Kevin Lewis

November 27, 2019

Carbon Taxes and CO2 Emissions: Sweden as a Case Study
Julius Andersson
American Economic Journal: Economic Policy, November 2019, Pages 1-30


This quasi-experimental study is the first to find a significant causal effect of carbon taxes on emissions, empirically analyzing the implementation of a carbon tax and a value-added tax on transport fuel in Sweden. After implementation, carbon dioxide emissions from transport declined almost 11 percent, with the largest share due to the carbon tax alone, relative to a synthetic control unit constructed from a comparable group of OECD countries. Furthermore, the carbon tax elasticity of demand for gasoline is three times larger than the price elasticity. Policy evaluations of carbon taxes, using price elasticities to simulate emission reductions, may thus significantly underestimate their true effect.

Stranded Fossil Fuel Reserves and Firm Value
Christina Atanasova & Eduardo Schwartz
NBER Working Paper, November 2019


Do capital markets reflect the possibility that fossil fuel reserves may become “stranded assets” in the transition to a low carbon economy? We examine the relation between oil firms’ value and their proved reserves. Using a sample of 679 North American oil firms for the period 1999 to 2018, we document that while reserves are an important component of oil firm value, the growth of these reserves has a negative effect on firm value. This negative effect on value is stronger for oil producers with higher extraction costs. When we decompose total reserves into developed and undeveloped reserves, we show that the negative effect of reserves growth on value is due to firms growing their undeveloped oil reserves. Unlike developed, undeveloped reserves require major capital expenditures and longer time before they can be extracted. We also document that the negative effect is stronger for undeveloped oil reserves located in countries with strict climate policies. Our evidence is consistent with markets penalizing future investment in undeveloped reserves growth due to climate policy risk. High level of institutional ownership, stock market liquidity and analyst coverage do not change the negative effect of undeveloped reserves growth on firm value.

California’s methane super-emitters
Riley Duren et al.
Nature, 7 November 2019, Pages 180–184


Methane is a powerful greenhouse gas and is targeted for emissions mitigation by the US state of California and other jurisdictions worldwide. Unique opportunities for mitigation are presented by point-source emitters — surface features or infrastructure components that are typically less than 10 metres in diameter and emit plumes of highly concentrated methane. However, data on point-source emissions are sparse and typically lack sufficient spatial and temporal resolution to guide their mitigation and to accurately assess their magnitude. Here we survey more than 272,000 infrastructure elements in California using an airborne imaging spectrometer that can rapidly map methane plumes. We conduct five campaigns over several months from 2016 to 2018, spanning the oil and gas, manure-management and waste-management sectors, resulting in the detection, geolocation and quantification of emissions from 564 strong methane point sources. Our remote sensing approach enables the rapid and repeated assessment of large areas at high spatial resolution for a poorly characterized population of methane emitters that often appear intermittently and stochastically. We estimate net methane point-source emissions in California to be 0.618 teragrams per year (95 per cent confidence interval 0.523–0.725), equivalent to 34–46 per cent of the state’s methane inventory for 2016. Methane ‘super-emitter’ activity occurs in every sector surveyed, with 10 per cent of point sources contributing roughly 60 per cent of point-source emissions — consistent with a study of the US Four Corners region that had a different sectoral mix. The largest methane emitters in California are a subset of landfills, which exhibit persistent anomalous activity. Methane point-source emissions in California are dominated by landfills (41 per cent), followed by dairies (26 per cent) and the oil and gas sector (26 per cent). Our data have enabled the identification of the 0.2 per cent of California’s infrastructure that is responsible for these emissions. Sharing these data with collaborating infrastructure operators has led to the mitigation of anomalous methane-emission activity.

