Fossilized
Clean Energy: Revisiting the challenges of industrial policy
Adele Morris, Pietro Nivola & Charles Schultze
Energy Economics, forthcoming
Abstract:
Large public investments in clean energy technology arguably constitute an industrial policy. One rationale points to market failures that have not been corrected by other policies, most notably greenhouse gas emissions and dependence on oil. Another inspiration for clean energy policy reflects economic arguments of the 1980s. It suggests strategic government investments would increase U.S. firms' market share of a growing industry and thus help American firms and workers. This paper examines the reasoning for clean energy policy and concludes that:
- While a case can be made that subsidizing clean energy might help address market failures, the case may be narrower than some assert, and turning theory into sound practice is no simple feat.
- An appropriate price on greenhouse gases is an essential precondition to ensuring efficient incentives to develop and deploy cost-effective emissions-abating technologies. However, efficient prices alone are unlikely to generate efficient levels of basic research and development by private firms.
- Government investments in clean energy are unlikely to produce net increases in employment in the long run, in part because pushing home-grown technologies at taxpayers' expense offers no guarantee that the eventual products ultimately won't be manufactured somewhere else.
- Spending on clean energy technologies is not well suited to fiscal stimulus.
- Federal energy spending should invest in technologies with the lowest expected cost of abatement and highest probability of market penetration.
- Funding decisions ought to be insulated - as much as possible - from rent-seeking by interest groups, purely political distortions, and the parochial preferences of legislators.
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The Effects of Environmental Regulation on the Competitiveness of U.S. Manufacturing
Michael Greenstone, John List & Chad Syverson
NBER Working Paper, September 2012
Abstract:
The economic costs of environmental regulations have been widely debated since the U.S. began to restrict pollution emissions more than four decades ago. Using detailed production data from nearly 1.2 million plant observations drawn from the 1972-1993 Annual Survey of Manufactures, we estimate the effects of air quality regulations on manufacturing plants' total factor productivity (TFP) levels. We find that among surviving polluting plants, stricter air quality regulations are associated with a roughly 2.6 percent decline in TFP. The regulations governing ozone have particularly large negative effects on productivity, though effects are also evident among particulates and sulfur dioxide emitters. Carbon monoxide regulations, on the other hand, appear to increase measured TFP, especially among refineries. The application of corrections for the confounding of price increases and output declines and sample selection on survival produce a 4.8 percent estimated decline in TFP for polluting plants in regulated areas. This corresponds to an annual economic cost from the regulation of manufacturing plants of roughly $21 billion, about 8.8 percent of manufacturing sector profits in this period.
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Double Standard: The Role of Environmental Consciousness in Green Product Usage
Ying-Ching Lin & Chiu-chi Angela Chang
Journal of Marketing, September 2012, Pages 125-134
Abstract:
The results from three studies suggest that consumers' perceptions of product effectiveness are critical in determining the amount of a product they choose to use in a given instance. In general, consumers consider green, or environmentally friendly, products to be less effective than regular products; therefore, consumers increase the amount of the green product they use to make up for the perceived inferiority. Notably, this pattern of green versus regular product usage is more pronounced among consumers who are environmentally conscious. When the perceived effectiveness of a green product is boosted by a credible endorsement, the discrepancy between green and regular product usage disappears.
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Aerosols from Overseas Rival Domestic Emissions over North America
Hongbin Yu et al.
Science, 3 August 2012, Pages 566-569
Abstract:
Many types of aerosols have lifetimes long enough for their transcontinental transport, making them potentially important contributors to air quality and climate change in remote locations. We estimate that the mass of aerosols arriving at North American shores from overseas is comparable with the total mass of particulates emitted domestically. Curbing domestic emissions of particulates and precursor gases, therefore, is not sufficient to mitigate aerosol impacts in North America. The imported contribution is dominated by dust leaving Asia, not by combustion-generated particles. Thus, even a reduction of industrial emissions of the emerging economies of Asia could be overwhelmed by an increase of dust emissions due to changes in meteorological conditions and potential desertification.
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Logistic curves, extraction costs and effective peak oil
Robert Brecha
Energy Policy, forthcoming
Abstract:
Debates about the possibility of a near-term maximum in world oil production have become increasingly prominent over the past decade, with the focus often being on the quantification of geologically available and technologically recoverable amounts of oil in the ground. Economically, the important parameter is not a physical limit to resources in the ground, but whether market price signals and costs of extraction will indicate the efficiency of extracting conventional or nonconventional resources as opposed to making substitutions over time for other fuels and technologies. We present a hybrid approach to the peak-oil question with two models in which the use of logistic curves for cumulative production are supplemented with data on projected extraction costs and historical rates of capacity increase. While not denying the presence of large quantities of oil in the ground, even with foresight, rates of production of new nonconventional resources are unlikely to be sufficient to make up for declines in availability of conventional oil. Furthermore we show how the logistic-curve approach helps to naturally explain high oil prices even when there are significant quantities of low-cost oil yet to be extracted.
