Chicago Booth Magazine Treasuring the Earth

Few in the world understand risk better than Henry M. Paulson, Jr. As the 74th secretary of the treasury for the United States during the final years of the Bush administration, Paulson was there when the credit bubble burst. He saw the United States enter the worst financial crisis since the 1930s. And as the chief financial executive for the government during that time, he knew the risk of political dithering—the potential consequences that awaited every American had the US government allowed the financial system to collapse.

Today, Paulson is passionate about a different kind of globally consequential risk: climate change. He is the founder and chairman of the Paulson Institute—a nonprofit, nonpartisan “think and do” tank based at the University of Chicago that aims to strengthen US-China relations by furthering sustainable economic growth and environmental protection in both countries.

“When I became treasury secretary, I really delved into climate change and came to the conclusion that it was the seminal risk of our time,” Paulson told CBM. “So I just feel a strong need to do something. I want my grandchildren to grow up in an environmentally healthy, prosperous, safe world. And I think that’s going to be a lot easier to ensure if we do the things we need to do to avoid the worst climate outcomes.”

Paulson came to Booth earlier this year and spoke at an event hosted by the Social Enterprise Initiative. The discussion with Robert H. Gertner, Joel F. Gemunder Professor of Strategy and Finance and faculty codirector of the Social Enterprise Initiative, centered on the intersection of economics and the environment.

In Paulson’s view, the movement to curtail global carbon emissions received a massive boost in 2015. The Paris Agreement was “a tremendous breakthrough” for the world, he said, but real change is only possible when the world’s largest countries create policies that lead to low-carbon (or even no-carbon) economies. Doing so will create economic models that will attract the private capital that’s needed to roll out clean-energy technologies—and that’s when the energy markets will really change, he said. “I think the view of policy makers is to say, ‘How do we change behavior?’” Paulson said. “And you can change it through policies that either subsidize good behavior or punish bad behavior. Right now we’re subsidizing high carbon energy, and we are not taxing pollution.”

Still, when it comes to government’s role in reducing carbon emissions and ushering in a clean-energy boom, Paulson remains optimistic. “Today, we have the science that we didn’t have before; we’ve got great knowledge; we’ve got technologies that can make a real difference; and we’ve got, I think, huge enthusiasm for change among the youngest people in colleges,” he said. “So government has been slower to act, but government now has all the tools. And I believe that government action can and will make a big difference.”