and then you need scarcity and you, and you trade. But following up on Josh's point, you know, through political mechanisms or administrative rulemaking, you know, these caps are set and it's not obvious where they should be or what's optimal.

So is there a better way? And this, this is also a riff on, on your point, Will, about involving more area for your, your offset scheme. My question is, you know, what do you think of setting a looser cap to begin with, say, for the price of offsets for wetlands, or a cap for pollution, be it carbon or sulfur dioxide, setting it really high to begin with, and then allowing a broad group of the population, like everybody, perhaps, to bid on quota.

Right. So then you have more of a market mechanism to try to determine what that cap would be. So, for example, like in fisheries, if we don't know what the quota should be for how much fish to catch, why not let environmental groups participate in that bidding? And if they really do value it, it's revealed preference.

They have to give up something to bid for this quota. You're gonna bid for carbon emission rights. You know, you have to reveal what it's really worth to you. But through that process, can you get to a cap that's more meaningful than what you get from politicians and bureaucrats?

>> Joshua Rauh: I think that's.
>> Will Rafey: Yeah, I think something in the background that's really interesting about the wetland restoration is this kind of there's a cap and the cap is zero. The cap says you can't degrade. And this is policy that goes back to the 70s, really interpreted into meanness in 1989.

And it's also a cap that's zero in each of the regions that we looked at. And something that we have no answer to is kind of why that would make sense, except as something that's very simple. And you could argue that just a simple rule is. Is a rule that is if you have no prior.

But it's very hard to rationalize kind of a zero cap. And in fact, in practice, what these markets have done have led to a surplus of wetlands, if you do believe the way that the credits work. Because you have to have your credits issued as your bank once you've done the restoration and then you can choose when to sell it.

And so these banks have accumulated large ledgers of credits. And so it's a cap that's zero that also hasn't been binding, but I think, yeah, that's what I should say.
>> Jonathan Colmer: I like the ideas, though. I think it's. The more we can. How those caps get determined, we all know, as part of a political process.

And that's where capture and other considerations come into effect as well. So the more we can. Policy makers love experimentation, right, sorry, British sarcasm,
>> Jonathan Colmer: But yeah, the more experiment. These ideas of trying different things and trying to understand what the optimum is, I think is more of that

>> Joshua Rauh: final. Question right here in my
>> Speaker 7: Thank you. Would love your opinion on voluntary markets, both on the water side as well as the carbon side, because this is coming from a mandate perspective towards a compliance side. And it's interesting that some of the pitfalls that compliance markets have had on carbon have been addressed by the voluntary carbon market on monitoring and reporting.

So there's a bit of a convergence happening on the market, but would love to get both of your opinions as those markets continue to sort Of Evolve.
>> Jonathan Colmer: Yeah, I think that on the voluntary side of things, I don't even really have a sense as to what additionality means there.

The reason being is that when there's a cap in place that sort of, again, however that's defined, that's a sort of a limit. And the voluntary side of things is not clear to me. We focus a lot on the supply side, but the voluntary side of things is demand driven.

And so, you know, I talked about the demand side want the transaction, the supply side want the transaction. There's a mediator that makes that happen. Shocker. But why do people want to voluntarily do this? Presumably there is some private benefit to doing it. So I don't know how that can possibly be additional.

And so I don't even. It just seems like that's just a preference for, for some green good.
>> Will Rafey: I mean, I'll say like there are some models of equilibrium where you can have private certifiers who do provide certification and if their reputation is a sufficient check on malfeasance, then they can do that kind of certification.

But in a context where you have very long run outcomes that you care about. I'm very pessimistic about, about voluntary entities kind of constructing these invented tokens and then trying to buy and sell them. Because the kind of recourse and the limited liability that they have makes it much harder to do in the context of these wetland restoration offices.

The beautiful thing is the ledger is managed by the government and the property rights are very clear and they're the land for these banks are put under conservation easement and that means it's in perpetuity under this conservation. And all the money is put in upfront front in escrow to do all the restoration activities.

And that's the kind of like long run property. Right. That you want. Because if you're transacting with a company that might disappear, it is not obvious that they would provide you the level of product quality that you'd be interested in. And so I'm one like general lesson that I have from the work I've done in the wetland thing is that I think really you need to work with the government to define these property rights in the same way that you're not going to trust like a private entity to keep track of all the parcels of land in LA county and who owns them.

I mean, you want the county to do that presumably? Well, maybe that's not the best example, but yeah, that's
>> Joshua Rauh: coast would be happy at that. Government's job is to help define property rights and let the markets work. Well, thanks very much. We're out of time. There would be much more that I would have loved to discuss if we had more time.

But thanks very much to both of our panelists.

>> Matthew Kahn: I sense a lot of energy in the room and I bring good news. This, this is going to be a great panel or your money back. Folks, I'm Matthew Kahn and on January, it was either January 7th or January 8th, I flew back from Hoover to Los Angeles and I flew over the fires and I made a video of it.

I've shown it to my mother in law. She's asked me to stop showing it to her. And just the horror that this was just the beginning of the challenge for the L A region was the nudge as I gently nudged Terry and Nick that we have a panel on rare disasters and are worried that these disasters could become less rare.

And how do we set up incentives, how do we use markets? Apparently incentives matter. Folks, a round of applause for incentives. How the critical role of markets in improving our quality of life and especially during times of extreme risk. I want to live in an economy where flood risk and wildfire risk are less common and a question of how we configure the rules of the game such to align incentives.

I'm very worried that much of the LA disaster was man made and an unintended consequence of many regulations with huge unintended consequences. So folks, if you google my name and you Google Khan and Kindle for an inferno, you can see some of my Hoover thinking. But with that I'm going to walk off the stage and bring in our great panelists.

We're very lucky to have Margaret Walls from Resources for the Future and Judge Judd Boonheimer from UC San Diego and the way we're going to set this up is Margaret's going to kick this off and she has great slides. I'm going to stay awake and then we're going to.

When we hit slide 5 roughly Judd is going to chime in and our discussion is going to begin. Margaret?
>> Margaret Walls: Yeah. Thanks and thanks so much to the organizers. Thank you Nick and thank you Matt for setting us up here for success. Hopefully. Yeah, I only have a few slides so I'm just going to sit here.

I hope that's okay. And I want to start with this. I hope this isn't triggering for anybody apologies if so. But on the left is a photo of Asheville, North Carolina and on the right is Altadena, California. And I put this up for two reasons. Both of these were very unusual events and I'm sure everybody here probably knows why.

But Asheville, North Carolina is nowhere near the coast, 400 miles from the coast and yet that's the effects of a hurricane. The Altadena picture, the LA Fires were unusual because they occurred in January, well after fire season, not with traditional fire season. The state of California has a nine month contracts for their firefighters, they wouldn't even have firefighters ready to go.

So things are happening at weird times in weird places and with something we all need to be thinking about, so here's a couple of things I'm going to set the stage with. This is a map of the US and this is from a blog series that I did with my colleague Penny Lau.

And we took the raw extreme events database called Storm Events Database that NOAA puts together and created a county panel data set of all extreme events. These are not just disasters, these are any extreme weather event that gets noted by NOAA and some sort of cost. Property damages, crop damages, fatalities and injuries are the four things that they tally up.

And they have about 50 different categories of different kinds of events. Ice storms and avalanches and we sort of created a more limited set. We had like 10 different categories and you know, the. We made this data available to anybody to use. So if you're familiar with the Childes data, it's basically we just did what they do and they sell it for money.

So anyway, this is a map of disaster of property damages from extreme weather events by county over about a 28 year period. And I put it up here to show of course, where do we have the problem in this country. And clearly, it's a Gulf Coast Florida kind of situation where those are the counties where damages are the greatest, that shouldn't come as a great surprise.

There's two reasons for that. One is hurricanes are the most damaging event that we have. And secondly, a lot of people live down there and there's a lot of property. So you also see some dark colors in Southern California. And up in the east coast we have a map that's a per capita version of this map and it still looks pretty similar.

The Gulf region is still the highest, but the Midwest has a big swath of dark and the coast to kind of go away. So yeah, this is where we have the problems. However, I want to tell you what's on the list from highest to lowest. So the top county in damages over this period is Harris County, Texas.

That's Houston. The number two on the list is Galveston, Texas also, Prime Hurricane Country. But where is number three is Butte County, California, which has a population of about 215,000 people. And so this was a shocker to me. But you all know what happened in Butte County, which, that's the campfire so this is another way of showing the data from.

There's Harris county and Galveston county and Butte County. So these are ranked. These are the counties ranked from highest damages to lowest. And there's just 15 on the list here. And what the point here is showing, so this is showing the data at every year of the panel from 95 through 2022.

And the point here is the spikes, right? A single event can push a county to the top of the list, essentially. So that campfire in 2018 pushed Butte county very high on the list. I mean, wildfires are not usually damaging events. Most wildfires occur off in the boonies, right?

They can be millions of acres, but they're not near where people live. But the campfire went through the town of Paradise. And if we redo this data, LA is going to be very high on this list. Right? So I think the point to me is it's this point about a single event.

If you look at numbers 4 or 5, 4 or 5 on the list, those are New Jersey counties, that's Hurricane Sandy, this call causing that, so, and a kind of a lesson, I think, take away is that really no place is immune to these changes that are occurring.

I mean, obviously you're less at risk in certain places than you are in others. But, you know, climate change is creating more floods and more wildfires for various reasons. And we can debate that if you want. I'm happy to do that, but I'm not going to go into it right now.

Okay, so that's. Here's the last slide I'm going to put up and then we're just going to chat. Matt's going to ask us some questions and we're going to come back to this. But I wanted to put up this kind of little simple equation, and this is kind of an engineering definition of risk, but oftentimes it's used.

What do we mean by disaster risk? We mean the probability of an event, which is typically what's called the hazard, multiplied by the exposure. Who's how much property and how many people are in harm's way times the vulnerability. So the vulnerability is the propensity of the buildings and the people to incur some sort of damage.

The vulnerability was. It's always used in an engineering sense. Like how strong is your structure is a measure of vulnerability. Increasingly it gets used in a social sense, like people. Certain populations are more prone to can't recover from an event as easily as others. But in any case, it's worth kind of considering all these three components.

If we're going to tackle the problem, we have to recognize that we can reduce the hazard by building a levee for flood or defensible space or a fuel break for in our forest. Or we can talk about where people live, which I think we're going to come back to in a minute.

But I'm just going to leave this up here and I'll stop talking.
>> Matthew Kahn: Margaret, thank you. That was fantastic. And it's gonna tee up Judd after I crack a joke. So folks, if I had a tattoo, it would be that equation.
>> Margaret Walls: God.
>> Matthew Kahn: Well, it would be that or what?

I won't say, folks, I'm fascinated by all three terms. Some of my work is about that exposure term. If we see people moving to one of these disaster areas, my teacher Gary Becker would say, why? Is it that they are unaware of the risk of those areas? Or is it that we have zoned for single family housing in safer areas, deflecting people into fire zones?

