James Stodder

What is your area of expertise?
My best-known publications are on “social currencies” or “community currencies.” Unlike BitCoin, these are non-anonymous payment systems created by local governments or organizations to boost spending and keep it within the community. They work to supplement, not replace, national currencies. The one I've studied most is in Switzerland: the WIR Bank (“WE” Bank). Tens of thousands of small and medium enterprises (SMEs) use it, and it's been there for over 80 years. My statistical studies show how WIR Bank has helped these SMEs ride out recessions in Switzerland. More generally, it shows that social currencies can be “counter-cyclical” and help stabilize the macro-economy in any country.

In the summer of 2017, the city council of Barcelona sponsored my travel to advise on their launch of a local currency, the REC (Recursos Económicos Ciudadanos). In November 2018, I was sponsored by the Free University of Brussels to discuss a new local currency for that city.

What are you currently working on?
I am currently working on a statistical study with Christian Gelleri, a professor at the University of Wurzburg and the founder of a Bavarian social currency, the Chiemgauer, in circulation since 2006. Besides exchange systems, I have a longstanding interest in environmental economics. I am also collaborating with a former professor at BU MET, Robert S. MacArthur, who is interested in building links between the two—social currencies that promote green industries.

Recently, I've worked on the effects carbon taxes could have on the three big fossil fuels—coal, oil, and natural gas. It's obvious that such a tax will hurt coal and help gas, since they have different carbon footprints. But how high a tax, and how quickly is it introduced? How will it affect use and profits for each fuel? My model uses nearly 50 years of US data to help answer these questions.

In what ways do you put your expertise into practice?
In 2017, I was invited to St. Petersburg, Russia, to present my research, and in December of that year sponsored to give a series of lectures at their Far Eastern Federal University, in Vladivostok. Russia has the most natural gas in the world, about a quarter of the total. My research shows that a carbon tax will actually boost the profitability of natural gas. It still gets taxed, but because it’s less carbon-intensive than coal or petroleum, its consumption is also boosted.

So that's why the Russians are interested. But they’re not the only ones that have figured this out. Royal Dutch Shell has been publicly advocating for a carbon tax since 2016. They are much more aggressive about this than, say, Exxon-Mobil, and the reason is pretty obvious. Shell has the world’s largest private holdings of natural gas. The holdings of Russia’s state-owned Gazprom, however, may be 30 times greater. I wouldn’t be too surprised to eventually see support for a global carbon tax from big natural gas-producing countries like Iran and Russia.

What courses do you teach at MET?
I teach in the areas of finance and international economics. My two main courses are Financial Regulation and Ethics (MET AD 678) and Multinational Finance and Trade (MET AD 763). I’ve also taught Quantitative Methods for Finance (MET AD 685), Operations Management (MET AD 604), and Global Supply Chains (MET AD 680).

How does your professional experience influence your course material?
In my Financial Regulation and Ethics course, I introduce a law and economics perspective—how law impacts efficiency. Students are interested in my experience as an economic “expert witness” in courts, depositions, and arbitration procedures. As for logistics and energy economics, I bring to the classroom experience from a decade spent in the US and Caribbean, where I drilled for oil, repaired ships’ pumps and engines, and worked on sea-going “push boats.” I wasn’t an engineer, just a lowly deckhand and “roughneck.” I worked in Florida, Louisiana, Texas, California, Curaçao, and Venezuela.

You were selected as a Faculty Research Fellow for Boston University’s Frederick S. Pardee Center for the Study of the Longer-Range Future. What does it mean to be a fellow with the Pardee Center? What does it mean to/for you?
It’s great to have my work recognized and supported by a highly respected academic institution. Under the Pardee Center’s sponsorship, I hope to soon have my work accepted by a major journal, and to organize an international conference on carbon pricing.

What is carbon pricing and what is the intent behind it?
Virtually all economists, something like 99%, would agree with the proposition that whenever there are harmful spillovers from an economic activity—be it noxious fumes from a factory or CO₂ from fossil fuels—the activity should bear an explicit cost to its consumers and producers. It can be through taxes to get the price right, or by auctioning off permits to get the quantity right. We need statistical models to figure out what those right prices or quantities are. They have to be updated as new data come in.

What is the premise of your current research on carbon pricing models?
I use a statistical tool called Vector Auto Regression, or VAR. It is widely used in financial econometrics and I’ve taught it in the Quantitative Methods for Finance course. But it has been relatively little used in environmental statistics. The nice thing about VARs is that you can usually get a closer empirical “fit” to the data than with more complex models that have more theoretical assumptions and structure. That’s why VARs are widely used for industrial forecasts. It’s a kind of “less is more” situation.

What are the biggest challenges for the adoption of carbon pricing models—innovation, development, implementation or something else?
I would say that the two biggest obstacles are popular support and international agreement. The two are linked. People will ask why they should pay a carbon tax if other countries aren’t paying their fair share.

