Green Supply and Demand

Kevin Lewis

May 11, 2022

Economic freedom vs. egalitarianism: An empirical test of weak & strong sustainability, 1970–2017
Indra de Soysa
Kyklos, May 2022, Pages 236-268

Many argue that free markets drive climate change and harm environmental sustainability. They suggest that democratic controls over profligate capital and unregulated markets better secure economic wellbeing and environmental objectives. Eco-modernists, contrarily, argue that economic freedoms generate entrepreneurial technological change for reducing poverty and increasing environmental quality since people's demands for cleaner consumption are likely to be met by markets, and free markets are less likely to be affected by rent-seeking. Moreover, democratic publics also demand higher consumption and the protection of jobs in dirty industry, which would work against environmental causes. This study contrasts the effects of economic freedom and egalitarian democracy on environmental sustainability and atmospheric pollution, assessed as both weak and strong sustainability. The results show that economies that are friendlier to free markets increase physical capital (wealth) with lower damage to total environmental sustainability, measured as depletion of physical, human, and natural capital, including atmospheric pollution. Egalitarian democracy consistently reduces economic sustainability and increases atmospheric pollution. There is some evidence for an inverted-U shape relationship between egalitarianism and CO2 emissions independently of economic freedom and the level of development. The results are robust to a battery of testing procedures, alternative models and data, different sample sizes, a barrage of relevant diagnostic tests of robustness, and potential endogeneity. 

Do energy efficiency improvements reduce energy use? Empirical evidence on the economy-wide rebound effect in Europe and the United States
Anne Berner et al.
Energy Economics, forthcoming 

Increasing energy efficiency is often considered to be one of the main ways of reducing greenhouse gas emissions. However, efficiency gains that reduce the cost of energy services result in energy use rebounding and potential energy use savings being eaten up. Empirical research that quantifies the economy-wide rebound effect while taking the dynamic economic responses to energy efficiency improvements into account is limited. We use a Structural Factor-Augmented Vector Autoregressive model (S-FAVAR) that allows us to track how energy use changes in response to an energy efficiency improvement while accounting for a vast range of potential confounders. We find economy-wide rebound effects of 78% to 101% after two years in France, Germany, Italy, the UK, and the US. This implies that energy efficiency innovations alone may be of limited help in reducing future energy use and emphasizes the importance of tackling carbon emissions directly. 

The Role of Venture Capital and Governments in Clean Energy: Lessons from the First Cleantech Bubble 
Matthias van den Heuvel & David Popp
NBER Working Paper, April 2022

After a boom and bust cycle in the early 2010s, venture capital (VC) investments are, once again, flowing towards green businesses. In this paper, we use Crunchbase data on 150,000 US startups founded between 2000 and 2020 to better understand why VC initially did not prove successful in funding new clean energy technologies. Both lackluster demand and a lower potential for outsized returns make clean energy firms less attractive to VC than startups in ICT or biotech. However, we find no clear evidence that characteristics such as high-capital intensity or long development timeframe are behind the lack of success of VC in clean energy. In addition, our results show that while public sector investments can help attract VC investment, the ultimate success rate of firms receiving public funding remains small. Thus, stimulating demand will have a greater impact on clean energy innovation than investing in startups that will then struggle through the “valley of death”. Rather than investing themselves in startups bound to struggle through the valleys of death, governments wishing to support clean energy startups can first implement demand-side policies that make investing in clean energy more viable. 

Air Pollution and the Labor Market: Evidence from Wildfire Smoke
Mark Borgschulte, David Molitor & Eric Zou
NBER Working Paper, April 2022

We study how air pollution impacts the U.S. labor market by analyzing effects of drifting wildfire smoke that can affect populations far from the fires themselves. We link satellite smoke plumes with labor market outcomes to estimate that an additional day of smoke exposure reduces quarterly earnings by about 0.1 percent. Extensive margin responses, including employment reductions and labor force exits, can explain 13 percent of the overall earnings losses. The implied welfare cost of lost earnings due to air pollution exposure is on par with standard valuations of the mortality burden. The findings suggest that labor market channels warrant greater consideration in policy responses to air pollution. 