Or is it that insurance is subsidized by certain government entities encouraging people to move to those areas? And so I am fascinated by are we passive victims or are we. What are we aware of? And I'm going to set up Judd. Roger Pielke Jr. talks about the bullseye effect, that one of the reasons that damages from disasters are rising, is that more and more of us are located in Margaret's exposure box of why and under what different incentives.

How do we use markets to give people more freedom to live where they want to live? So, Judd, to tee this up for you. How in your exciting work on wildfire adaptation, can you walk us through how you're thinking about these three terms and how does your work link to those terms?

>> Judson Boomhower: Yeah, thank you, Matt. I absolutely can. I have been spending a lot of time with that equation recently, so I'm really happy you put that up, Margaret, before I get us there, I am, I'm going to do like one minute of higher level stuff because I am, for better or for worse, a college professor.

So I get uncomfortable if I don't get to give my little mini lecture. So yeah, I'm an economics professor. I'm at UC San Diego. I have been thinking like Matt, I've been thinking a lot about climate adaptation in the last 10ish years and thinking about the role of private markets and the role of governments in achieving efficient climate adaptation.

And a lot of that work has been specifically focused on wildfires. I think I've written like seven or eight wildfire research papers now, which was not like, not necessarily on purpose, but there are a lot of reasons. It's personally an interesting topic to me. I grew up in the West.

It's of course inherently important, as we saw in la, but we know that this hazard is becoming more important. It's also though, just like a really great laboratory for learning about severe weather risk and climate change risk more broadly. Right, and I think that's why maybe we should all be particularly interested in this discussion and what we can learn from it, in addition to just the importance of wildfire.

So I promise I'm getting, I'm going to end on that equation. But when you think about the fact that we, you know, we have these, the weather risks that Margaret told us about that are getting so much worse, we know the reasons. We know it's because, as Matt said, we've concentrated assets in places that are, that are at risk of loss.

We've also built those assets during a historical period when we just didn't think about these risks in the same way that we think about them today and when the risks weren't as important as they are today. And so we built them in ways that we probably wouldn't build them if we're going to rebuild them today.

And when we're thinking about fire specifically, at least in some landscapes, we've made decisions about excluding fire from the landscape in historical years that have, are coming back to bite us a little bit today in terms of bigger, more intense fires. So what do we do? What do we do?

What's the answer? I can tell you where we wanna end up, right? I think where we want to end up, and I'll say this is going to be from the perspective of this is I'm giving you a very Southern California perspective right now, kind of unapologetically so. I'm gonna talk a lot about protecting private built assets from fire.

Basically I'm talking about homes and businesses and most of what I'm going to talk about is going to ignore timber. It's going to ignore air quality, impacts of smoke, which are also really important. But luckily we have some other panels about public lands management that are going to at least hopefully touch on the, on the timber Risk from the perspective of, you know, protecting houses, which is what we spend a lot of time thinking about in fire.

I think we want to end up in a world where we, we do two things really well. One, we fix the physical protection problem. So we invest in hardening structures or building new structures in a way that makes them less vulnerable. To get to Margaret's point, we focus on that vulnerability component.

And exactly how much would we like to be investing? We'd like to be making those vulnerability investments up to the point where the marginal additional dollar spent reducing vulnerability is equal to the social marginal benefits in terms of reduced losses. It's not going to be cost effective to mitigate away all the wildfire risk or all the flood risk or all the hail risk or the what have you risk.

And so, the other challenge that we wanna figure out is we wanna handle all the residual remaining risk after we do physical mitigation well, with financial protection, right? And that, that means insurance. That means we want well functioning insurance markets that, that can handle that residual risk. And in some way like if you don't, if you don't think too hard about the problem, it's relatively easy just to stop there and say, okay, you know, set insurance prices actuarially fair, plus some load to cover costs.

And we're, and we're off to the races and we're good. Let me tell you a couple of reasons that I think that's hard. And then I'll let Matt take us where he wants to take us. There are, on the physical margin, there are a few factors that complicate that that investment.

One is that we know those important neighbor spillovers. So Dean Luke is a Santa Barbara researcher who's been affiliated with Perk at various times, has a very nice book about the economics of wildfire. And one of the key themes of that book is you have these property spillovers and wildfire mitigation risk in urban settings in particular, where you have a lot of parties who have to try and figure out those negotiations that challenges your cosy and interpretation.

Then on the financial side, I think it's even harder. Let me tell you a few things that we got to confront with insurance markets. Of course, we have state level regulation of insurance and it's, it's an easy job to beat up on things that California has done or things that Florida have done and how that, and how they've regulated insurance.

And you know, it's not hard to sort of take shots and think about ways that, that those regulations may potentially reduce the, the incentive for insurers to participate or other things. I think that's not the entire problem, though. There's also really important information problems that we'll talk about.

There's really real monitoring frictions and verification frictions that make this a harder problem. And the one that I hope we can spend a little bit of time talking about this is. Catastrophic risk. So wildfire and flood and hurricane risk are fundamentally different from the all these places that we think about.

My colleagues in Applied Micro have written hundreds and hundreds of studies about insurance market, life insurance and health markets. And in those markets, we don't have the problem that we have in these markets where one event can trigger enormous payouts all at once, and that creates all kinds of additional costs for insurers.

Okay, so I will leave my rant there. Thank you for letting me do my rant. And I'll pass it back to
>> Matthew Kahn: Judd. Thank you, so we need to inject some amphetamines into this room. And so let's do it like this. Judd, you have. You may not be aware of this.

You have a very exciting Oregon field experiment that you're writing. Can you tell this room about your work or do you want me to do it?
>> Judson Boomhower: Yeah, so what we're doing in Oregon is inspired by one way of thinking about what we're doing in Oregon is we want to understand what.

What property level mitigation investment for wildfire protection could potentially look like in a world where sometime in the near future, technological advances and regulatory changes make it possible for insurers to engage in high frequency pricing of homeowner behaviors to protect their homes from wildfires. So think about managing vegetation between 0 and 5ft from the structure.

Think about trimming trees, trimming tree branches away from the roof. We can have a discussion about why insurers don't adjust for those things. Right now, the motivation for this experiment in Oregon is just like, what would the world look like if they did? And our very humble way of getting at that is we're running a field experiment where we've randomly selected some, we partnered with a couple different fire districts in Oregon, randomly selected some property owners, and offered them small amounts of money if they will take certain actions that the fire department thinks will reduce their fire risk.

And then it's a field experiment. So we have a control group that we don't offer any money to. We keep track of what they're doing as well. And then we have an information group where we, you know, we send them letters about how important wildfire risk is, but we don't offer them any money.

And I think everyone in this room will not be surprised to find out that the money spurs more mitigation investment than the lack of money. On the other hand, the money does not, like, massively move the scale. It are, our preliminary results are that we're getting between like, 5 and 10% of the people that we hit with this, with this payment.

So is that a big response or not? You tell me.
>> Matthew Kahn: So I think it's terrific. Before I set up, Margaret, my optimism here is a. As more individuals in these fire zones are aware of the risks they face, of the entrepreneurship, we talked about Hoover's environmental entrepreneurs, of the opportunities for entities that cost effectively mitigate flood and fire risk.

And there's folks in the room working on these issues. And so we know we got Rogaine because there were a bunch of bald guys, I'm looking around who were willing to pay for this. We're going to see something similar in terms of adapting to climate change. So I debate many people who implicitly assume this stationarity, that we've got our menu of strategies to adapt to wildfire risk and flood risk.

And to me, that's baloney. The Hayek magic of capitalism is the continuous, sloppy, messy innovation that occurs, and necessary steps are for unknown unknowns to become known unknowns. And so First street foundation and these other entities with their art science models of risk play this role of. Paul Revere.

Welcome, sorry, waking people up, Margaret. With that, I want to thank you for your patience with us. Can we.
>> Margaret Walls: You want me to go on?
>> Matthew Kahn: Please do.
>> Margaret Walls: Okay, well, let's talk about exposure a bit more. Okay, let me say something about this. So what can we do about this?

Part of the problem is what I want to talk about for a minute. And how much should we try to do? I think is a really big question and to me, a huge issue that communities face. And Judd can tell me if he agrees with this, is what are we going to do?

How much do we want to buy out properties or rezone so we don't develop where we shouldn't be developing or in coastal areas? How much do we want to retreat? And how much do we want to invest in hazard mitigation or to ask, you know, homeowners to do certain things, like the mix of whether we want to stay and make our community a thriving, vibrant community, but we have to make investments to, you know, reduce this problem versus retreat is a huge, huge question.

And so how much should we try to do, to me, is a really big question. So with that, I want to just tell you about an interesting policy experiment that my colleagues and I did a study of. And anybody in this room heard of the Coastal Barrier Resources System?

Holly's nodding because I know she knows, but I love telling everybody about it, so you're going to hear about it. So this was created by legislation, federal legislation in 1982, the Coastal Barrier Resources Act. And it's a system of lands mostly along the Atlantic and Gulf Coast. They now have some in the Great Lakes, but but it's not on the West Coast.

It's just the hurricane prone areas or tropical storm areas. And it's been expanded to with over time, including in November when there was a addition to the system, significant one and on these lands you are not eligible to buy federal flood insurance. You will not get federal disaster aid if a disaster strikes.

And the federal government spends no money on infrastructure. So they have removed incentives to develop. And that's cut and paste from the legislation. I just read a little bit of it. The Congress declares, and this is from 1982, that is the purpose of this act to minimize loss of human life, wasteful expenditure of federal revenues and the damage to fish, wildlife and other natural resources associated with the coastal barriers along the Atlantic and Gulf coast by restricting future federal expenditures and financial assistance which have the effect of encouraging development.

So that's what they set out to do is let's not develop these lands. So we did an, here's a couple pictures of them just as examples. So they have a very extensive online mapper. You can go look at where all these they call them units are. The one on the right is the Outer Banks in North Carolina.

Up at the northern end, the road ends, the paved road ends and there are still houses up there. And that's a photo. So I don't know if anybody's from that part of the world has been there, but it's a popular vacation destination. And that's Kiawah island in South Carolina, which is a lovely spot if you've ever been.

And they have some units there too. They're all over. And there are, some of them are conservation lands, they've been protected, but most of them are privately owned lands. So we did a comprehensive analysis and you can go read it in Nature Climate Change with my colleagues and I, Hannah Druckenmiller, who's now at Caltech, Penny Lau, who's my colleague, Sophie Pesic, who was an RA and is a grad student now, and Shan Zhang, who was our intern and who's now at Old Dominion University.

So I'm gonna give a shout out to everybody. So what did we find? I won't go into all the techniques that we used because it's very difficult and challenging to analyze the effects because these lands were very carefully selected. So you cannot just go compare them to every other coastal land.

You have to do a very careful treatment, control, kind of analysis and design of your experience. Experiment, so on the CBRS lands, we found there were 83% fewer buildings per acre, 41% reduction in the developed land area. So basically far less without the law, there would have been way more development than there was.

And then we also looked at neighboring lands, what happened in the areas around these units, and we found that they had generated a lot of change in those areas as well. It increased development on those lands, it increased property values, and it reduced flood damages. So some back of the envelope, ish kind of numbers in that blue box.

