Sustainable Outlook
Extreme local temperatures lower expressed sentiment about U.S. economic conditions with implications for the stock returns of local firms
Christos Makridis & Jason Schloetzer
Journal of Behavioral and Experimental Finance, forthcoming
Abstract:
We draw from research that finds local weather conditions affect individuals’ belief-formation process and asset prices to investigate whether “extreme” local temperatures impact individuals’ beliefs about U.S. economic conditions (i.e., economic sentiment) and the stock returns of local firms. We combine Gallup’s U.S. Daily Poll, which provides the daily-level economic sentiment of a population-representative random sample of 1.5 million individuals, with daily weather conditions based on survey respondent location. We document that extreme local temperatures decrease individuals’ sentiment about the U.S. economy and that this decrease relates to declines in the stock returns of local firms. Further tests distinguish this extreme local temperature-sentiment effect from the effect of perceived life satisfaction on individuals’ economic sentiment, suggesting that the potential effect of extreme temperatures on individuals’ moods is not driving our results. We conclude that extreme local temperatures affect individuals’ sentiment about economic activity beyond the potential effect of temperature on firm- or local-level economic variables, with implications for stock returns.
Energy Shocks Caused Partisan Reversal in American Coal Country
Alexander Gazmararian
Princeton Working Paper, August 2022
Abstract:
Partisan change is thought to be uncommon in American politics. Why did coal-producing areas of the United States that voted for Democrats for decades flip to Republicans in the span of a few years? We argue that energy demand shocks increased economic precarity in these communities, which led residents to vote for political parties that opposed climate policy because it presented a salient threat to the local economy. Using geological data in a flexible event study design, we show how the shale gas boom, which displaced coal, caused coal-producing areas long supportive of pro-labor Democrats to flip to anti-climate Republicans. We supplement this test with semi- structured interviews and a survey conducted in Southwest Pennsylvania with coal miners, politicians, residents, and environmental groups. The findings have broad implications for the study of partisanship, self-interest, and climate politics.
Political differences in air pollution abatement under the Clean Air Act
Zach Raff, Andrew Meyer & Jason Walter
Journal of Public Economics, August 2022
Abstract:
In this paper, we study how local politics affect state level implementation of a critical federal environmental policy, the Clean Air Act, in the electricity generation sector. The analysis focuses on the installation of capital intensive air pollution abatement technology in highly regulated “nonattainment” areas, which violate federal air quality standards. The primary research design uses a regression discontinuity in the vote share for Republican governors and event study analyses of close elections. In nonattainment areas, Republican gubernatorial control differentially decreases new air pollution abatement capital spending by 90% and the probability of installing the most effective nitrogen oxide abatement technology by nine percentage points, relative to attainment areas and the counterfactual of Democratic gubernatorial control. The health benefits from reduced nitrogen oxide emissions in nonattainment areas likely exceed the additional costs of new air pollution abatement technology at electric utilities. However, the estimated benefit-cost ratios are smaller than those from many other air pollution abatement policies and net benefits may be negative for technology that will operate for fewer than five years.
Smokestacks and the Swamp
Emilio Bisetti et al.
Penn State Working Paper, June 2022
Abstract:
We examine the causal effect of politicians' partisan ideologies on firms' industrial pollution decisions. Using a regression discontinuity design involving close U.S. congressional elections, we show that plants increase pollution and invest less in abatement following close Republican wins. We also find evidence of reallocation: firms shift emissions away from areas represented by Democrats. However, costs rise and M/B ratios decline for firms whose representation becomes more Democratic, suggesting that politicians' ideological demands can be privately costly. Pollution-related illnesses spike around plants in Republican districts, suggesting that firms' pass-through of politicians' ideologies can have real consequences for local communities.