Normalized US hurricane damage estimates using area of total destruction, 1900−2018
Aslak Grinsted, Peter Ditlevsen & Jens Hesselbjerg Christensen
Proceedings of the National Academy of Sciences, 26 November 2019, Pages 23942-23946


Hurricanes are the most destructive natural disasters in the United States. The record of economic damage from hurricanes shows a steep positive trend dominated by increases in wealth. It is necessary to account for temporal changes in exposed wealth, in a process called normalization, before we can compare the destructiveness of recorded damaging storms from different areas and at different times. Atmospheric models predict major hurricanes to get more intense as Earth warms, and we expect this trend to eventually emerge above the natural variability in the record of normalized damage. However, the evidence for an increasing trend in normalized damage since 1900 has been controversial. In this study, we develop a record of normalized damage since 1900 based on an equivalent area of total destruction. Here, we show that this record has an improved signal-to-noise ratio over earlier normalization schemes based on calculations of present-day economic damage. Our data reveal an emergent positive trend in damage, which we attribute to a detectable change in extreme storms due to global warming. Moreover, we show that this increasing trend in damage can also be exposed in existing normalized damage records by looking at the frequency of the largest damage events. Our record of normalized damage, framed in terms of an equivalent area of total destruction, is a more reliable measure for climate-related changes in extreme weather, and can be used for better risk assessments on hurricane disasters.

New elevation data triple estimates of global vulnerability to sea-level rise and coastal flooding
Scott Kulp & Benjamin Strauss
Nature Communications, October 2019


Most estimates of global mean sea-level rise this century fall below 2 m. This quantity is comparable to the positive vertical bias of the principle digital elevation model (DEM) used to assess global and national population exposures to extreme coastal water levels, NASA’s SRTM. CoastalDEM is a new DEM utilizing neural networks to reduce SRTM error. Here we show – employing CoastalDEM—that 190 M people (150–250 M, 90% CI) currently occupy global land below projected high tide lines for 2100 under low carbon emissions, up from 110 M today, for a median increase of 80 M. These figures triple SRTM-based values. Under high emissions, CoastalDEM indicates up to 630 M people live on land below projected annual flood levels for 2100, and up to 340 M for mid-century, versus roughly 250 M at present. We estimate one billion people now occupy land less than 10 m above current high tide lines, including 250 M below 1 m.

Adaptation and Adverse Selection in Markets for Natural Disaster Insurance
Katherine Wagner
Yale Working Paper, November 2019


This paper studies social welfare in markets for natural disaster insurance. I quantify frictions in uptake, test for adverse selection, and estimate the welfare effects of proposed policy reforms by developing a model of natural disaster insurance markets and compiling new data. The paper has three main findings. First, willingness to pay for natural disaster insurance is remarkably low. In the high-risk flood zones throughout all U.S. Atlantic and Gulf Coast states, fewer than 60% of homeowners purchase flood insurance even though subsidized premia are only two-thirds of their own expected payouts. Second, homeowners select into insurance based on observable differences in houses' defensive investments against natural disasters (i.e., adaptation), but not on private information about risk. Exploiting house-level variation in flood insurance prices and construction codes reveals that requirements to elevate newly constructed homes reduce insurer costs by 31% and insurance demand by 25%. Asymmetric information between homeowners and insurers, however, does not affect average payouts. Third, ignoring how frictions, such as risk misperception, distort demand understates the welfare cost of currently proposed price increases and changes the sign of the predicted welfare effect. In contrast, enforcing a natural disaster insurance mandate increases social welfare.

The public costs of climate-induced financial instability
Francesco Lamperti et al.
Nature Climate Change, November 2019, Pages 829–833


Recent evidence suggests that climate change will significantly affect economic growth and several productive elements of modern economies, such as workers and land. Although historical records indicate that economic shocks might lead to financial instability, few studies have focused on the impact of climate change on the financial actors. This paper examines how climate-related damages impact the stability of the global banking system. We use an agent-based climate–macroeconomic model calibrated on stylized facts, future scenarios and climate impact functions affecting labour and capital. Our results indicate that climate change will increase the frequency of banking crises (26–248%). Rescuing insolvent banks will cause an additional fiscal burden of approximately 5–15% of gross domestic product per year and increase the ratio of public debt to gross domestic product by a factor of 2. We estimate that around 20% of such effects are caused by the deterioration of banks’ balance sheets induced by climate change. Macroprudential regulation attenuates bailout costs, but only moderately. Our results show that leaving the financial system out of climate–economy integrated assessment may lead to an underestimation of climate impacts and that financial regulation can play a role in mitigating them.