We calculated savings to the National Flood insurance program of $930 million a year. Okay, so that's because there's no, you can't get a policy on the CBRS lands if you have a house. And on the other lands, even though there's more development, there was less flood claims per acre.

So and per dollars of coverage. So on net, there's a savings to the program and one of the things people care a lot about is what's gonna happen to local property tax revenues if we're not developing communities obviously really care about this, right? That's why they don't like buyouts.

They want to get their property taxes. And what we found is actually increased property taxes. And again, because you know, you're losing some value and losing development on those lands, but you're getting benefits behind. So on the whole, a very successful policy experiment. And so question I'll pose to everybody here is, you know, can we do just make this bigger?

Like can we have even more lands in the system or could we use this kind of approach somewhere else? Like high wildfire risk areas? We don't have the federal flood insurance program there. But, and let me just say this, and I'll stop talking, but we don't know which of those three carrots and carrots that were taken away are really driving these outcomes.

Right. We're just looking at the, you know, the counterfactual and comparing. Is it the infrastructure, is it the flood insurance, is it the disaster aid? Most people that know things about the program think probably the biggest thing is not the flood insurance, but the, the infrastructure spending. So could, you know, could we do something there?

Because when we put infrastructure and we induce development in locations, right? So we need to think about that in high risk areas.
>> Matthew Kahn: Margaret, thank you. And I highly recommend her paper. Margaret, a slight libertarian question. Is the NFIP crowding out private insurance that I keep writing on my substack that the insurance industry could be the adult in the room if state insurers didn't put price caps on insurance.

And so the question I want to ask is if as our budget deficit rise continues to rise at the federal level, will could a Trump administration phase out the NFIP or is that naive policy a little history? This, would this unleash the private sector?
>> Margaret Walls: Well, that sector that's been unleashed.

22% of flood insurance is private now. And that's most people attribute to the rise in the rates with risk rating 2.0. So national flood insurance policies have gotten more expensive and as a result there's been a boost in the private market and private flood insurance. I will point out historical information here.

The reason we have a national flood insurance program is because the private sector stepped out of providing flood insurance in the 20s. So we haven't had, you know, the private, private health, private insurers did not provide flood insurance since that day. And in the late 60s we came up with the federal program.

So you know, now are things flipping. Back perhaps
>> Matthew Kahn: so that actually Margaret, thank you. And so a question for both of you. With the rise of the information technology revolution. So Judd has done some terrific co authored work on that. Older vintages of housing face greater wildfire risk.

We have better and better big data allowing insurers to engage in something called price discrimination and that and it could raise their profitability relative to insurers in the 1920s. So Judd, with your work that older properties in California face more fire risk would should these grannies of these homes, can we price gouge them and charge them more for insurance but give them a discount if they, if they update their roof from Led Zeppelin's time in the 1970s.

>> Judson Boomhower: And the market is, market is going that way. So homeowners insurance has for, for a long time differentiated prices according to the the age of the home. Presumably that reflects differences in wildfire risk as well as lots of other risk factors like the plumbing is less likely to break.

Yeah. You know, you're seeing a move in the market towards more granularity in pricing. Interestingly in California you're seeing regulations that require insurers to do what Matt is talking about. So a very interesting conversation for a room of people that love markets is to think about why, why, why do you need a regulation or do you first of all, do you want a regulation that is requiring that?

And if we, if we agree with Matt that we want this, you know, differentiation in pricing, why is it that the market is not converging on that equilibrium on its own? Is it something about a lack of confidence in exactly the difference in risk that's attributable to, you know, 8th inch mesh over the vents versus wood siding versus lack of vegetation in the first five feet.

Is it the fact that we know we have like, maybe we know how much safer those homes are that have those characteristics, but it's very expensive to send an inspector out to every individual home and inspect that home and verify that it has those assets. And by the way, these are like from the perspective of a national property insurer, one home is a really small slice of business.

So I think, you know, as soon as you make underwriting that home even a little bit more expensive, you do, you do change the business decision. So yes, I think there's a lot of room to, to think about tailoring insurance pricing more closely to follow risk. But there are like real challenges and we got to figure out what are the, what are the important sort of limiting factors and how do we get over them.

>> Matthew Kahn: I agree. And from a competitive point of view, if there's an insurer who is innovative here, we would hope that they would earn greater profits. And I. So Judd, in the case of California wildfires, maybe you're going to say State Farm, is there an insurer who is innovating here the most or does Ricardo Lara's price ceilings put represent an implicit tax on innovation here?

>> Judson Boomhower: Well, I mean, across the industry and not just in wildfire, you've seen a move across property insurers to, to taking these risks more seriously and investing and understanding how to price them and how to, how to decide where they want to do business and where they don't want to do business.

One of the. So yeah, I think you're seeing, you know, you're seeing lots more attention, you're seeing innovation. One fun conversation that we can have, it would be about to the extent that we're seeing innovation by private companies and how to price these risks or you mentioned First Street.

First street is an kind of public spirited, kind of private business that produces maps of fire risk and flood risk and other things. They have competitors, the Air, CoreLogic, RMS. There's a lot of companies that engage in this innovation as well as, you know, things that are happening inside, inside the insurers as well.

To what extent do we think that's the innovation process that's going to take us where we want to go versus and by the way, all of those things build on publicly funded scientific research, right? That happens at places like Stanford. So there's work from the US Geological Survey, from NOAA that creates a lot of the basic scientific data that goes into those models.

Are we, do we have it sort of about right now in terms of the amount of, of innovation in modeling weather risk that happens in universities and then the amount that happens out in, in the private sector and does that create the right profit incentives for everyone to invest and compete to have the best model and make a lot of money and cream skim the best insurance customers or sell their, their model for the highest price to the insurance companies?

Maybe I don't there's room for really serious research about whether we've, we've got that boundary right in terms of how much is happening in universities and how much is happening out in the private sector. And there are other. Matt and I have have kind of chatted before about open source software versus you know, Microsoft Word.

And if they're in analog here, that's one conversation we can have.
>> Margaret Walls: Matt, can I say something about the insurance market in coastal areas for the most part on the east coast now in Florida for sure, everybody's not getting their insurance from the state farms of the world.

It is niche product providers and in some one concern is that, you know, there's a lot of bankruptcies. Florida's had a lot of bankruptcies, there's a lot of providers that have very few customers. So you know, how are they covering those. You know, there's a lot of questions about the structure of the market I think.

>> Matthew Kahn: So I want to pick up on Margaret's point and then ask Margaret a question. So folks, if you go to a restaurant, you immediately know the next day if you've been poisoned and whether it's a bad meal. Do I need to elaborate? But in the case of insurance with rare events, if you only file a claim once a decade, how do you know that all state you know that they're there for you?

So I watch a lot of basketball and so there's that insurance ad that always has the same guy saying that he's so nice. But how do we know until a disaster occurs whether your insurance is well insured?
>> Margaret Walls: This is why Florida has set up their program which covers if there is a bankruptcy or if they can't cover, the state of Florida will cover you.

So they, they have a little surcharge on all the providers and that goes into a fund and they cover that very problem you're talking.
>> Matthew Kahn: So that's a fiscal externality. So I wish we lived in Milton Friedman's world where a quality service provider, that's common knowledge and he or she can charge a price premium for that because of excellent service.

So after a disaster that you get your check the next day, you're not asked to itemize all your jewelry and all your tattoos. Margaret, my final question before I open this up in Asheville, North Carolina, that recent disaster where it flooded in a place that had never flooded before.

I debate many young economists on themes from behavioral economics. I'm the last of the rational expectations economists in the case of flood risk. Is is it your belief as an economist that is a thinker, that people systematically underestimate these risks or I've been interested in how much do themes from behavioral economics slow down climate change adaptation.

So Richard Thaler won the Nobel Prize in Economics and sort of cliche is modeling people as Homer Simpson of blissfully unaware of risks that are emerging while I model people as Mr. Spock from Star Trek. So Margaret, if you think about flooding, a cliche of what percentage of home buyers these days are Homer versus Mr Spock?

And what can First Street foundation, other entities do to help people to update their beliefs so that we don't have buyer beware, buyer regret?
>> Margaret Walls: Well, that's the 64 million dollar question or whatever. I don't want to say they've never flooded in Asheville because Appalachia is very prone to flooding problems.

So I think they definitely had floods. But the one county that had had a hurricane before was the only county that had evacuation routes set up ahead of time. I found that sort of interesting. That was in a news story, they were so unprepared for anything like that and it was very, very devastating.

By the way, Hurricane Helene killed more people than any other hurricane in mainland US than Katrina. So this was a very bad hurricane. So just wanted to put that out there. So to your point, this problem, Matt, of like, do people understand the risks and make choices based on the risk?

Isn't that what you're asking is a really naughty problem that people have been struggling with for a long time? You know, people misinterpret what a floodplain map is. All it is is the mandatory area where you have to have flood insurance if you have a mortgage, federally backed mortgage.

It doesn't mean that Sharp Line Says you have no risk outside that area and inside, you know, so people interpret it that way and lots of other information failures. I don't know what Judd thinks about this, but there's a real question about how people can interpret complicated risks.

You know, in flood we talk about return periods. Nobody knows what a return period is. Nobody knows what a 1 in 100 year flood really means, so it's a challenge. And one idea on that front, I think the first street thing and having it in your real estate listing some measure of risk, it's still just like an index number or something is a good thing for sure.

One idea people have had is to present things in dollar terms instead of return periods or probabilities or whatever. This is how much damage you will have, you know, if this event occurs or something like that. Something that's more a cost-based thing.
>> Matthew Kahn: And Judd, on this point, am I right that with wildfires we actually get negative correlation?

So if we burned out, if we burn down the trees, that wildfire is less likely going forward, do people understand this negative auto correlation? That was a joke.
>> Judson Boomhower: That's right. And it's. Thank you. I wouldn't have caught it. That's correct. It's particularly correct in certain types of ecosystems that are more forest.

It's less correct where I live in SoCal. But yeah, I mean to what both of you are saying, I think that the data that I've seen suggests that today or recently when these surveys were done, people don't understand disaster risk very well. But Matt's point, Matt's question is are they going to understand it better going forward and to what extent?

And I think that's we got to figure that out. I don't think we know the answer.
>> Matthew Kahn: So folks, with that we have seven minutes. Say what you want about me, but I make my point and I shut up. Questions, Terry?
>> Terry Anderson: Well, first off, don't feel badly about not getting Matt's jokes.

There are about 100 people here who all miss tough room, I want to go back to the morning discussion, Gary Leibcap's presentation and Ronald Coase. I, I wish climate issues had come up when I could speak to Ronald because I'd say to him is there a property rights problem?

My argument is no, there's a well functioning real estate market and absent the regulations in the insurance market, a well functioning insurance market now. But that's not a property rights. The malfunctions in, if I don't, if there are malfunctions in the insurance market that's not a property rights problem.

These homeowners have the two markets that produce information, and I have a right to drive my Ford F250. So I don't know why markets wouldn't handle that.
>> Judson Boomhower: Can I. Sorry, I didn't mean to step on.
>> Terry Anderson: So why wouldn't markets handle that? Why do we need regulations about where people build on coastal barrier islands or.