How important is it to have international alignment and engagement on carbon pricing models, or are local approaches a more viable option?
I think international agreement is vital. Any country—and especially emerging economic powers like China, India, Brazil, or South Africa—will be tempted to “free ride” on an international carbon agreement. That is, they would gain an economic advantage by not taxing carbon and just letting the other guys pay for it. So this becomes a reason for all countries to doubt the possibility of such an agreement.

For a solution, I look to the work of Yale’s William Nordhaus, who won the Nobel in 2018. (I worked for Nordhaus as a Teaching Assistant and a Research Assistant when I did my PhD.) Economists are generally very much against tariffs, but they can be useful if there’s no other practical way to tax carbon. Nordhaus argues for a “Climate Club” of rich nations that agree to impose a common carbon tax on themselves, and to assess a carbon tariff/tax on the carbon content of imports from countries that do not have a carbon tax. His models show that this gives those countries an economic incentive to “join the club.”

There is an obvious objection, and that is that this isn’t fair to rapidly developing countries like China. Yes, they have just started to be heavy polluters, but the big industrial countries have been freely polluting for two centuries. So in this view the real “free riders” are the rich countries.

This is a valid point, but there is a good answer to it. And that is that the tax can be separated from an income subsidy. China, for example, can still be taxed per-unit of carbon emissions, but then be compensated per capita according to its general level of income—as long as it abides by the tax. Since its per-capita income and levels of pollution are not highly correlated in the short run, whether it produces a lot or a little carbon won’t affect its compensation—it can only affect its taxes.

This is a standard argument for economists about the possibility of separating taxation from a “lump-sum” transfer. This comes up at another point in my research, when I talk about US taxes—as I explain in the next point.

How does the current political climate, including the US withdrawal from the Paris Agreement, impact the development and implementation of carbon pricing models?
Popular opposition to carbon taxes scares politicians everywhere. The Yellow Vest movement in France forced [President] Emanuel Macron to roll back his carbon taxes. Their slogan was “Macron worries about the End of the World. We worry about the End of the Month.”

But the answer to this is the same as above. A carbon tax and income subsidy can be separated on the international level. But they can also be separated at the domestic level. This is the truly “good news” of my research, and I am fairly confident about it. Through numerous simulations on 47 years of detailed price and consumption data, I can show that a citizen rebate for a carbon tax not only doesn’t increase fossil-fuel consumption—it actually decreases it.

That is, many people actually prefer to use less-polluting alternatives, and even more so if the more-polluting option goes up in price. Take driving or heating/cooling your house. Most people are not polluting through these activities because they like doing so. They’re doing so because there’s no economically feasible alternative. Raise the price of gasoline and more people will use public transport. Raise the price of electricity on the grid and more people will install solar panels. Give them a subsidy and they will do so even faster.

Who are your strongest supporters and advocates? Who does not embrace this research, if anyone? If there is opposition, how do you plan to overcome the objections?
As I said above, one would expect big oil and coal companies to oppose carbon taxes. But big natural gas producers like Shell have come around, and maybe Russia will too. Interestingly, the electrical power industry has publicly embraced carbon taxes. That might seem altruistic, but actually a little bit of economic analysis shows that it is the fossil fuel companies that wind up paying most of the tax. Most people think that a tax always gets passed “forward” to the consumer, but it really depends on the price-sensitivities (or “elasticities,” as the economists say—so no one will know what they’re talking about!) But in the market for coal and oil, most of the tax actually gets passed “backward” to the producers. A tax on natural gas gets passed mostly forward—but it’s cheaper to begin with.

And of course, there is a growing green movement in every country, both among citizens and companies that hope to profit from the new technologies. Tesla is just the biggest example. There are also good reasons to believe that an energy tax rebate would be income-equalizing. That is, rich consumers use a lot more energy than the poor. So if we all get the same rebate, that’s equalizing.

So the natural human desire to leave a sustainable world to our children can be married to good old economic self-interest. When this gets done, it will be an unstoppable social and political force.

What interest has government taken in your research?
I got indirect support from the Russian government via a sponsored trip to the Far Eastern Federal University in Vladivostok. And I have had considerable interest and help with data from researchers within the Energy Information Administration, part of the US Department of Energy. I will cite their help in any publications.

How long will it take to finish and publish the findings of your research?
I’ve been working on it for years, but I’m almost done. I’m now collecting and formatting the results.

Do you incorporate any aspect of your research into the classroom? Is this a research project your students can play a part in?
I do talk a little about my research in the Multinational Finance and Trade course. For young students, this international dimension of carbon taxes will be “on the table” for the rest of their lives—and probably their children’s lives as well.

And yes, four MET students have helped me greatly as research assistants: Jintao Yu, Michael Gurev, Kamilla Sabitova, and Jiaqi Yao. They will definitely be cited in any and all publications.