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

This paper uses a life cycle model to compare how different approaches for recycling carbon tax revenue affect the welfare of agents born in the future steady state versus agents alive when the policy is adopted. Our results demonstrate that the welfare consequences of a given policy vary substantially across these two groups. For agents born into the future steady state, the expected non-environmental welfare costs are minimized when carbon tax revenue is used to reduce an existing distortionary tax. In contrast, among the agents alive when the policy is adopted, recycling revenue through uniform, lump-sum rebates results in the largest welfare increase across the policies we examine. Moreover, we find that the regressivity or progressivity of a policy also differs within the living population versus the future steady state population. Overall, our results illustrate that estimates of the non-environmental welfare costs of carbon tax policies that are based on the long-run outcomes miss-represent the near-term consequences. Given the potential importance of these near-term effects on the political feasibility of a policy, our findings indicate that, when designing a carbon tax, policy makers must pay careful attention to not only the long-run outcomes, but also to the transitional welfare effects of the policy.

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

We develop a structural macroeconomic model of adaptation investment to reduce the damage from extreme weather. The framework modifies the Aiyagari-style model to apply in a new setting in which a continuum of heterogeneous localities experience idiosyncratic extreme weather shocks. Localities can invest in adaptation capital to reduce the damage from extreme weather and they can purchase insurance to smooth consumption. A federal government taxes localities and provides partial disaster relief. We calibrate the model to match variation in FEMA aid per event across US counties with different risks of extreme weather. We use the calibrated model to quantify the amount and effectiveness of adaptation capital, the moral hazard consequences of FEMA policy, and the role of adaptation in response to climate change. We find that storm-related adaptation capital is 0.7 percent of the US capital stock and reduces the damage from extreme weather by one third. Additionally, the moral hazard effects of FEMA policy on adaptation and the associated extreme weather damage are substantial. We introduce climate change into the model as a permanent, increase in the severity of extreme weather. We find that adaptation reduces the welfare cost of this climate change by 25 percent. 

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 extent does rural electrification induce structural change and alter migration patterns? This paper analyzes 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, roughly 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. 

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)