Perilous Flood Risk Assessments
Joakim Weill
University of California Working Paper, June 2022
Abstract:
Flooding is among the costliest natural disasters in the United States. Although the federal government provides floodplain boundary maps and subsidizes insurance, demand remains extremely low. This paper assembles the most comprehensive set of files ever compiled on flood risk and insurance to investigate the impacts of information provision on residential demand for flood insurance. I find that map updates over the past fifteen years removed more than one million properties from the high-risk floodplains on aggregate. This nation-wide decline in nominal flood risk is inconsistent with the best available flood science. Leveraging the staggered timing of flood map updates, I estimate that households respond to changes in official flood risk information, even when this information appears erroneous. Map updates caused a net reduction in demand for flood insurance, in stark contrast with the stated policy goal of increasing insurance coverage. The largest declines were concentrated in neighborhoods with a higher share of African Americans, a pattern largely driven by rezoning these households outside of the high-risk floodplains. On the other hand, digitizing previously-available flood maps does not impact insurance take-up, suggesting that the private benefits of improving access to flood risk information are small. Employing independent flood risk estimates in a structural model of insurance demand reveals that official map updates decreased welfare by at least 300 million dollars annually. Correcting flood maps would yield annual welfare gains exceeding 20 billion dollars, primarily in wealthy neighborhoods.
Climate change is increasing the risk of a California megaflood
Xingying Huang & Daniel Swain
Science Advances, August 2022
Abstract:
Despite the recent prevalence of severe drought, California faces a broadly underappreciated risk of severe floods. Here, we investigate the physical characteristics of “plausible worst case scenario” extreme storm sequences capable of giving rise to “megaflood” conditions using a combination of climate model data and high-resolution weather modeling. Using the data from the Community Earth System Model Large Ensemble, we find that climate change has already doubled the likelihood of an event capable of producing catastrophic flooding, but larger future increases are likely due to continued warming. We further find that runoff in the future extreme storm scenario is 200 to 400% greater than historical values in the Sierra Nevada because of increased precipitation rates and decreased snow fraction. These findings have direct implications for flood and emergency management, as well as broader implications for hazard mitigation and climate adaptation activities.
Climate change increases cross-species viral transmission risk
Colin Carlson et al.
Nature, 21 July 2022, Pages 555–562
Abstract:
At least 10,000 virus species have the ability to infect humans but, at present, the vast majority are circulating silently in wild mammals. However, changes in climate and land use will lead to opportunities for viral sharing among previously geographically isolated species of wildlife. In some cases, this will facilitate zoonotic spillover—a mechanistic link between global environmental change and disease emergence. Here we simulate potential hotspots of future viral sharing, using a phylogeographical model of the mammal–virus network, and projections of geographical range shifts for 3,139 mammal species under climate-change and land-use scenarios for the year 2070. We predict that species will aggregate in new combinations at high elevations, in biodiversity hotspots, and in areas of high human population density in Asia and Africa, causing the cross-species transmission of their associated viruses an estimated 4,000 times. Owing to their unique dispersal ability, bats account for the majority of novel viral sharing and are likely to share viruses along evolutionary pathways that will facilitate future emergence in humans. Notably, we find that this ecological transition may already be underway, and holding warming under 2 °C within the twenty-first century will not reduce future viral sharing. Our findings highlight an urgent need to pair viral surveillance and discovery efforts with biodiversity surveys tracking the range shifts of species, especially in tropical regions that contain the most zoonoses and are experiencing rapid warming.
Climate Change Around the World
Per Krusell & Anthony Smith
NBER Working Paper, August 2022
Abstract:
The economic effects of climate change vary across both time and space. To study these effects, this paper builds a global economy-climate model featuring a high degree of geographic resolution. Carbon emissions from the use of energy in production increase the Earth's (average) temperature and local, or regional, temperatures respond more or less sensitively to this increase. Each of the approximately 19,000 regions makes optimal consumption-savings and energy-use decisions as its climate (or regional temperature) and, consequently, its productivity change over time. The relationship between regional temperature and regional productivity has an inverted U-shape, calibrated so that the high-resolution model replicates estimates of aggregate global damages from global warming. At the global level, then, the high-resolution model nests standard one-region economy-climate models, while at the same time it features realistic spatial variation in climate and economic activity. The central result is that the effects of climate change vary dramatically across space -- with many regions gaining while others lose -- and the global average effects, while negative, are dwarfed quantitatively by the differences across space. A tax on carbon increases average (global) welfare, but there is a large disparity of views on it across regions, with both winners and losers. Climate change also leads to large increases in global inequality, across both regions and countries. These findings vary little as capital markets range from closed (autarky) to open (free capital mobility).
Social norms explain prioritization of climate policy
Jennifer Cole et al.