Air Pollution and Student Performance in the U.S.
Michael Gilraine & Angela Zheng
NYU Working Paper, February 2022

We combine satellite-based pollution data and test scores from over 10,000 U.S. school districts to estimate the relationship between air pollution and test scores. To deal with potential endogeneity we instrument for air quality using (i) year-to-year coal production variation and (ii) a shift-share instrument that interacts fuel shares used for nearby power production with national growth rates. We find that each one-unit increase in particulate pollution reduces test scores by 0.02 standard deviations. Our findings indicate that declines in particulate pollution exposure raised test scores and reduced the black-white test score gap by 0.06 and 0.01 standard deviations, respectively. 

Census tract ambient ozone predicts trajectories of depressive symptoms in adolescents
Erika Manczak, Jonas Miller & Ian Gotlib
Developmental Psychology, March 2022, Pages 485–492

Exposure to ozone is a well-documented risk factor for negative physical health outcomes but has been considered less frequently in the context of socioemotional health. We examined whether levels of neighborhood ozone predicted trajectories of depressive symptoms over a four-year period in 213 adolescents (ages 9–13 years at baseline; 57% female; 53% of minority race/ethnicity). Participants self-reported depressive and other types of psychopathology symptoms up to 3 times, and their home addresses were used to compute ozone levels in their census tract. Possible confounding variables, including personal, family, and neighborhood characteristics, were also assessed. We found that higher ozone predicted steeper increases in depressive symptoms across adolescent development, a pattern that was not observed for other forms of psychopathology symptoms. These findings underscore the importance of considering ozone exposure in understanding trajectories of depressive symptoms across adolescence. 

U.S. fires became larger, more frequent, and more widespread in the 2000s
Virginia Iglesias, Jennifer Balch & William Travis
Science Advances, March 2022

Recent fires have fueled concerns that regional and global warming trends are leading to more extreme burning. We found compelling evidence that average fire events in regions of the United States are up to four times the size, triple the frequency, and more widespread in the 2000s than in the previous two decades. Moreover, the most extreme fires are also larger, more common, and more likely to co-occur with other extreme fires. This documented shift in burning patterns across most of the country aligns with the palpable change in fire dynamics noted by the media, public, and fire-fighting officials. 

New land-use-change emissions indicate a declining CO2 airborne fraction
Margreet van Marle et al.
Nature, 17 March 2022, Pages 450-454

About half of the anthropogenic CO2 emissions remain in the atmosphere and half are taken up by the land and ocean. If the carbon uptake by land and ocean sinks becomes less efficient, for example, owing to warming oceans or thawing permafrost, a larger fraction of anthropogenic emissions will remain in the atmosphere, accelerating climate change. Changes in the efficiency of the carbon sinks can be estimated indirectly by analysing trends in the airborne fraction, that is, the ratio between the atmospheric growth rate and anthropogenic emissions of CO2. However, current studies yield conflicting results about trends in the airborne fraction, with emissions related to land use and land cover change (LULCC) contributing the largest source of uncertainty. Here we construct a LULCC emissions dataset using visibility data in key deforestation zones. These visibility observations are a proxy for fire emissions, which are — in turn — related to LULCC. Although indirect, this provides a long-term consistent dataset of LULCC emissions, showing that tropical deforestation emissions increased substantially (0.16 Pg C decade−1) since the start of CO2 concentration measurements in 1958. So far, these emissions were thought to be relatively stable, leading to an increasing airborne fraction. Our results, however, indicate that the CO2 airborne fraction has decreased by 0.014 ± 0.010 decade−1 since 1959. This suggests that the combined land–ocean sink has been able to grow at least as fast as anthropogenic emissions. 