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Does eco-certification have environmental benefits? Organic coffee in Costa Rica
Allen Blackman & Maria Naranjo
Ecological Economics, November 2012, Pages 60-68
Abstract:
Eco-certification of coffee, timber and other high-value agricultural commodities is increasingly widespread. In principle, it can improve commodity producers' environmental performance, even in countries where state regulation is weak. But eco-certification will have limited environmental benefits if, as one would expect, it disproportionately selects for producers already meeting certification standards. Rigorous evaluations of the environmental effects of eco-certification in developing countries that control for selection bias are virtually nonexistent. To help fill this gap, we use detailed farm-level data to analyze the environmental impacts of organic coffee certification in central Costa Rica. We use propensity score matching to control for selection bias. We find that organic certification improves coffee growers' environmental performance. It significantly reduces chemical input use and increases adoption of some environmentally friendly management practices.
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Recessions and Health: The Impact of Economic Trends on Air Pollution in California
Mary Davis
American Journal of Public Health, October 2012, Pages 1951-1956
Objectives: I explored the hypothesis that economic activity has a significant impact on exposure to air pollution and ultimately human health.
Methods: I used county-level employment statistics in California (1980-2000), along with major regulatory periods and other controlling factors, to estimate local concentrations of the coefficient of haze, carbon monoxide, and nitrogen dioxide using a mixed regression model approach.
Results: The model explained between 33% and 48% of the variability in air pollution levels as estimated by the overall R2 values. The relationship between employment measures and air pollution was statistically significant, suggesting that air quality improves during economic downturns. Additionally, major air quality regulations played a significant role in reducing air pollution levels over the study period.
Conclusions: This study provides important evidence of a role for the economy in understanding human exposure to environmental pollution. The evidence further suggests that the impact of environmental regulations are likely to be overstated when they occur during recessionary periods, and understated when they play out during periods of economic growth.
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Knowledge is (Less) Power: Experimental Evidence from Residential Energy Use
Katrina Jessoe & David Rapson
NBER Working Paper, August 2012
Abstract:
This paper presents experimental evidence that information feedback dramatically increases the price elasticity of demand in a setting where signals about quantity consumed are traditionally coarse and infrequent. In a randomized controlled trial, residential electricity customers are exposed to price increases, with some households also receiving displays that transmit high-frequency information about usage and prices. This substantially lowers information acquisition costs and allows us to identify the marginal information effect. Households only experiencing price increases reduce demand by 0 to 7 percent whereas those also exposed to information feedback exhibit a usage reduction of 8 to 22 percent, depending on the amount of advance notice. The differential response across treatments is significant and robust to the awareness of price changes. Conservation extends beyond the treatment window, providing evidence of habit formation, spillovers, and greenhouse gas abatement. Results suggest that information about the quantity consumed facilitates learning, which likely drives the treatment differential.
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The Effect of the Fukushima Nuclear Accident on Stock Prices of Electric Power Utilities in Japan
Shingo Kawashima & Fumiko Takeda
Energy Economics, November 2012, Pages 2029-2038
Abstract:
The purpose of this study is to investigate the effect of the accident at the Fukushima Daiichi nuclear power station, which is owned by Tokyo Electric Power Co. (TEPCO), on the stock prices of the other electric power utilities in Japan. Because the other utilities were not directly damaged by the Fukushima nuclear accident, their stock price responses should reflect the change in investor perceptions on risk and return associated with nuclear power generation. Our first finding is that the stock prices of utilities that own nuclear power plants declined more sharply after the accident than did the stock prices of other electric power utilities. In contrast, investors did not seem to care about the risk that may arise from the use of the same type of nuclear power reactors as those at the Fukushima Daiichi station. We also observe an increase of both systematic and total risks in the post-Fukushima period, indicating that negative market reactions are not merely caused by one-time losses but by structural changes in society and regulation that could increase the costs of operating a nuclear power plant.
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The Economics of Green Building
Piet Eichholtz, Nils Kok & John Quigley
Review of Economics and Statistics, forthcoming
Abstract:
We analyze the economics of "green" buildings, finding that recent increases in the supply of green buildings and in the volatility in property markets have not affected the returns to green buildings. We then analyze a large cross section of office buildings, demonstrating that economic returns to energy-efficient buildings are substantial. Finally, we relate the economic premiums for green buildings to their relative efficiency in energy use -- the attributes rated for thermal efficiency as well as sustainability contribute to premiums in rents and asset values. Among green buildings, increased energy efficiency is fully capitalized into rents and asset values.