How much climate policy has cost for OECD countries?
Timo Kuosmanen, Xun Zhou & Sheng Dai
World Development, forthcoming


High economic cost of climate policy has attracted critical debate since the Kyoto Protocol. However, reliable empirical evidence of the abatement cost of green-house gases across countries remains scant. In this study we estimate the average yearly green-house gas abatement costs per capita for a panel of 28 OECD countries in years 1990–2015. The marginal abatement costs are estimated using a novel data-driven approach based on convex quantile regression. Compared to traditional frontier estimation methods, the quantile approach takes into account a broader set of abatement options and is more robust to inefficiency, noise, and heteroscedasticity in empirical data. The comparison of OECD countries shows that the actual abatement cost per capita has been very modest, much lower than predicted in the late 1990s. This result has profound policy implications, calling for more ambitious climate change mitigation strategy in the future.

Saxitoxin and tetrodotoxin bioavailability increases in future oceans
Christina Roggatz et al.
Nature Climate Change, November 2019, Pages 840–844


Increasing atmospheric CO2 levels are largely absorbed by the ocean, decreasing surface water pH. In combination with increasing ocean temperatures, these changes have been identified as a major sustainability threat to future marine life. Interactions between marine organisms are known to depend on biomolecules, although the influence of oceanic pH on their bioavailability and functionality remains unexplored. Here we show that global change substantially impacts two ecological keystone molecules in the ocean, the paralytic neurotoxins saxitoxin and tetrodotoxin. Increasing temperatures and declining pH increase the abundance of their toxic forms in the water. Our geospatial global model predicts where this increased toxicity could intensify the devastating impact of harmful algal blooms, for example through an increased incidence of paralytic shellfish poisoning. Calculations of future saxitoxin toxicity levels in Alaskan clams, Saxidomus gigantea, show critical exceedance of limits safe for consumption. Our findings for saxitoxin and tetrodotoxin exemplify potential consequences of changing pH and temperature on chemicals dissolved in the sea. This reveals major implications not only for ecotoxicology, but also for chemical signals that mediate species interactions such as foraging, reproduction or predation in the ocean, with unexplored consequences for ecosystem stability and ecosystem services.

Firms' and states’ responses to laxer environmental standards
Tito Cordella & Shantayanan Devarajan
Journal of Environmental Economics and Management, forthcoming


On June 1, 2017, President Trump announced the United States' withdrawal from the Paris agreement on climate change. Despite this decision, American firms continued investing in low-carbon technologies and some states committed to tougher environmental standards. To understand this apparent paradox, this paper studies how a weakening of environmental standards affects the behavior of profit-maximizing firms. It finds that a relaxation of emission standards (i) may increase firms’ incentives to adopt clean technologies, but not to pollute less; (ii) may negatively affect industry profitability if it is perceived as temporary; and, when this is the case, (iii) the unilateral adoption of stricter standards by large states may increase the expected profitability of every firm.

Acceleration of global N2O emissions seen from two decades of atmospheric inversion
Rona Thompson et al.
Nature Climate Change, December 2019, Pages 993–998


Nitrous oxide (N2O) is the third most important long-lived GHG and an important stratospheric ozone depleting substance. Agricultural practices and the use of N-fertilizers have greatly enhanced emissions of N2O. Here, we present estimates of N2O emissions determined from three global atmospheric inversion frameworks during the period 1998–2016. We find that global N2O emissions increased substantially from 2009 and at a faster rate than estimated by the IPCC emission factor approach. The regions of East Asia and South America made the largest contributions to the global increase. From the inversion-based emissions, we estimate a global emission factor of 2.3 ± 0.6%, which is significantly larger than the IPCC Tier-1 default for combined direct and indirect emissions of 1.375%. The larger emission factor and accelerating emission increase found from the inversions suggest that N2O emission may have a nonlinear response at global and regional scales with high levels of N-input.

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