And why do we need regulations on insurance? It seems like both those cases, absent interventions that tell you you can't build there. Okay, I can understand if I live there and my house is there, I'd, I'd like none of you to move there. But I just, I don't quite see where the market failure is, where the cosine problem is.

And so I'm just sort of befuddled by this, this whole discussion. And it comes back to Matt's point about the middle term there. As soon as you said that, then I started thinking, well, housing prices fit in. Why do I move here? Well, they're low priced houses. Now I can find out about whether there are floods or fires or whatever, but I might still choose to move there.

So the people part of that equation goes up due to prices. Enough.
>> Margaret Walls: I mean, to me one of the biggest things is you don't live somewhere in isolation. The local government has put water and sewer and, and electricity and provides infrastructure, roads. Somebody's facilitating you living in a place and that's government money at work.

So I guess we could take that out of the equation. But having said that, there are costs to local and state governments, federal government too, I guess, of that infrastructure, of maintaining it. And those are challenges right now, I guess, to the point of like, why do we need to tell people not to live there?

We're not telling them not to live there, but we've taken away those incentives and that's what's happened. I guess it's that it's like we do have government spending money on infrastructure.
>> Matthew Kahn: I want to add a point there. The Nobel laureate Kit Lenin Prescott would argue that the government can't commit to not bailout so that some folks move to the area flipping a one sided coin that if nothing bad happens, they're like Jerry Seinfeld in the Hamptons, but if something terrible happens, there will be a government bailout.

But I take Terry's point.
>> Judson Boomhower: Steve, can I. Terry, you got us all really excited. So I'm going to say one more thing and you make a lot of really interesting points about why we may or may not need zoning or that we don't need zoning and that we have a longer conversation about that.

But I want to say, I want to take all, I want to kind of stipulate everything that you said and here is here's something that I haven't been able to figure out that it seems like markets aren't fixing. And I don't see an obvious, you know, government intervention that's preventing markets from fixing it.

Every insurer that I talk to tells me that they're very worried about managing their concentration in areas of high disaster hazard. In a world of functioning reinsurance, that shouldn't be a problem. There are these large globally diversified pools of capital that should be able to take on that tail risk.

And it has a very nice beta against other things that they're invested in. And for some reason, and I don't think if there's a government barrier there, tell me what it is. But it seems like there is something happening in the, in the market for tail risk transfer that, that isn't, it's not working.

It's not your, the price is substantially higher than you think it would be. And so there's some, at a minimum.
>> Terry Anderson: I would say
>> Matthew Kahn: that will be solved going forward.
>> Judson Boomhower: There's a lot of money, there's a lot of money on the table for somebody to solve that, but there's been a lot of money on the table for somebody to solve that for a long time.

And so there's a real mystery there. And if you figure it out, either go make a lot of money or come talk to me and we can write a research paper about it.
>> Matthew Kahn: Steve,
>> Steven Koonin: so I.
>> Terry Anderson: That's all part of this too. So you've got this problem on the insurance side, but my prediction would be that house prices in that area are going to be lower and reflect the fact I can't get insurance.

Again,
>> Judson Boomhower: I agree. I just think that we're not living in the best possible world in that case, because why can't we, why can't we have well functioning insurance that allows us to manage this risk in a better way instead of just loading it on the people who kind of get caught holding the bag with these high risk properties.

But I see your point,
>> Matthew Kahn: Steve, Final.
>> Steven Koonin: Thought, I find all this economics is the question really fascinating, but I want to come back to the underlying hazard and the climate science. And in particular, say, I find the attribution of the Asheville event to climate change, or at least anthropogenic climate change, problematic for two reasons.

One is that if you refer to the famous 12.12 table that Scott Tinker talked about this morning, you'll find that IPCC finds no long term trend in the frequency or intensity of hurricanes. And the data in the Atlantic Basin over a century or more bear that out. Secondly, with respect to the Asheville event, particularly if you go back to 1916, in October of that year, you will find 14 inches of rain delivered in two days to Asheville.

The same as what happened during Helene, when human influences on the climate were less than a fifth of what they are today. So we have a very short memory for weather events and it's a little bit facile to say climate change for every extreme event that we see.

>> Margaret Walls: I certainly agree, but I don't think that's the point of the panel here.
>> Steven Koonin: I'm sorry, I thought I heard climate change several times. With respect to the extreme.
>> Margaret Walls: Well, I think there's some attribution of some events for sure. I think sea level rise. Absolutely. I think

>> Steven Koonin: about that. We're talking about storms and fires here.
>> Margaret Walls: Yeah, fire series too. Evidence,
>> Steven Koonin: long term drought series in California over several centuries shows no long term trend either.
>> Judson Boomhower: Most of the scientists that I talk, I would say the, you know, I'm an economist. The scientific consensus that I'm familiar with suggests that the rise in wildfire risk is a combination of more development in dangerous places, potentially for forest management, and really important contribution from a changing climate as well.

>> Matthew Kahn: Folks, in the name of keeping us on time, the clock has struck zero. But I told you this was going to be a great session and buyer's regret. Thank you very much.
>> Margaret Walls: I don't think we ended up.

>> Terry Anderson: I'd said when I introduced Kim Strassel that it wasn't a good idea to follow her. I was really talking about her speaking ability and her knowledge of Washington and all the little tidbits. I don't even like to read the news, so I don't have any. I'm not very up to date on things.

But then, not only that, she goes into this accounting discussion of public lands. That's my speech, not hers, so. And before I get started, where's Kyle? Kim said that I said I spent two days gathering data. Wrong, I haven't spent two days gathering data most of my life, and certainly not since grad school.

But Kyle Friesland is a research person for me, and he gathered the data, and he can attest to how hard it is to find the kind of data Kim was talking about. So I want to basically talk about, just give you the map of what Kim talked about, how much public land there is.

And if you live in California, you probably have some idea. If you live in Montana or Nevada, you really know how much there is. If you get farther east, you may encounter some, but it's far less obvious. And she talked a little bit about which agencies. I'll go through these quickly.

Mostly, Kyle and I have been focusing on three agencies, The Bureau of Land Management, The US Forest Service, and The National Park Service. And asking the question, not so much what is the balance sheet, but we started by looking at the profit and loss statement. And Kim mentioned the 2023 data, which I spent two, I mean, Kyle spent two days looking at, many more than that.

And what's shocking, I already knew that. That's why I put him to work doing it for me. It's just almost impossible to get these data. I mean, you have to dig and dig and dig and dig, and finally you can get them, but it's really hard. So my first policy recommendation is tell these agencies every year they have to produce a profit and loss statement, period.

And it doesn't have to be any better than this one, although Kyle has gathered many more details to the profit side and the revenue side and the cost side. But it's hard to know what's going on. It's not hard to understand why the people who run the agencies might not want to produce such a P and L statement.

But it should be something that is quite easy. And Congress, you might think, would be a bit interested in what that looks like. So you have, and she was talking about these numbers when Kyle first sent me the Excel sheet with these on them. I was trying to, I probably didn't have my glasses on, so I was trying to count how many digits there were.

Is this hundreds? No, it's not 100,000, is it? It's several million. Wait, that's more than millions. We're getting to big numbers, as Kim pointed out. And then Kyle and I talked quite a bit about just what might, what, what might you do about it? And the piece that Kim mentioned that I had in the Wall Street Journal said we've got two people who might care a little bit about something like a P and L statement, maybe the president and maybe the person in charge of Doge.

And if they did and they looked at a P and L statement like this, what might they say? Well, we should either raise the revenues, reduce the costs and. Or reduce the cost or get rid of the asset. And that was the point of the Wall Street Journal piece.

I don't think we're going to get rid of the asset by any means. But Kyle and I looked a little, or again, mostly Kyle looked at some ways we might adjust the revenue side to see if we could break even. And there are some obvious ways. If you take the National Park Service, Kim talked about that.

I just love to go with my old fart pass because I didn't have to pay anything to get my Golden Eagle pass. That gets me into every place for that much. So you could raise a lot of money. Monica and I went to Kenya and visited the Maasai Mara, and I have a nice picture of the gate and the entrance fees there.

It was very clear we were going to pay more than any of the local residents were. So there are ways to increase revenues. And here, just a couple of examples up there. But I wanna get through these and talk a little bit about a couple of ways to think about policy.

The first two, one is privatize them. And that's like, my God, do you wanna sell Yellowstone? Actually, I would sell Yellowstone if I were Trump, but he's not going to, nor is any other politician who wants to be reelected. Privatizing public lands is really, really difficult and isn't likely to happen on any kind of scale.

When Ronald Reagan was president, my good friend and colleague went to the Office of Policy Analysis, and at that time, he and I and others at Montana State University, where we were, had looked into privatizing lands and money that we might get if we did and so on.

And even in the Reagan administration, even with James Watt, if you're old enough to remember that name, who was really the evil guy who would sell Yellowstone. Nobody was serious about it. And it's dead on arrival. It's just not gonna happen. But there are some trades that could occur, and I wanna just touch on two quick ones before turning it over to the other panelists.

So one possibility is to trade some lands. This is a checkerboard piece of land in Wyoming, and at those intersections are private lands and federal lands. And the question is, if I as a hunter can get on green sections that are private land and get to the corner of one of those, can I cross at that corner onto the public land at the other corner?

Well, if I could just have Scotty beam me up and place me over there, as in space age things, maybe I could do it. Well, that's not gonna happen. I can't fly, so I can't do it. But some hunters I believe from Nebraska said, well, we know how to do it.

And there's the picture. The ranch had put up no trespassing signs. They were quite clear. Elk Mountain ranch said, no, you can't cross over this little corner which is infinitesimally small. But the hunter said, well, yes we can. We're gonna build a ladder, we're gonna take it out there, we're gonna straddle a fence, we're gonna climb the ladder, go down the other side, and we haven't trespassed.

The ranch said, yes, you have, called the sheriff. The sheriff came, arrested them, it ended up in a big lawsuit and the hunters won. Now, the point of this is these are just destined to create all kinds of conflict across places like Wyoming, Montana, Idaho and all the western states where you have these checkerboards.

So one policy to think about, short of privatizing. All these checkerboards is, is there a way to make some land trades? And what can happen with land trades is really there are two things. One is you reduce some of these conflicts because now it's not the rancher versus the hunter.

If we just took half that map and made it all public and the other half and made it all Elk Mountain, then at least you wouldn't have the conflict of these hunters. But here's a better one. Some of you may know of. You may have been there, and you may even own property at a place called the Yellowstone Club.

The Yellowstone Club is next to another ski area, Big Sky. Yellowstone Club was started by a guy named Tim Blixeth. And Tim Blixseth owned a lumber company. He owned some of those checkerboards. And the Forest Service had the other checkerboards. The checkerboards were almost impossible to do anything with.

People who wanted to preserve land for endangered species said, well, we can't do anything. These are one square mile sections. We can't do anything with 640 acres to save the Canada links, for example. So what could you do? How could you do it? Well, Blixith went to the Forest Service, managed to engage in a trade that allowed Yellowstone Club to be created.