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Environmental Tax Reform: Principles from Theory and Practice
Ian Parry, John Norregaard & Dirk Heine
Annual Review of Resource Economics, 2012, Pages 101-125
Abstract:
On the basis of the environmental tax literature, this article recommends a system of upstream taxes on fossil fuels, combined with refunds for downstream emissions capture, to reduce carbon and local pollution emissions. Motor fuel taxes should also account for congestion and other externalities associated with vehicle use, at least until mileage-based taxes are widely introduced. An examination of existing energy/environmental tax systems in Germany, Sweden, Turkey, and Vietnam suggests that there is substantial scope for policy reform. Policy options include harmonizing taxes for pollution content across different fuels and end users, better aligning tax rates with (albeit crude) values for externalities, and scaling back excise taxes on vehicle ownership and electricity use that are redundant (on environmental grounds) in the presence of more targeted taxes.
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Sources of Comparative Advantage in Polluting Industries
Fernando Broner, Paula Bustos & Vasco Carvalho
NBER Working Paper, August 2012
Abstract:
We study the determinants of comparative advantage in polluting industries. We combine data on environmental policy at the country level with data on pollution intensity at the industry level to show that countries with laxer environmental regulation have a comparative advantage in polluting industries. Further, we address the potential problem of reverse causality. We propose an instrument for environmental regulation based on meteorological determinants of pollution dispersion identified by the atmospheric pollution literature. We find that the effect of environmental regulation on the pattern of trade is causal and comparable in magnitude to the effect of physical and human capital.
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Bigger Is Not Always Better: A Comparative Analysis of Cities and their Air Pollution Impact
Andrea Sarzynski
Urban Studies, November 2012, Pages 3121-3138
Abstract:
This paper investigates the pressure placed by cities on their environment with respect to urban air pollution. The analysis employs a spatially explicit global dataset of emissions to estimate urban emissions of four pollutants from a sample of 8038 cities world-wide in 2005. A cross-sectional regression analysis is then conducted to examine the association of urban air pollution with socioeconomic and geographical factors. The results confirm that urban pollution is associated primarily, but not exclusively, with demographics. The results suggest that urban pollution is likely to increase with population growth and that economic modernisation is unlikely to provide much relief from the pressures placed by coming population growth. The findings suggest that policy-makers must focus on reducing the emissions intensity of production activities within cities, especially from the energy sector, if they are to avoid rapid growth in urban air pollution in coming decades.
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Foreign Direct Investment, Pollution, and Economic Growth: Evidence from Turkey
Takvor Mutafoglu
Journal of Developing Societies, September 2012, Pages 281-297
Abstract:
The purpose of this study is to investigate the relationships among Foreign Direct Investment (FDI) inflows, Carbon Dioxide (CO2) emissions, and economic growth in terms of Gross Domestic Product (GDP) for Turkey over the period of 1987Q1-2009Q4. The cointegration analyses suggest that there is a stable long-run equilibrium relationship among the variables under consideration and the results of the Granger causality test, produced from the error-correction model (ECM), show that there is a causal relationship between the variables and lends support to the pollution-haven hypothesis. However, there appears to be no evidence of FDI-led growth in the data.
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Energy intensity and investment ownership across Chinese provinces
M.J. Herrerias, A. Cuadros & V. Orts
Energy Economics, forthcoming
Abstract:
The main objective of this paper is to investigate whether openness and investment ownership are key factors in explaining the diffusion of energy-saving technologies in China. Compared with previous studies, the novel aspect of this work is the use of a rich dataset at provincial level, which allows the high level of regional heterogeneity to be taken into consideration. The unbalanced regional growth has been translated into differences in the need for energy resources across the vast territory of China. A detailed analysis of these issues may provide new insights into the energy situation in this country. The analysis is also disaggregated by type of energy: coal, electricity and petroleum. We estimate the models by panel-corrected standard errors, developed by Beck and Katz (1995), over the period 1985-2008. Results obtained confirm the hypothesis that both foreign and non-state investments play a leading role in the decline of energy intensity across Chinese regions, whereas there is no evidence of a positive contribution of state investment. The findings also reveal differences in energy intensity across regions, thus confirming the importance of accounting for the regional dimension when analyzing energy consumption in China.
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Comparing risk preferences over financial and environmental lotteries
Mary Riddel
Journal of Risk and Uncertainty, October 2012, Pages 135-157
Abstract:
This paper investigates whether preferences over environmental risks are best modeled using probability-weighted utility functions or can be reasonably approximated by expected utility (EU) or subjective EU models as is typically assumed. I elicit risk attitudes in the financial and environmental domains using multiple-price list experiment. I examine how subjects' behavioral, attitudinal, and demographic characteristics affect their probability weighting functions first for financial risks, then for oil-spill risks. I find that most subjects tend to overweight extreme positive outcomes relative to expected utility in both the environmental and financial domains. Subjects are more likely to overemphasize low probability, extreme environmental outcomes than low probability, extreme financial outcomes, leading subjects to offer more support for mitigating environmental gambles than financial gambles with the same odds and equivalent outcomes. I conclude that EU models are likely to underestimate subjects' willingness to pay for environmental cleanup programs or policies with uncertain outcomes.