Research
RESEARCH INTERESTS
Environmental and Energy Economics
Empirical Industrial Organization
International Trade
PUBLICATIONS
Constrasting Effects of Electricity Prices on Retrofit and New-Build Installations of Solar PV: Fukushima as a Natural Experiment, Journal of Environmental Economics and Management, 2022, 115: 102685.
(with Takahiko Kiso and Yosuke Arino)
This study investigates how residential solar PV adoption responds to changes in electricity prices. We shed light on the importance of a house(hold) characteristic that has been overlooked in the literature on energy-saving investment: the distinction between retrofit and new-build installations. To identify the effect of potentially endogenous electricity prices, we regard the 2011 Fukushima nuclear accident and subsequent shutdown of nuclear power plants in Japan as a natural experiment that caused substantial exogenous variations in electricity generation costs. Using Japanese data for 2009–2014, we find that higher electricity prices increase solar PV installations on existing homes (with the mean elasticity of 1.6), while we cannot find a significant effect for new-build homes. An important policy implication of the contrasting responses is that subsidy schemes for energy-saving building technologies can be made more cost-effective by targeting retrofits. We also find large downward bias (40–60%) if cost-shifter instrumental variables are not used to control for the endogeneity of electricity prices.
Regulatory Spillover and Climate Co-benefit: Evidence from the New Source Review Lawsuits, Journal of Environmental Economics and Management, 2021, 110: 102545.
(with Yichen Christy Zhou)
Though policies on greenhouse gas emissions have been shown to generate benefits in reducing local pollutants such as SO2 and NOx, spillover benefits in the reverse direction have not been well studied. This paper estimates one such spillover by examining how SO2 and NOx regulations of the New Source Review affect CO2 emissions of US power plants. We address the ambiguity surrounding the stringency of enforcement of the regulations by using a discrete-time duration model that allows us to predict the likelihood of being named in a lawsuit, and to use this likelihood as a continuous treatment variable. We find that a 1 percent increase in the probability of being sued reduces CO2 emissions by 0.3 percent, an effect comparable to a carbon tax of $10 per ton. Further decomposition analysis suggests that most of these carbon co-benefits arise from the shutdown of both coal-fired-only power plants and certain power-generating units.
Strategic Bias in Discrete Choice Experiments, Journal of Environmental Economics and Management, 2021, 109: 102163.
(with Keila Meginnis, Michael Burton and Dan Rigby)
An induced value laboratory experiment is conducted to explore the vulnerability of discrete choice experiments to strategic misrepresentation of preferences. We consider strategic behaviour to arise when an agent :(i) assumes the choice experiment will be used to determine a provision decision over a discrete set of alternatives; and (ii) has expectations about the relative likelihood of those alternatives being selected and delivered. In the experiment, agents receive induced values for the discrete set of provisioning alternatives. In treatments where agents receive information that their first best outcome is unlikely to win, we investigate the extend to which their choices change, in an attempt to deliver their second best outcome in the provisioning decision. We find that 27% of respondents misrepresent their preferences and reveal evidence of strategic bias. We find that this behaviour is sufficient to change inferences about preferred provision at the aggregate level.
The Impact of Trading on the Costs and Benefits of the Acid Rain Program, NBER Working Paper 21383, RFF Discussion Paper #15-25, Journal of Environmental Economics and Management, 2018, 88: 180-209.
(with Andrew Chupp, Maureen Cropper and Nicholas Muller)
[Previous title: The Market for Sulfur Dioxide Allowances: What Have We Learned from the Grand Policy Experiment?]
--- Coverage in NBER Digest, February 2016: http://www.nber.org/digest/feb16/w21383.html
We quantify the cost savings from the Acid Rain Program (ARP) by comparing compliance costs for 761 coal-fired generating units under the ARP with compliance costs under a counterfactual uniform performance standard (UPS) that would have achieved the same aggregate emissions in 2002. In 2002, we find compliance costs to be $200 million (1995$) lower and health damages to be $170 million (1995$) lower under the ARP. We also compare health damages associated with observed SO2 emissions from all ARP units in 2002 with damages from a no-trade counterfactual. Damages under the ARP are $2.1 billion (1995$) higher than under the no-trade scenario, reflecting allowance transfers from units in the western US to units in the eastern US with larger exposed populations.
Efficiency and Environmental Impacts of Electricity Restructuring on Coal-fired Power Plants, Journal of Environmental Economics and Management, 2017, 81: 1-18.