He created it. And it's got some pretty nice homes in it. It's private skiing. You can only get on there if you own a house. Or in my case, my son works for the ski patrol and he can get me on. So I get to ski there once in a while.

So they manage it that way. But just across the line where these checkerboards used to be is now big blocks of Forest Service. And they can manage it for timber rotation, they for wildlife. They can manage it for watershed, all kinds of things that they couldn't do before.

And it was a land trade. I put the small letters there if you want. If you can't read it, I can give you the numbers. He had to put some money into it, but they made the trade. So my point is there are ways short of selling it or privatizing it, but there are some other things we can change.

The incentives that people have to manage these lands. Either the private land owner or the public landowners, we can remove some of the regulations, and we can find ways to market more of the services. Those are parts of what I think of as possible policy changes that could make a difference.

But I'm not going to talk any longer about those. I'm going to turn it over to two people who do have something to say about, I think, almost all three of those. And did we decide who starts? You? All right, so we'll spend the next few minutes talking about actual data on management issues and incentive changes and other ways that we might make the system work better, short of privatizing the public lands.

>> Jordan Horrillo: All right, thank you, Terry. All right. Hi, everybody. My name's Jordan. I'm a grad student right here in political science. I am defending part of this project in three weeks, which is why I'm a bit sleep deprived. But I'm an incoming Hoover fellow in the fall. My research is about the history and impact of forest management policy over the last 120 years.

There's kinda two major categories of management policy. There's the category of how we put fires out, and then the category of how we cut trees down and manage forests actively. I do so using the state of Oregon. I'm going to show you data from my project in Oregon.

And I use Oregon for a couple reasons. It's sort of a microcosm for a lot of these issues as they played out on the national scale. Oregon's about half federal timberland, one of the largest softwood exporters, like softwood producers in the country. So timber's a big cultural part of this.

And a lot of the lawsuits that played out between foresters in Oregon and environmental activists in Oregon ended up extrapolating and are now national policy. So Oregon's kind of a sandbox for a lot of this. And the main argument I'm going to be making today is that if we wanted to meaningfully balance the budget of the Forest Service, costs are exploding way faster than revenues are diminishing.

And so to balance any budgets here, we need to focus on the cost side, not the revenue side. I'm not going to go too deep into the forestry science here, but just echoing on something that Judd said earlier, forests naturally just need to burn. Western pine forests have adapted all sorts of ways of using fire, but in essence, when fires burn often, they clear fuels from the forest floor.

And so when they burn, often, they stay small. When fires don't burn, fuels accumulate. And then a small fire becomes a big fire very quickly. Those are the ones that we're seeing today. All right, so this data is coming from my dissertation. What I've done is I've taken the state of Oregon and I've broken up the whole state into seven acre grid cells.

And every seven acre grid cell, it's about 700, 700ft across in a square. And you can study 120 years of history, both in terms of exactly where the government has cut trees down, how we've cut it down, whether it was shelter would cut or a clear cut or a single tree selection, commercial thinning.

We have data on all of this and we also know where the fires have been. And so for 120 years, for every grid cell, I can track the history of management and the history of fire. And then I can interact all sorts of other things, like shifts in climate, how bad drought was that year, topography, all sorts of things.

And so what I can do is I can kind of show the impact of management in the past on fire outcomes in the present today. And so just to start with some data here, this is the state of Oregon. I'm showing you 1,000 acre wildfires. So every fire listed here has gotten pretty big.

And I'm showing you 120 years of data. And so we kind of have three main eras here. We've got this early period before World War II where fires in expectation wouldn't happen every year, but when they did happen, they would get pretty large. And it wasn't unheard of to have a year in which you had a really big fire.

1910 was the big blow up, where essentially it was like western Montana, Idaho. This led to a lot of fire suppression policy. But then the mid century, we really just don't have very many fires because we're busy suppressing them everywhere we can. We had the will to suppress fires before the 30s, but we just didn't have the technology.

We had no helicopters, we had no chainsaws. So you had people manually with Pulaskis in the woods, just digging holes. And so it was a really inefficient way of fighting fires. Our technology gets better though. And after World War II, we start to be able to put out 98% of wildfires.

And that's to say that 98% of wildfires are put out before they get to 30 acres, which means that only 2% of the natural fuel cycling that would have happened is happening. And so we've got sort of a pressure cooker on our hands where every time we put a fire out, that's fuel that would have been removed from the system that's now going to be there for next year.

And these things keep growing back. And then by the present day, just to make sure that we all sort of agree that what we see today is not normal in expectation. You have large fires every single year in Oregon. A lot of them are on national forest land.

That's the color here. But you see, in 2020, a lot of private land burned, as well as some. Tribal land, some state ranch land. So this isn't only a national forest problem. And then similarly, there's the land burned in wildfire, and then there's the money we spent fighting wildfires.

And so this is comparing the Forest Service and other Department of interior agencies like BLM, and this is since 85, we see that the trend in how much money we're spending every year to fight these big fires just keeps climbing and keeps climbing. And so in the last five years, the average amount of money we spend fighting fires would have been unheard of.

In the period of 85 to 90, a critical threshold here was that in 2013, the Forest Service started spending half of its budget allocation just fighting fires. And it's never dipped back below that level. And so every single year since 2013, more than half the money the Forest Service is getting, they're just spending it fighting fires.

So in terms of what it would mean to balance the budget, they could just stop fighting fires. But that's not really in public's interest very much. And so then, on the other side of the equation here, we can look at what the Forest Service has been doing in terms of managing fuel loads on national forests.

And so before World War II, Forest Service really isn't cutting a lot of timber from national forests. Most of this is happening on private land. World War II ends. All of the veterans come home. We pass the GI Bill. We have this congressional goal of cheap loans for veterans.

Cheap loans mean cheap houses, cheap houses mean cheap lumber. And so there is a congressional mandated goal to increase output on national forests every single year. And so it's not like the foresters were the ones completely behind it. This is Congress pushing foresters to increase technologies, increase extraction every year, get more harvest than you did the last year.

And most of this was done with clear cuts. We could argue all day about whether clear cuts are good for the environment, bad for the environment, but one impact they have is that they affect fire risk at the system level, at the landscape scale, because you're talking about acres and acres of fuel breaks now.

And the clear cuts here are in red. And so after World War II, we're ramping up clear cuts simultaneously. We have a lot of pushback from the public as they see these scars. Always interesting to note, one of the very first citizen groups to sue the Forest Service over clear cuts were turkey farmers in West Virginia.

So at this point, this wasn't a right versus left thing. This was seen as private outdoorsmen trying to keep the prying hands of the government off of what they saw as their shared collective lands. And so what happens is, by the 90s, the Forest Service just stops clear cutting.

When the Forest Service stops clear cutting, they kind of stopped doing most of their active management for a good 10, 15 years. And in recent years, they've started to do more thinning, which is not clearing an entire forest. It's coming through and spacing trees further apart, bringing the canopies up, getting rid of ground fuels.

But the kicker is that in the present. So comparing the clear cuts of the past in red and the thinning today in green, the clear cuts generated money for the Forest Service, which it could then use on all sorts of other things like. Sorry, like buying fire trucks and schools and roads and hiring new mitigation workers.

And in the present era, the green treatments cost money. They don't generate money. Yeah, and we'll come back to this too, but the scale that we've treated here is paltry. Like, it is maybe 5% of the hazardous lands that we have eligible to be treated. And so these two things kind of add together.

So we have been putting out fires for 120 years. We've become very, very, very good at putting out fires. And so usually they don't get big. And on the other hand of the ledger, we cut down a lot of trees for a long time and then stopped cutting down everything.

So the trees that we did cut down after World War II, up until peak harvest was in 1986, those trees have all grown back, and we haven't gotten rid of any of them. And we've kept continually suppressing fires. So those forests have all continually gotten thicker, which means that the forests we have today just don't look like they used to.

An inventory was done in Winema, Fremont-Winema National Forest in Oregon. This is mostly ponderosa pine. But what they found was that there were, on average, three times as many trees as there were in 1914, and the nature of those trees changed completely. And so instead of having variation in coverage, and you had some stands of old trees and then some meadows and natural fuel breaks, you have a sea of uninterrupted green.

And all of these trees have now. We've pretty much gotten rid of most of the old trees. And now these are younger trees, smaller trees that are less fire resistant. And so we have forests that are, just, for lack of a better term, ready to burn. We have a way back from this.

We have two tools. One is cutting trees down. So the fuels that would have burned themselves, we removed from the system. And then the other is introducing our own fire, which mimics what a natural fire would have done. And we have a lot of evidence showing that mitigation work decreases costs in future years for fighting fires.

My own research in Oregon, what I've done is in the last 20 years, every time the Forest Service has done a fuels project, I've taken note of what kind of project that was, and I've looked at which grid cells end up burning later on in the panel. And the parcels of forest that the Forest Service has been able to treat for fuels in the last 10 years burn much less often than the places that they are not able to treat.

And so we see this working on the ground. The issue is a matter of scale, right? Now, we're not doing this at the landscape level, we're doing this on the parcel level. And so it's difficult for these impacts to actually ramify into the system. But Western Australia has a bit longer evidence to show us where they've been involved in controlled burns for a long time.

And there is an inverse relationship between the acreage controlled burned in one year and the amount of money spent following year fighting fires. And unfortunately, Australia is facing some of the similar problems that we are, where the windows to have these controlled burns happen are getting shorter. And so we're actually seeing the trend reverse itself in Australia, where they're starting to burn less, and in conjunction, they're starting to spend more on fires.

And so it's interesting to look at the policy outside of the US context, where you could kind of see a counterfactual for where we could be. But then you also see them experiencing the same political issues that we are. But in terms of trying to balance the budget, Getting a hold of costs is going to be far more efficient than increasing revenues.

And getting control of costs can actually introduce new ways of creating revenue. Most of the hazardous fuel that's in the forest isn't timber. It's not large, commercially saleable trees. We're talking about bushes, underbrush, limbs, but that's not to say there's no market value from this. And the Forest Service has the vehicle already in place for them to trade goods and services with private forestry.

And so what we could move into is a system in which we allow the Forest Service to clear cut more land, and these will become fuel breaks between forests. And the revenue from that clear cut will fund the mitigation work in the surrounding forest. For us that we're not gonna clear cut.

There's ways to make this at least revenue neutral. And I think that Sarah's going to talk a bit more about that. So thank you. Look forward to some questions, and I'll leave it there.
>> Terry Anderson: Sarah and I sat down before I introduced either of them. I'm sorry about that.

But you did it. You got yours done. And now we have Seren Pendleton Noel with Blue Forest.
>> Jordan Horrillo: And Blue Forest is an organization that I would say is finding alternatives short of privatization, but using private ideas to change management techniques. Have I got that right?
>> Seren Pendleton: Thank you, Terry.

I was going to say, if you hadn't done my bio, I could just make up whatever I wanted. And so, very impressive. So, yeah, my name is Seren and I'm with Blue Forest. We have solved all the problems we've talked about today. But no, really, we're a conservation finance nonprofit.

