Insights Blog

Willi Semmler, a SCEPA Senior Fellow and NSSR Professor of Economics, has for many years argued that green bonds are a powerful tool for financing the transition to a low-carbon economy. That policy proposal is getting attention — New York state recently overwhelmingly approved a $4.2 ballot measure called the Clean Water, Clean Air and Green Jobs Environmental Bond Act of 2022.

This year’s materials for the G20 Summit include a SCEPA research paper co-written by Willi Semmler, the Director of SCEPA’s Economics of Climate Change project. The paper investigates how to recover the European Union (EU)’s sense of common aims after the Covid-19 crisis to address challenges such as long-term scarring of the labor market, Climate Change, European social and health care system and sustainability of sovereign debt. 

The World Bank published a report authored by a team of New School economists that investigates fiscal policies to help us move from a high-carbon economy to a low-carbon economy while minimizing financial instability.

SCEPA Climate Economics Director Willi Semmler and co-authors Francesco Saraceno and Brigitte Young published a new article asking how the European Union (EU) can recover its sense of common purpose after the Covid-19 crisis exacerbated division between and among member countries. The authors recommend a shared policy agenda for recovery to ensure Europe’s resilience in the face of future crises.

The economic and political consequences of the union’s divergence between core and periphery, including the dangerous surge in populist movements in almost every EU country, is the result of “a lethal mix of inadequate institutions and political choices dictated by flawed economic thinking.” The EU’s cohesion -- key to its economic and political viability -- cannot be trusted to blind faith in “efficient” markets, as some have claimed. This orientation has allowed the EU to become a club in which each member cares only about its own costs and benefits, Semmler and his co-authors explain.

Instead, the authors emphasize the importance of reforming institutions for macroeconomic governance (most notably fiscal policy) and prioritizing strong social welfare policy to ensure cohesion and the future of the union. This entails tackling European economic, fiscal, and social policy in tandem to create a sustainable EU recovery from the pandemic-driven downturn. The key for the EU, they argue, is to enact fiscal policies that protect against macroeconomic shocks and distributional problems while also creating and strengthening public goods such as a shared health care policy, a better Social Security system, and a coordinated transition to climate-neutral energy and transportation. These public goods are essential to reverse the harmful divergence trend in the EU and to build a more cohesive Europe that can more effectively take on a range of economic and political challenges.

As the impacts of climate change – from wildfires to flooding – become impossible to ignore, calls to adapt our economy are joined by calls to remove and store existing carbon dioxide, a process known as carbon drawdown. In response, market actors have launched profitable ventures in mechanical-chemical carbon dioxide removal (CDR) and sought government support. But just how effective and sustainable are these ventures?

In a recently published paper, New School for Social Research PhD candidate Andreas Lichtenberger and co-author June Sekera, Director of the Public Economy Project at the New School’s Heilbroner Center for Capitalism, review the literature on carbon dioxide removal and find that the use of public funds to subsidize commercial CDR is often counterproductive. They argue that governments should instead approach carbon reduction as a public service.

The paper focuses on the two CDR options which have gained the most legislative traction: point-source capture and direct air capture, which together the authors term “industrial carbon removal” (ICR). The authors review and discuss the effectiveness of each ICR method, asking whether it removes more CO2 than it emits, determining its resource usage at scale as well as its biophysical impacts.

Fig. 1 Full life cycle. Pathways associated with industrial carbon removal (ICR). (Image elaborated from Wikipedia entry on carbon capture and utilization and from Stewart and Haszeldine 2014.) 

The paper reveals that commercial ICR methods incentivized by governments emit more CO2 than they remove and thus do not meet the needs of atmospheric CO2 reduction. Some studies have found ICR methods (both point-source capture and direct air capture) to be net CO2 reductive through methodological choices by ignoring aspects of the process (like the fact that captured CO2 is primarily used for oil production) or assuming low-or zero-carbon power. The authors also find inadequate literature examining the resource usage and biophysical impacts of ICR methods at a significant scale.

The review shows that scientific literature does not support the use of public funds to subsidize commercial development and deployment of ICR, and that policy decisions have thus far been finance-driven, not science-driven. Instead, the authors recommend that governments approach atmospheric carbon reduction as a public service, like water treatment or waste disposal, because storage – not sale – of captured CO2 is the only way to achieve a true reduction of the gas.

Research from SCEPA economists studying the economic impacts of climate change and mitigation policies show green bonds have great potential to help countries across the world increase environmental investments and reach emission targets.

Willi Semmler, NSSR’s Arnhold Professor of International Cooperation and Development, says his students reflect the spirit of the time and can play an active role in shaping the world of the future.

A recent article from Intereconomics, co-authored by Willi Semmler, director of SCEPA’s Economics of Climate Change project, argues that as governments struggle to regain economic strength amid the coronavirus pandemic, reconstruction programs must initiate the great green transition.