(with Harrison Fell, Ian Lange and Shanjun Li)
We investigate the efficiency and environmental impacts of electricity market restruc- turing by examining changes in fuel efficiency, cost of coal purchases, and utilization among coal-fired power plants based on a panel data set from 1991 to 2005. Our study focuses exclusively on coal-fired power plants and uses panel data covering several years after implementation of restructuring. The estimation compares how investor-owned (IOs) plants in states with restructuring changed their behavior relative to IOs in states without. Our analysis finds that restructuring led to: (1) a 1.4 percent improvement in fuel efficiency, (2) an 8 percent decrease in unit cost of heat input, and (3) a lower capacity factor even after adjusting for cross-plant generation re-allocation due to cost reductions. The estimates imply that restructuring has led to nearly 15 percent savings in operating expenses and up to 7.5 percent emissions reduction among these plants.
Why Are Power Plants in India Less Efficient than Power Plants in the United States? American Economic Review Papers & Proceedings, 2014, 104(5): 586-590.
(with Maureen Cropper and Kabir Malik)
India's coal-fired generating capacity doubled between 1990 and 2010 and currently accounts for 70% of electricity produced. Despite this, thermal efficiency at state-owned coal-fired power plants in India is significantly lower than at plants in the US. When matched on age and capacity, heat input per kWh was 8% higher at Indian plants between 1997 and 2009. This can only partly be explained by the lower heat content of Indian coal. Electricity sector restructuring in the US improved thermal efficiency at investor-owned plants; however, electricity sector restructuring in India has yet to improve thermal efficiency at state-owned coal-fired power plants.
Firm Competitiveness and the European Union Emissions Trading Scheme, Energy Policy, 2013, 63(1): 1056-1064.
(with Shanjun Li and Fan Zhang)
The European Union Emissions Trading Scheme is the first international cap-and-trade program for CO2 and the largest carbon pricing regime in the world. A principle concern over the Emissions Trading Scheme is the potential impact on the competitiveness of industry. Using a panel of 5,873 firms in 10 European countries during 2001-2009, this paper seeks to assess the impact of the carbon regulation on three variables through which the effects on firm competitiveness may manifest - unit material costs, employment and revenue. Our analysis focuses on three most polluting industries covered under the program- power, cement, and iron and steel. Empirical results indicate that the emissions trading program had different impacts across these three sectors. While no impacts are found on any of the three variables in cement and iron and steel industries, our analysis suggests a positive effect on both material costs and revenue: the effect on material costs likely reflects fuel-switching to reduce CO2 emissions while that on revenue may partly due to cost pass-through to consumers in a market less exposed to competition outside EU. Overall our findings do not substantiate concerns over carbon leakage, job loss and industry competitiveness at least during the study period.
WORKING PAPERS
Air Pollution, Smoky Days, and Hours Worked
(with Martino Pelli and Veronica Vienne)
This study investigates the impact of air pollution on hours worked in Chile on a national sample. We construct downwind smoke plumes originating from each wildfire to causally identify the effect of air pollution. Our findings reveal a 2.2% reduction in hours worked due to increased fine particulate matter from an extra smoky day. Our study suggests that focusing solely on labor productivity underestimates the economic cost of air pollution by 16-35%. The effect is more pronounced for female workers as well as workers engaged in outdoor tasks. We demonstrate that the heterogeneity varies substantially across the rural and urban areas, where high income workers experience a larger impact of air pollution on their labor supply in large comuna’s, but not in rural areas.
PDF & Online Appendix [new version!]
Charged Up: Impacts of Green Energy Transition on Local Labor Markets
(with Yichen Christy Zhou)
This paper studies the effects of utility-scale renewable energy expansion on local labor markets in the United States from 2005 to 2019. Utilizing exogenous solar and wind potentials from satellite data, we find a positive employment effect from solar and wind energy, and the effects are not short-lived. Also, solar energy contributes to wage growth. We find notable increases in jobs and business establishments in many sectors, particularly manufacturing in support of a local agglomeration effect. These gains are very localized, reflected in strong in-migration and weak local spillover. The gains are mostly concentrated among younger and lower-educated workers.
PDF & Online Appendix [new version!]
Indirect Energy Costs and Comparative Advantage
(with Edward Manderson and Fan Zhang)
We investigate whether the costs of an input to production embodied in the supply chain can be a source of comparative advantage. Motivated by the fact that most industrial energy use takes place in the supply chain, we focus on the case of energy costs. Using a disaggregated dataset on trade flows in manufacturing industries around the world, we find that both direct and indirect energy costs passed on through intermediate goods have a significant effect on the pattern of international trade. We also show that industries in countries with high energy prices attempt to mitigate these effects by importing energy-intensive, intermediate goods from countries that have lower energy prices. We consider the economic significance of our results by calculating the effects of the energy price increases that occurred in the European Union in the mid-2000s onwards. We find that EU manufacturing exports decline anywhere from 6.8 percent to 15 percent, depending on the elasticity of input substitution. Our results demonstrate that there is a substantial difference in the estimated effect of energy prices on international trade when indirect energy costs are taken into account.
PDF (Updated draft soon!)