We're looking at really, how do you monitor, monetize the ecosystem benefits of restoration? Specifically, we're focusing on the western United States forest restoration and the prevention and reduction of catastrophic wildfire. And so I'm going to kind of reverse time for about a decade ago when Blue Forest was started and was seated at a university that would not be named across the bay, at an MBA program over there.

So it was in 2013, the Rim Fire was happening as they were starting their master's program. And really devastating air quality, quality of life. And being MBA students, they thought there has got to be a better way to finance catastrophic wildfire risk reduction through modeling, through a financial mechanism.

And as they started to dig a little bit more in understanding what is causing the catastrophic wildfires that we're seeing on the West Coast. There was really kinda three findings that were emerging as I explored this. The first one that we've been talking about is really this funding and scale gap.

So right now in the United States, we're currently treating about 2 to 3 million acres a year and getting it back to the landscapes that we were talking about that are healthy, that are resilient. After a century of fire suppression and moving indigenous peoples off the lands and removal of active management that indigenous peoples have been practicing since time immemorial on this landscape.

So we have a backlog of immense fuels on landscapes. And we're currently, as I said, treating about 2 to 3 million. We need to actually be treating an additional 50 million acres over the next 10 years on top of those 2 to 3 each year. And tied with that was really the funding for this.

So even Though we've received through IRA and IIGA, if those funds remained around $5 billion for forest restoration and management, we need about 50 to $100 billion to do the restoration that we need on the west coast to get our forests to where they are. So that was the one really the pace, the scale, the funding was one challenge.

The second challenge is really the implementation partners and the crews on the ground doing the work. So even though that they have received contracts with the federal government, they do not get paid until their work is complete. What this means for small locally based contractors, that is massive amounts of cash flow challenges.

They need to float that capital. They're not able to scale, they're not able to hire local crews. You need to have big contractors that don't necessarily understand the local landscape doing the work. And that is obviously impacting their ability to scale to bigger projects that cash flow constraints.

So there's a reimbursability and cash flow problem. And the third one, and I'm going to click, let's see if I do this right, is really, we know there's a suite of ecosystem benefits in restoring our landscapes and no one was monetizing this. So we're able to have the science behind the benefits of ecosystem that's coming off.

We've talked a lot about these today. Biodiversity, water security, the quality, the, the quantity that's coming off of landscapes when you do active restoration in an area and preserve that land. But no one was really doing that economic case of that. And what was happening is in landscapes that were getting restored by the federal government, there was a lot of free riders, companies you think of, such as utilities or counties that were benefiting from that landscape restoration through increased water yield, etc, were not paying into that, right?

So they were essentially receiving some of those benefits for free. So, there's got to be a financial solution here, which led us to creating the Forest Resilience Bond. So the Forest Resilience Bond was created in partnership with the World Resource Institute as well as the National Forest Foundation.

And it really took the idea of once projects were already permitted and planned by the Forest Service, how do we increase the pace and scale of that and how do we bring additional dollars to a landscape? So if I had a little laser, I would point. So I'll just gesticulate.

So if we start over all the way to the side, we have our investors, so we pool together PRI investors. So this is not market rate at this point. This is PRI investors from foundations that really are looking for a return. But are looking for a return in a more impact oriented way.

So they are pooling the funds so that we are able to, through the Forest Resilience Bond, pay the implementation partners within seven days of the work being completed. They are not waiting for 2, 3, 412 months to get get reimbursement. They do the restoration activities. And then there's a bunch of benefits that happen.

At Blue Forest we have an in house science team that is calculating those benefits that are occurring on the landscape. We partner with agencies like the World Resources Institute to calculate the economic benefits of that. And then we go to beneficiaries. So we go to utilities, we go to counties, we go to anyone local to that landscape, we go to corporates as well and show them the economic benefit of hey, if you pay into this and we do this restoration, you are going to get X amount more water yield each year in your watershed.

You are going to have X amount of avoided wildfire emissions. You can calculate in this way, and this is the benefit. So then they pay what is the equivalent of the benefits that they are receiving as an agency into the bond, which allows us to repay the investors and give the implementation partners a zero cost loan, zero percent interest.

When they typically go to get banks, they are getting about a 10 to 15% interest rate which the federal government is covering the interest rate costs. So we are really seeing that through the frb we were able to do a few things with that. So our first project was the Yuba One Forest Resilience Bond.

It was 15,000 acres. It was a pilot project in the Tahoe region. It was $4 million. Because we had such success with that, we were able to scale up to the Yuba 2 Forest Resilience Bond, which was a 50,000 acre project, $25 million. But the really exciting thing is that that project, the Yubo One Forest Resilience Bond that was slated to take 10 to 12 years from the Forest Service side to complete, we were able to do it in five, which really freed us up to do the second project and then that catalyzed, which is a really big thing At Blue Forest.

We do everything through our science, through our finance, and then through collaboration. So that collaboration piece is we catalyzed the North Yuba Forest Partnership, which is a group of players, all in the area that are benefiting from forest restoration. And now they've committed to restoring 275,000 acres. So we went from a 15,000 acre project, now protection to over 250,000 acres.

So right now we have six FRB projects that are live across California, Oregon, Washington. We have three more in financial due diligence right now, and you can see at least a dozen more in development across the western United States. And these are exploring not just public lands. Most of our projects have been public lands to date, but we're looking at private lands as well.

We have our first private lands, one in the Southern Oregon, northern California region. We have some projects and financial due diligence on tribal lands, and we're also looking at state lands as well. So it's a really kind of nimble one that is custom made for each ecosystem that we're looking at.

And what's really been exciting with the pressure cooker of this federal uncertainty right now is we've been really able to unearth the benefits that we're providing for the federal government. So to date, Blue Forest has received about $5 million in order to set up these conservation finance agreements.

But we have brought over $40 million of benefit of additional funding coming to landscapes. So that is an eight fold return to the federal government, which we think is a really good bang for their buck. And we're bringing more dollars to landscapes because of this ability to bring in beneficiaries.

We're also doing that increase pace and scale, as I mentioned, we were able to do things in five years instead of 12 years, which is really leading to much larger scale projects. And with anything with bigger scale is lower cost. So really that what was talked about a lot today in terms of the transaction cost, we're able to reduce that transaction cost substantially when you're able to scale.

And right now forest restoration is a massively high transaction cost. It's about $1,000 to $4,000 on average per acre treatment. Massive cost. If we're able to do this at scale, that reduces that substantially. And then the big other thing that we're unlocking for the federal government is that the reduce of administrative burden because they don't have to reimburse as soon as the work's completed.

We're doing that. They can do this on a quarterly basis. It allows them to have some breadth and not needing to staff so many staff on reimbursing grants, right? So what's been really exciting about this on the Blue Forest side is because we've had success on the Forest Resilience bonds, we're innovating them in a number of other ways.

We have the Forest Resilience Bond Catalyst Facility now, which is aggregating all of these pilot projects and is revolving PRI investments from a $15 million fund into $50 million of projects. So as it gets paid back, we're able to launch another project and we're able to do this on a pilot scale and take lessons learned.

So what worked in the Yuba region is not going to work in Oregon, is not going to work in Southern California, is not going to work on tribal lands. So if you start with small pilot projects, bring in new types of beneficiaries, you can learn from them, then scale with those same players in that same area, and have lessons learned that are very bespoke to each ecosystem, in each region, in each partnership.

And then we also, as has kind of been determined. There really needs to be some market rate solutions to this as well. And there's a ton of biomass that's being generated on landscapes. So with all this restoration that's happening right now and with timber milling facilities closing in California, those were all generated for big diameter trees.

Most people don't want to be doing massive clear cutting projects anymore. But we have these small diameter trees now and that are literally in massive piles that are just being burned on landscapes. There's got to be a better way to utilize this biomass for revenue generation, for carbon outcomes, for all sorts of public health, you don't want those, that burned in the air.

And so we have the California Wildfire Innovation Fund now, which was invested in by the csaa, the Homeowners Insurance in California, and the California I Bank, which is a $50 million fund that's investing in biomass utilization and infrastructure building up to really revitalize the restoration economy in California.

We've invested in milling facilities in California that are processing small diameter trees as well as post fire. So what are the innovations that we can have in this space to really build that out? So with that, I think we'll take it back to you guys and we can turn off, my slides.

>> Terry Anderson: I do want to open it to questions from you, but I have one question for each of the, for Sarina and for, sorry about that but before I do that, we have sitting in the front row here, a couple of rows back. I mentioned in the very, at the very outset that we've started a new program here at Hoover called the Enviropreneur program, Environmental Entrepreneurs.

And actually some of what you've talked about fits what they're doing. When we started the discussion, Nick and I started the discussion with them yesterday. We talked about the intellectual foundations that might be available at Hoover, at Stanford, at the Doerr School. And this, the kind of bookends on either side of me here kind of give you, give a better feel to me for what I was saying.

Kind of the intellectual foundations looking at data and studying how the work is done and how profitable or not profitable it is, what management techniques there are and how they vary in terms of results as well as cost. And on the other side, someone who's taking an innovative contracting approach, if I can use that to describe the resilience bonds.

I taught a course here in the business school for a while on environmental entrepreneurship. And I remember I had another Oregon person from what was then the Oregon Water Trust that was using various financial tools to get more water in Streams. And one of the people was talking about using option contracts.

And I thought some of the colleagues at the business school, if walking by, would have thought, gee, I wonder what this business course is. And yet here were people who were environmentalists talking about how to use the kinds of tools that you might pick up if you were at the gsb.

And I think the same thinking about resilience bonds, just the sort of financial mechanism that's there that can be used. But I, I have a couple of questions. Every year, John Taylor, one of my colleagues here at Hoover, who does macroeconomics and is famous for something called the Taylor Rule about how to manage the money supply.

And at the conference last year, these speakers were getting up and they kept saying, we need to do this, we need to do that, we need to follow the Taylor rule, we don't need to follow the Taylor rule. We should increase the money supply more, reduce interest rates.

We, and I finally in the Q and A got up. I don't know much about micro or macroeconomics, but I knew enough to say who's the we and what does it mean to say we should. How is that going to happen? What needs to change at the Fed in this case?

We should manage differently. What, what stands in the way of what seems obvious to me, to you, to Sarah and I think and to many people here, probably what stands in the way of that? Is it just I like the green canopy that I can see as I drive along and look up the mountainside?

Is it, I have some sort of mystic view of forests or just living things and we need to leave, we need to leave them alone? Who is the we? Where does it come from?
>> Jordan Horrillo: Yeah, there's certainly a we in terms of the political demand for policies that's shifted over time in the post war period, sort of this collective belief in the expansion of industry and the science of managing industrial forests.

And they kind of got replaced by a public belief starting in the 60s with Silent Spring, culminating into the 70s and 80s where people started to see the science as being protecting biodiversity instead of expanding production. So we're seeing kind of shifting beliefs from the public. But I think in terms of the biggest.

Hindrance for being able to do the work we know needs to get done is that we've by design, created impediments in the system. We've created veto points, which we've given people oversight over the federal government's processes by design. And you can say it's a good thing, you can say it's a bad thing.