Climatic Change, July 2022
Abstract:
Most people in the United States recognize the reality of climate change and are concerned about its consequences, yet climate change is a low priority relative to other policy issues. Recognizing that belief in climate change does not necessarily translate to prioritizing climate policy, we examine psychological factors that may boost or inhibit prioritization. We hypothesized that perceived social norms from people’s own political party influence their climate policy prioritization beyond their personal belief in climate change. In Study 1, a large, diverse sample of Democratic and Republican participants (N = 887) reported their prioritization of climate policy relative to other issues. Participants’ perceptions of their political ingroup’s social norms about climate policy prioritization were the strongest predictor of personal climate policy prioritization—stronger even than participants’ belief in climate change, political orientation, environmental identity, and environmental values. Perceptions of political outgroup norms did not predict prioritization. In Study 2 (N = 217), we experimentally manipulated Democratic and Republican descriptive norms of climate policy prioritization. Participants’ prioritization of climate policy was highest when both the political ingroup and the outgroup prioritized climate policy. Ingroup norms had a strong influence on personal policy prioritization whereas outgroup norms did not. These findings demonstrate that, beyond personal beliefs and other individual differences, ingroup social norms shape the public’s prioritization of climate change as a policy issue.
Green Energy Jobs in the US: What Are They, and Where Are They?
Mark Curtis & Ioana Marinescu
NBER Working Paper, August 2022
Abstract:
Does the growth of renewable energy benefit US workers, and which workers stand to benefit the most? Until now, evidence on green energy jobs has been limited due to measurement issues. We use data on nearly all jobs posted online in the US, as collected by Burning Glass Technology, and we create a new measure of green jobs, defined here as solar and wind jobs. We use job titles and task requirements to define green jobs. We find that both solar and wind job postings have more than tripled since 2010, with solar jobs seeing especially strong growth that precedes the growth of new installed solar capacity. In 2019, we identify approximately 52,500 solar job openings and 13,500 wind job openings. Solar jobs are mostly (33%) in sales occupations, and in the utilities industry (16%). Wind jobs are most represented among installation and maintenance occupations (37%), and in the manufacturing industry (29%). Green jobs are created in occupations that are about 21% higher paying than average. The pay premium is even higher for jobs with a low educational requirement. Finally, green jobs tend to locate in counties with high shares of employment in fossil fuel extraction. Overall, our results suggest that the growth of renewable energy leads to the creation of relatively high paying jobs, which are more often than not located in areas that stand to lose from a decline in fossil fuel extraction jobs.
Rivers, lakes and revenue streams: The heterogeneous effects of Clean Water Act grants on local spending
Patrick Flynn & Tucker Smith
Journal of Public Economics, August 2022
Abstract:
The Clean Water Act (CWA) funded $167 billion (2020$) in grants to municipal governments for wastewater treatment upgrades. We leverage variation in the timing of grant receipt with a difference-in-differences design to estimate the effect of CWA grants on local spending. On average, each dollar of grant revenue caused a $0.45 increase in sewerage capital spending. Dividing previously estimated benefit-to-cost ratios of CWA grants by this estimate suggests that each CWA grant dollar that municipalities spent on sewerage capital generated an average return of $1.01. In addition to funding grants, the Act set new capital standards for all wastewater treatment facilities in the United States. We show that CWA grants caused a dollar-for-dollar increase in sewerage capital spending up to the amount needed to cover the costs of capital upgrades newly mandated by the CWA, but after municipalities met these capital requirements, or if the capital mandate was not binding, they reduced their own spending on sewerage capital in response to grant receipt. Municipalities then redistributed grant money to local residents by reducing water bills.
Adverse Selection as a Policy Instrument: Unraveling Climate Change
Steve Cicala, David Hémous & Morten Olsen
NBER Working Paper, July 2022
Abstract:
This paper applies principles of adverse selection to overcome obstacles that prevent the implementation of Pigouvian policies to internalize externalities. Focusing on negative externalities from production (such as pollution), we consider settings in which aggregate emissions are known, but individual contributions are unobserved by the government. We evaluate a policy that gives firms the option to pay a tax on their voluntarily and verifiably disclosed emissions, or pay an output tax based on the average rate of emissions among the undisclosed firms. The certification of relatively clean firms raises the output-based tax, setting off a process of unraveling in favor of disclosure. We derive sufficient statistics formulas to calculate the welfare of such a program relative to mandatory output or emissions taxes. We find that the voluntary certification mechanism would deliver significant gains over output-based taxation in two empirical applications: methane emissions from oil and gas fields, and carbon emissions from imported steel.