A carbon tax can induce innovation in green technologies. I evaluate the quantitative impact of this channel in a dynamic, general equilibrium model with endogenous innovation in fossil, green and non-energy inputs. I discipline the parameters using evidence from historical oil shocks, after which both energy prices and energy innovation increased substantially.  I find that a carbon tax induces large changes in innovation. This innovation response increases the effectiveness of the policy at reducing emissions, resulting in a 19.2 percent decrease in the size of the carbon tax required to reduce emissions by 30 percent in 20 years.

Stuck in a Corner? Climate Policy in Developing Countries (forthcoming, Macroeconomic Dynamics)

Much of the capital equipment used in developing countries is created in the OECD and, thus, is designed to make optimal use of the relative supplies of capital, labor, and energy in these developed countries. However, differences in capital-labor ratios between developed and developing countries create a mismatch between the energy requirements of this capital and developing countries' optimal levels of energy intensity. Using a quantitative macroeconomic model, this paper analyzes the implications of this mismatch for climate policy. I find that using capital equipment with "inappropriate" energy intensity has sizable consequences for both the effectiveness and the welfare cost of climate policies in developing countries.

Working Papers

The Distributional Effects of Adopting a Carbon Tax on Current and Future Generations (with Kevin Novan and William B. Peterman, revision requested, Review of Economic Dynamics)

This paper examines the non-environmental welfare effects of introducing a revenue-neutral carbon tax policy. Using a life cycle model, we find that the welfare effects of the policy differ substantially for agents who are alive when the policy is enacted compared to those who are born into the new steady state with the carbon tax in place. Consistent with previous studies, we demonstrate that, for those born in the new steady state, the welfare costs are always lower when the carbon tax revenue is used to reduce an existing distortionary tax as opposed to being returned in the form of lump-sum payments. In contrast, during the transition, we find that rebating the revenue with a lump-sum transfer is less costly than using the revenue to reduce the distortionary labor or capital tax. Additionally, we find that, depending on how the carbon tax revenue is rebated, the policy can be substantially more regressive over the transition than in the steady state. Overall, our results demonstrate that estimates of the non-environmental welfare costs of carbon tax policies that are based solely on the long-run, steady state outcomes may ultimately paint too rosy of a picture. Thus, when designing climate policies, policymakers must pay careful attention to not only the long-run outcomes, but also to the transitional welfare costs and regressivity of the policy.

After decades of stagnation, Africa began a period of sustained GDP growth starting in around 2000. Over the same period, Africa made large investments in its energy grid and had rapid growth in electricity production. We ask how much of Africa's recent growth can be accounted for by its substantial energy investments. To answer this question we use a multi-sector model in which energy complements labor and capital in the production of non-agricultural goods, and in which household preferences feature increasing expenditure shares of energy and non-agricultural goods with income. In our main specification, energy investments account for around one third of Africa's growth. This quantitative conclusion is driven by three features of the data: (i) Africa had very low energy inputs per capita before 2000, (ii) energy investments and energy production increased robustly since then, and (iii) the share of energy in non-agricultural production in Africa is substantial.

To what extend toes rural electrification induce structural change and alter migration patterns? This paper answers this question using a simple multi-sector spatial model and evidence from a panel of rural Ethiopian villages during its recent electricity supply expansion. We document that electrification raised irrigation rates and agricultural yields, rough doubled non-agricultural business ownership rates, and led to modest increases in durable goods purchases. Furthermore, villages that got electrified experienced increases in in-migration rates and substantial decreases in out-migration rates. Each of these predictions is qualitatively consistent with our theory. Our results suggest that rural electrification leads to substantial structural transformation of village economies and slows down rural-urban migration as a result. 

As climate change progresses and the frequency of extreme weather events increases, will agents be able to adapt to reduce the associated damage? This paper develops a two-part strategy  to quantify the existing level of extreme weather adaptation  and its contribution to the reduction in damage across U.S. counties. First, we estimate the relationship between the frequency of extreme weather events and damage. Second, we use our empirical estimates to calibrate a simple dynamic model that relates frequency and damage to adaptation. From this calibrated model, we quantify the level of adaptation and its effects on damage.  We find that even in the most event-prone areas, adaptation investments are relatively small and reduce the damage from extreme weather by less than ten percent. 

Selected Research in Progress

China: Development Angel or Loan Shark (with Betty Daniel)

The Energy Productivity Puzzle: Explaining International Differences in Energy Productivity (with Christos Makridis)