Against the Wind: the Economic Cost of Renewable Intermittency under Transmission Constraints
(with Takeo Hori and Takahiko Kiso)
The need to incorporate renewable energy raises challenges in efficiency and reliability of the electricity market. In this paper, we quantify the two challenges facing incorporating renewable energy in the wholesale electricity market: intermittency of renewables and transmission constraints between regions. Using market data from ERCOT, we estimate a structural electricity market model to recover unobserved market fundamentals such as transmission constraints. We find the economic significance on the interaction of the two. The policy experiment suggests a reduction of marginal benefits of transmission capacity improvements when problem of renewable investment diminishes due to installation of battery storage.
PDF - Draft soon - available upon request
International Competitiveness Effect of Climate Mitigating Policies: How Important are Intermediate Goods?
(with Edward Manderson and Fan Zhang)
(Previous title: Energy Prices and International Trade: Incorporating Input-Output Linkages)
The literature on trade and the environment has paid limited attention to the importance of intermediate inputs for trade flows. This paper addresses this shortcoming in an analysis of the effect of energy costs on exports. Other studies that look at this relationship focus on the role of direct energy costs, computed on the basis of direct energy consumption (at the final stage of production) and domestic energy prices. Using multi-country input-output information, we measure the effect of aggregate energy costs on exports, where aggregate energy costs also include indirect energy costs passed on through the upstream supply chain. We use a two-step approach to estimate a theory-consistent model using a panel dataset of 10 manufacturing sectors in 41 countries from 1991 to 2013. We find that ignoring input-output relationships leads to a strong bias in the estimated impact of direct energy costs on exports. After controlling for indirect energy costs, we find statistically significant and negative effects on trade for both direct and indirect energy costs. We demonstrate the economic significance of indirect energy costs by simulating the impacts of both unilateral and multilateral policies that raise energy costs. Our results show that the aggregate (direct plus indirect) effect on exports of a 15 percent increase in energy costs in the European Union is about 10 times greater than the impact of the direct cost channel alone.
(In revision: Old draft available upon request)
DORMANT WORKING PAPERS
How Large are the Cost Savings from Emissions Trading? An Evaluation of the U.S. Acid Rain Program
Cap-and-trade programs are designed to keep compliance costs low but studies on actual savings are limited. This paper is the first to conduct a comprehensive analysis of the cost savings from the Acid Rain Program, the largest emissions trading program in the U.S.. I estimate a discrete choice model of coal procurement and scrubber installation to recover structural parameters of cost functions and predict compliance choices under an equally stringent uniform performance standard. Estimated annual cost savings under the ARP are 130-330 million (1995$), much smaller numbers than previous literature due to failure to reach the least cost solution.
Pollution Abatement Cost, Input-Output Linkages and U.S. Manufacturing Exports
How does environmental regulation affect trade flows? The pollution haven effect has hypothesized that tenser environmental regulation leads to a decrease in net exports, yet the empirical literature has found mixed results on its significance. This paper recovers a missing link on how environmental regulation affects non-pollution intensive industries through input-output linkages. When clean industries use dirty inputs intensively, they also experience a cost disadvantage, which leads to a decrease in exports. I model both channels and the intensive and extensive margins of trade using a heterogeneous firm model where each firm makes abatement choices and use materials as inputs. Using industry-level data from U.S. bilateral trade and pollution abatement cost and expenditure survey, I show that a 1% increase in pollution tax equivalent environmental regulation can cause a 0.035% drop in exports on average. Using input-output accounts I construct a measure on the intensity that an industry purchases pollution intensive inputs and show that it is negatively correlated with the industry export position.
A Simple Model of International Environmental Agreements with Bayesian Learning
In this paper I study the economics of self-enforcing international environmental agreements where agents never know what exactly the state of the world is. Explicitly, I consider countries using Bayesian learning to update their beliefs on the state of the world. Using a very simple framework of allowing pollution as a common bad, I study how Bayesian learning conveys message to countries and whether a full disclosure of information can necessarily improve the aggregate welfare. Interestingly, I find that the value of information is always negative which suggests that strategic interactions between countries significantly make the countries worse off. I also consider a dynamic setting where countries emissions can affect the learning process and surprisingly I find that the equilibrium breaks down to a coalition that cannot have more than two countries.
SELECTED WORK IN PROGRESS
Transmissions of Climate Policy Uncertainty Shocks
(with Karlygash Kuralbayeva and Po Yin Wong)
Is Free Trade Good for Water Quality?
(with Edward Manderson and Fan Zhang)
Impact of Freshwater Availability on Wildfires, Biodiversity and the Environment
(with Hrishi Chandanpurkar and Fan Zhang)
Disparities in Air Pollution Exposure in India
(with Ujjayant Chakravorty, Usama Jamal and Martino Pelli)