They're in there. To remove them would be to remove oversight that in the past we decided needed to be there. But it's the veto points that we've given to people because there's not really any ability to. The Forest Service over the last 20 years, they've looked at NEPA complaints, and so people that have filed suits trying to stop the Forest Service from doing projects.

And what you Discover is that 80% of the projects the Forest Service has done in the last 20 years are called categorical exclusions. And so it means that they're small enough in scope that they didn't require their own environmental study, but they're small by definition. And that's the only way that they can get around the legal obstructions.

And so they've kind of settled into this method of they do small projects that aren't gonna get fought, which don't aggregate up to system level scale, but that's kind of showing where the system is today.
>> Terry Anderson: Jordan, do you think that the, I think you said this in the phone conversation is a lot of this back to Smokey the Bear and the kind of woodsy owl nurturing that we've put kids through for sure and generations through.

>> Jordan Horrillo: There's absolutely been an effect of that people. Smokey the Bear, they've done studies. Smokey the Bear is one of the most publicly recognized figures in American pop media, maybe behind only Mickey Mouse. And if you find anybody off the street, they can tell you that you should show them a picture of Smokey the Bear.

And they say only you can prevent forest fires, wildfires now. And so we have a very deeply instilled public belief that fire is bad. And as long as that belief holds, you'll have the Forest Service fielding hundreds of complaints every time they have a prescribed burn or. Or thinking that every single active forest management is just a cover for timber extraction.

And removing any trees from the forest is just letting the industry win. I think that there's a lot of education we can do to the public, but it's not. We don't have to. It's not like we have to lecture the public these things. Policy follows public demand as opposed to the other way Around.

>> Terry Anderson: I heard you say forest fires and then quickly changed it to wildfires. Is that again, kind of a part of what's created this momentum? If I said, there's a forest fire, you'd, you know, you'd think, there's some trees burning. But if I say wildfire, you're like, my gosh.

It seems that just the words seem to have an impact, I think there-
>> Jordan Horrillo: May have been an aspect of that. I think it was more just semantic clarity. Because fires happen in chaparral. It's not technically a deep forest fires happen across like sagebrush. Australia had brush fires.

So it's a bit of a. It's just less precise. It's not that crucial.
>> Seren Pendleton: Yeah, no, I was gonna say I think I'll push against the smokey the bear being our kind of like that's the problem. From the perspective of, first of all, the majority of catastrophic wildfires still start by human ignition at the first place.

Like roadside ignitions in southern LA and chaparral regions, most of the fires are started by roadside ignitions that happen from overheated vehicles that go on the side of the road. Enforced regions, it's still campfires that don't get put out, cigarettes that don't get thrown out the window, right?

Like, still the majority, however. If our forests were actively managed, they wouldn't have resulted in catastrophic wildfire. We would have had kind of a natural course of fire that goes through those landscape. It kind of causes that catastrophic event that we wouldn't have had right now. I think from my perspective, what I'm seeing is like the biggest barrier right now is twofold, is one is the drastic kind of lack of ability to change to the volatility in the weather events that we're seeing so that the droughts followed by the rain.

Sorry, the rain events followed by the drought events, followed by high wind events like that is just the perfect storm for these wild, massive wildfire events that are going to be increasing. Paired with the lack of management that happened, paired with the removal of traditional ecological knowledge and the indigenous ways of preserving the landscapes.

We're just going to be fighting fires instead of being able to do management in advance. With already such a deficit being put towards active management of lands where we only have again, $5 billion when we need $100 billion to do this, those resources are going to be put towards firefighting and not being going towards active management, which is going to lead to more overstock.

Like it's just going to be the snowballing effect, which I think is going to be the hardest thing is no one's going to say, take the money from the firefighters, let's do active management instead. There's just really going to have to be more innovative funding and financing coming to the land in order to do this at scale.

>> Jordan Horrillo: Can I add one more thing in terms of the hindrances?
>> Terry Anderson: Sure, yeah.
>> Jordan Horrillo: As the policy developed and we were coming up with all sorts of new ways of protecting aspects, whether it's protecting people's right to recreation, protecting watersheds, protecting biodiversity, each of these things was litigated in a very narrow sense.

And so we're very good at protecting individual features of a system. We can protect the rights of spotted owls, we can protect soil in a certain area. We're very bad at managing system level outcomes because we're zoomed in on each individual feature. An example of this that was really striking to me, there was an LA Times article in 2019 about the LA Department of Water and Power going through and trying to do a fuels mitigation project in Topanga State Forest, which is exactly where the Palisades Fire started.

And the goal was to go through, replace old wooden power lines that were built in the 30s or the 50s, replace them with metal power lines, make the road wider, make it longer, do some fuel work. And halfway through the project, a local homeowner went through and realized that they had accidentally or purposefully cut down a couple hundred endangered bush.

It was called the Bronton's Milk Vetch. And the judge looked into this and actually put an injunction on the project and said, whoa, whoa, whoa, this is an endangered species. Explain to us why you're killing hundreds of this thing. You can't keep going until you can explain this.

And so the fuel mitigation was halted. And the irony is that five years later, I think that far more Bronton's Milkovitch were killed in the Palisades fire than ever would have been killed with fuels mitigation projects by LA Department of Water and Power. So by trying to protect the features of or failing the system.

>> Terry Anderson: Great conclusion. If I can come back, Sarah, to the scale that Jordan's talking about and the bonds you're talking about, here we sit, Silicon Valley. Do you see a time when doing these resilience bonds will be kind of just, that's how you do business. Do you think it's really improving the market for that?

Is it improving? And do you see people you work with in the environmental movement? If that's an appropriate term thinking more like you think about using financial mechanisms of that sort of markets versus mandates.
>> Seren Pendleton: Well, I think there's a growing realization you need a blended approach. Right.

There isn't a silver bullet here. It's not just going to be Silicon Valley coming to save the day. It's not just going to be foundations opening their coffers and giving away their billions of dollars. It's not gonna be the government mandating everything, right? We need an approach that recognizes the benefits and the costs of each of those players and where they're going to play a role.

I think where it has been really exciting to see the innovation and understanding is people are really understanding now. Where we heard neighbor complaints before of like I don't want the bad air during prescribed burning, people are now saying okay, well maybe this is better than my entire area completely going away.

And so for better, for worse, some of the bigger fires have negated some of that local community concern. But I would see, yeah, I think foundations are getting more interested in program related investments where they're not where they're wanting a return but not needing a market rate return paired with how are we scaling innovation that allows that transactional cost to go down?

It is very expensive to have an individual chainsaw person in the forest cutting down invasives. Massively expensive and time consuming. If we're able to invest in technologies that can do this at scale through AI, through remote controlling sensing, through technologies such as Burn Bot, which I didn't even talk about, but Google them, very cool.

We're able to do this much cheaper, much larger, at greater capacity. So I think the innovation and investment into those technologies is really exciting and pairing that with then foundational investment to help subsidize some of the financing of the on the ground work.
>> Terry Anderson: I think we could take one or two questions if we have them.

>> Speaker 1: One of the important consequences of, you know, increasing mega fires is air pollution. And there are people on this campus who've done work that suggests the economic damages of that air pollution to people's health is on the order of, if not larger than the suppression expenses that Jordan was talking about or the property damage that I've studied in my work.

And so, and unlike the, the industrial air pollution that Jonathan was talking about earlier that we've been so successful in reducing this, this pollution goes very far. This, you know, this crosses the continent. And so is there a market based way to harness the potential benefit to those lungs that that can then pay for these local projects?

Or should we think about this as something that should be handled in a different way? Or should we think about this as the local benefits are going to be big enough that they're going to reduce fire and then the lungs on the other side of the continent just benefit in an ancillary way from these reductions that are paid for locally?

I think keeping the first order importance of the air quality benefits in mind seems important.
>> Seren Pendleton: Yeah, at Blue Forest, we did co commission study Colloquially called the smoke study. That was essentially the same findings, massive amounts of health care costs with smoke. And the conclusion was very similar of, well, golly, the force resilience bond is finding beneficiaries at a local scale.

That's not how smoke works. Like Bay Area residents get impacted by fire. That's happening up in Northern California. Like, how are we going to be financing this through a bond? So that is an area that our science team is working on figuring out. How do we then work with insurance or not health insurance agencies like Kaiser, like Sutter, who are at a broader scale to invest in this?

How do we work with the states to invest in this? So that's more of the thinking of how do we do a more systemic investment that's not looking globally, that's still a little more locally. But there is a recognition we can't do this on the hyperlocal. This has to be more at a state or insurance level in order to do that.

Do you have other color, Jordan?
>> Jordan Horrillo: No, I was just going to point out, like a weird tension of the system is like, agreed, air quality is a huge problem and causes all these very acute health problems. And so counties are, counties track their emissions, states track their emissions.

And one issue right now with controlled burning is that the emissions released in controlled burns are counted in the official emission standards for that county. And so the local owners don't want, or the local standards stakeholders don't want there to be controlled burns because it's gonna be hurting their outcomes.

And it's like. Yeah, yeah, exactly. Yeah.
>> Terry Anderson: One brief question and take it away, Daniel.
>> Daniel: I mean, I'm familiar with the resiliency bonds and Blue Forest. And I just think, and to what Terry had said earlier about what the Congress wants to do, it's, you know, the Congress just.

Or the House of Natural Resources Committee just they kept the 11,000 acres that they want to sell in Utah, Nevada in the bill. So that has to be fought out. If it makes it in the Senate, I'm not sure, but these movements are always around to sell public lands.

And so but if we go back to the why they're public lands in the first place, that includes the tribes, right? All the whole of the United States was Indian country every, every acre. And a lot of natives still consider it. These are tribal lands, even though they're technically government lands.

And so I think that there tribes have to be integral in the management. You know, when Jordan posted his timeline at the beginning, there's no mention of. At the beginning of the century there was still a movement to remove natives from these landscapes. They were still on federal lands, national parks, and they removed them out by the 1920s.

And so one of the reasons why there wasn't a lot of fires in those areas is because there were natives there taking care of the land. And I know the other speaker talked about that, about tribal, ecological, tek. But you know, that, that kind of ruffles me a little bit the, the tek because it, it kind of makes us as though we're just caretakers and we're just gardeners of, of what was once our land.

And so really it, there has to be co management strategies between the tribes that are, that are interested in the federal government and these agencies to co. Co manage the lands, even though it's not ownership. But it really would go towards healing those, those wounds of watching our lands, our ancestral territories be, be overrun by fire and by development.

And we really can't do anything about it. You know, 90% of my ancestral territory is Shasta National Forest, Lassen National Forest, Modoc National Forest, National Park Service, blm. They just made a new monument or whatever in the Medicine Lake Highlands, which is my ancestral territory in California. And it's like, you know, these protections are important and all the work that these guys are doing and propose are really important.

But it kind of is bittersweet because that just means when they make into a national monument, we, we have even less access to the land as tribal people. So I just wanted to say that, I mean I really applaud these people with the work that they're doing and hopefully they continue with the research and with the resiliency bond.