The Role of Information in the Market Response to Flood Risk: Hurricane Katrina and the New Jersey Coast
Nicholas Muller & Caroline Hopkins
Carnegie Mellon University Working Paper, January 2022

This study uses hedonic property models to explore how coastal real estate markets subject to heterogeneous information treatments respond to flood risk. We identify reactions to flood risk, distinctly from price effects due to flood damage, by examining non-local flooding events.  Utilizing a difference-in-differences methodology, we test whether the coastal real estate market in New Jersey responds to several well-publicized hurricanes that did not strike the Atlantic seaboard. We find that homes in high flood risk zones situated in towns that participate in public flood awareness activities incur a 7 to 16 percent decrease in price after the non-local shock. Further, we show that firms are more responsive to risk information than individuals and that markets exposed to such information are less adversely affected by future disasters. 

Wetlands, Flooding, and the Clean Water Act
Charles Taylor & Hannah Druckenmiller
American Economic Review, April 2022, Pages 1334-1363

In 2020 the Environmental Protection Agency narrowed the definition of "waters of the United States," significantly limiting wetland protection under the Clean Water Act. Current policy debates center on the uncertainty around wetland benefits. We estimate the value of wetlands for flood mitigation across the United States using detailed flood claims and land use data. We find the average hectare of wetland lost between 2001 and 2016 cost society $1,840 annually, and over $8,000 in developed areas. We document significant spatial heterogeneity in wetland benefits, with implications for flood insurance policy and the 50 percent of "isolated" wetlands at risk of losing federal protection. 

Increasing atmospheric helium due to fossil fuel exploitation
Benjamin Birner et al.
Nature Geoscience, May 2022, Pages 346–348

Fossil fuels contain small amounts of helium, which are co-released into the atmosphere together with carbon dioxide. However, a clear build-up of helium in the atmosphere has not previously been detected. Using a high-precision mass spectrometry technique to determine the atmospheric ratio of helium-4 to nitrogen, we show that helium-4 concentrations have increased significantly over the past five decades. Obtaining a direct measure of the rise in atmospheric helium-4 is possible because changes in nitrogen are negligible. Using 46 air samples acquired between 1974 and 2020, we find that the helium-4 concentration increased at an average rate of 39 ± 3 billion mol per year (2σ). Given that previous observations have shown that the ratio between helium-3 and helium-4 in the atmosphere has remained constant, our results also imply that the concentration of helium-3 is increasing. The inferred rise in atmospheric helium-3 greatly exceeds estimates of anthropogenic emissions from natural gas, nuclear weapons and nuclear power generation, suggesting potential problems with previous isotope measurements or an incorrect assessment of known sources. 

Analyzing the Military’s Role in Producing Air Toxics Disparities in the United States: A Critical Environmental Justice Approach
Camila Alvarez, Daniel Shtob & Nicholas Theis
Social Problems, forthcoming

The negative environmental, health, and social effects arising from U.S. military action in communities both domestically and abroad suggest that the military represents an understudied institutional source of environmental injustice. Moreover, scholars and activists have long argued that the state is an active or a tacit contributor to environmental inequality, thus providing an opportunity to link U.S. military activity with approaches to the state developed under critical environmental justice. We build on these literatures to ask: Does the presence of domestic military facilities significantly increase carcinogenic risks from air toxics? And do communities of color face additional military-associated carcinogenic risks? Multilevel analyses reveal that locales in closer proximity to a military facility and those exposed to greater military technological intensity, independent of each other, experience significantly higher carcinogenic risk from air toxics. We find that proximity to military facilities tends to intensify racial and ethnic environmental inequalities in exposure to airborne toxics, but in different ways for Latinx and Black populations. These results highlight the role of the state in perpetuating racial and environmental expendability as reflected in critical environmental justice and represent an important expansion of nationwide environmental justice studies on contributors to environmental inequality.


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