But you know, as a tribal person, it really is. I'm conflicted with the whole process. But I just wanted to say that.
>> Terry Anderson: Well, let me use that as a jumping off point for closing the day. Well, the reception is outside to close the day and I can see tables, so I don't wanna hold everybody to till 5 o'clock.

But we did want to get some ideas about what might be some implications for policy changes. Daniel has just said some co management with tribes. That's certainly one. I suggested more trades and submission of profit and loss statements. Let me ask the two panelists who are here and then I'm going to ask Nick to come back up because I'm sure he's got lots of ideas.

>> Jordan Horrillo: So local economy, whether it's federal, whether it's public or private management, just having decisions made locally and having local stakeholders be the ones involved. The most gains we've seen over the last couple decades in terms of places that have been actually able to make forests more resilient again are places where co ops have formed in which you have people with like, with tension between them.

You have forest owners and soil hydrologists and county officials, like you have a diverse room of people that all agree on the first principle that our forests have not been managed well. And something needs to change going forward. Once you get people in a room that agree on that, all of a sudden you start making strides in what you can do together.

And it reframes any litigation that happens where normally a judge sees that the Forest Service is getting sued by the Sierra Club and they're like, well, timber extraction, protecting the environment, I don't really know here. And so they listen to the facts of the case and might side to the Sierra Club, but in this situation with the collaborative group, it's the Sierra Club suing the local community.

And the local community includes environmental scientists and plenty of people who are not industry people, and the judge is like, well, I'm not going to. This is the community, and so it's making the litigation smoother by allowing for the compromises to happen before the project. And it's not.

There's just less tension. It's people walking together, not people tug of warring with each other.
>> Terry Anderson: Well, that sort of takes us back to Gary's opening with problems being local and having getting more focus at the local level where information is often pretty well in hand even without universities like Stanford.

Seren, do you have a thought on policy recommendations?
>> Seren Pendleton: A couple recommendations and thank you for the last comment too. That was a whole other chunk of my talk, we didn't even get to the recommendation of co-management and land back programs.
>> Terry Anderson: Well, if you want to stand between people and the reception.
>> Seren Pendleton: So we're good, I would say so a few recommendations. One is the Intertribal Timber Coalition's put together some great recommendations for the Appropriations committee. So a few of those I want to call out, one is there's massive disparity in funding between Indian forests and national forests run by the federal government.

So really bridging that disparity and making sure there's adequate funding funding at the BIA level as well. And then really what has been brought up a few times is to report on that funding per acre, but also report on that funding per acre on given from the government to Indian forests versus US Forest Service versus Park Service.

So we're really able to see that discrepancy and then to compare the restoration costs against wildfire and rehabilitation post fire. So I know we talked about how we have a deficit. We're spending somewhat, we're not generating revenue, but we're really not able to compare apples to apples if we're not looking at what would have happened had a catastrophic wildfire come through and what the economic cost would have been.

So comparing those restoration costs against wildfire and then two others was through the report of wildlife Fire mitigation and the management commission report to. That we're really promoting is number 19, which is that Congress invests in wood processing facilities and wood utilization sector to really help with this innovation on the wood utilization and the biomass coming off of landscapes.

And then of course, 113, which is the foster of the use of conservation finance agreements on landscapes, because that's what we do. So that's something that we're really pushing forward on the policy side.
>> Terry Anderson: In my previous life, I was the director of an organization in Montana called the Property and Environment Research Center.

And we did a very careful study looking at the Salish Kootenai tribes management of their forests. And I can't remember the numbers off the top of my head other than for every dollar spent on the nearby national forests, there was, I've forgotten, 5 cents in revenue, not a good rate of return.

But on the Salish Kootenai, as I recall, it was something like $1.50 or something like that per dollar spent, plus they had better wildlife habitat, they had better watershed, and the list went on.
>> Seren Pendleton: Now the national averages $3 in revenue on tribal forests.
>> Terry Anderson: Is that right?

Daniel, you can invest in the tribal forests and we get to have the national forest, you want to trade? So with that, let me ask for other suggestions. Nick in particular, take the stage, you can have my chair. Jordan, you can stay here or give you care to him, thanks to Jordan and Seren, please.

Thank you.

>> Dominic Parker: Before the conference, we asked speakers to submit a policy recommendation or two related to their session. And some speakers submitted, some didn't. And what I've tried to do is just kind of summarize what I heard today, calibrate that with the suggestions that were given, and come up with themes that seem to be supported across the sessions.

And there's a few points of tension which are interesting as well. But the seven themes that I recorded are one, transparency and policy. Two, being upfront about trade offs. Three is local control, although there's a little tension there that I'll describe in a moment. Four is flexibility and approaches.

So not prescriptive, but there's a little bit of tension with that one as well. Five is don't distort probably price signals, or at least try to find ways for price signals to be meaningful. Six is greater, allow greater participation in markets. And seven is the one I'm least uncomfortable with and that's maybe allow a little industrial policy.

So let me just say a few words about these and then if I miss something.
>> Terry Anderson: No, you're off the stage on the last one. I'm sorry, I get the hook.
>> Dominic Parker: So the first one on transparency and policy is with regulations and subsidies, be upfront about what the costs and benefits might be.

Put the chips on the table so that people can evaluate especially the costs. Gary Leibkat brought this up in the first session. Who bears those costs should be up front in kind of understanding what the distribution is. Benefits can be more difficult to estimate. That came up in the session on environmental markets, but there should be some attempt to estimate those and be transparent.

In the area of energy and energy transitions, there's three issues that came up, reliability, risk, and kind of reality. And so transparency involves being upfront about those involving experts, scientists, economists, engineers, to give information as they understand it. So it's out there. And then for public lands, the transparency is something like a balance sheet so people can see what are the management costs.

And you don't have to dig in with a specialized research assistant to understand those. Related to that is being upfront about trade offs. So that's number two. Trade-offs in the energy transition were about reliability, affordability and clean energy, and there's trade-offs. Typically in terms of those, being up front about those is a policy recommendation.

Related to that is the session about Andrew Waxman talking about carbon capture. There can be trade offs between what is locally clean, globally dirty, and vice versa. So carbon capture processes can affect local air pollution, sometimes in negative ways. So those are trade offs. That need to be put out there as a policy recommendation,

>> Terry Anderson: if I can. Out of that session, the one thing I just popped into the discussion and maybe got short shrift was optionality. I thought that was a really useful addition to what we need to think about in the energy transition context. The more optionality we have, the better, not less.

So if we know we all have to drive cars of this sort, or we have to have light bulbs of that sort, it seems to me optionality is important.
>> Dominic Parker: Absolutely. That's a recommendation that came through in the sessions to specify goals through policy, but not necessarily pathways.

So that's important with energy transition. It's important, say, in the offset markets that will Rafi talked about there's a goal to reduce the loss of or slow the loss of wetlands, but not necessarily prescription for how to do that. And this is different than command and control, which is the essence of the mandate here.

There was a little bit of tension here because there were some recommendations for adaptive management to learn while doing to update regulations in response to new information, which is flexibility. But there's also a concern that too much updating too quickly can reduce regulatory certainty. And for any kind of market, including environmental markets, regulatory certainty is an important thing.

So a little bit of tension between too much change, too much flexibility, and the certainty that markets and market investors need to rely upon the local control also had a little bit of tension. So most benefits and costs of local environmental policies are born locally. Gary made that point.

It came out in the public land session, and it's certainly true about energy decisions affecting tribes, tribal nations. Those are really local effects. Came out in that session, came out in the discussion about energy poverty. And it came in the discussion of public land management that, you know, local people can be affected by forest risk, forest fire risk, and, you know, state.

State land managers might account for more things on the balance sheet than federal land managers. The tension with local control that came up during James Coleman's comments is with big infrastructure investments that span lots of space. States in particular, he mentioned, could hold up an infrastructure project like an oil and gas pipeline, like a transmission line for.

For the transmission of renewable energy. And so there is some tension that came up. There's also, you know, fire from forests can pass state boundaries, and so regional areas can be affected by decisions. So, you know, a majority of the conversation was in favor of local control, but some tension there in terms of price signals.

The message from the session on climate adaptation, on natural disasters was loud and clear that you shouldn't have price signals that subsidize risk, either implicitly or directly. Insurance pricing should reflect real risks. And so if there's government intervention that distorts that, that's going to distort behavior. And, you know, you read about the consequences in the news.

There was also a little discussion about price signals and carbon credits, namely that if carbon credits aren't additional, then the price should be zero. And in fact, they're not always priced accordingly given their contribution to carbon sequestration. I had two more that were on this list.
>> Terry Anderson: Just remember, I'm not the one that's keeping you from going out there.

>> Dominic Parker: Another one that came up a bit by me and maybe a few others is allowing greater participation in markets so markets can better reflect and better kind of provide information about what the level of environmental quality is that people want when they have to, you know, when they, when it can't be cheap talk.

And we put our money where our mouths are. So potentially use market processes not just to trade in a cap and trade system, but to learn what the cap should be. And Gary's discussion of the endangered or the Clean Air act got at this a little bit. Are we way past the point where, you know, the marginal benefit in another unit of clean air is much lower than the cost?

Well, allowing kind of market bidding on that cap could provide information. It could as well in public land use decisions. If you allowed greater participation and bidding for public land use, you might allow markets, not politicians and bureaucrats, to tell you kind of what, you know, how people value different uses of the public estate.

And then last, and it was said in the energy transition session is, and it made me a little uncomfortable and it made probably other economists is maybe allow a little industrial policy. And the point here was there could be national security benefits of domestic energy reliance and domestic mining, not depending on other countries who could be trading partners for critical resources, to be a net exporter of oil and gas, for example, and to domestically produce minerals.

I mean, one of the reasons this makes me uncomfortable is it doesn't sound that different than arguments I've heard quite recently and probably are still being made that it's a national security issue to abate climate change. And for that reason, we need a certain energy portfolio, we need certain kinds of energy assets.

And so to me, it's a slippery slope when you can justify that there's some positive externality from a certain kind of industrial activity or a negative externality for another, where does that end? I see the point about national security. And that was the seventh policy recommendation that came up.

Terry, do you have anything to critique on that or add?
>> Terry Anderson: Critique you. You mean, no, that was well done. I mean, I hope that you will feel free to interact with any and all of the speakers and us as we depart or go and enjoy the outdoors here.

But I just want to first ask all of the audience and the two of us to say thanks to the speakers who were up here, the moderators and the panelists. They did what we wanted them to do and more so to all of them. If you, you know, you get on some of these calls where you've had an agent on the line and they say, please stay on to evaluate, and they give you the 1 to 5, 5 is high.

If you bump into Condi, just tell her five, and she'll know that you meant that for us. But really, thanks to all of you for sticking around all day for listening. We're excited about having Hoover involved in markets versus Mandates and these environmental issues. We hope that this keeps you thinking about what we're doing.

You'll see things in the Hoover reports and so on. If you have ideas you can find, I can give you Nick's email address. And no, seriously, we, you know, if you have ideas of things that you think we should take on in markets versus Mandates, let us know.

We'd be more than happy to try to incorporate them as we move forward. And again, thanks for letting me escape, Montana.