Firm-Level Adaptation to Carbon Border Taxes: Evidence from a Randomized Evaluation
with David Atkin and Banu Demir
Coverage: MIT Spectrum
Abstract: Reducing firm-level emissions while minimizing impacts on economic growth has become a central dilemma facing policymakers in low- and middle-income countries, especially as countries around the world have begun using trade policy to tax the carbon content of imports. In this project, we experimentally evaluate three interventions—consisting of technical training and subsidized loans for investments—aimed at mitigating the economic costs of the European Union's Carbon Border Adjustment Mechanism (CBAM) on small and medium enterprises in Türkiye. The first intervention focuses on direct carbon mitigation measures; the second focuses on product innovation to move firms toward greener product mixes; and the third focuses on improving firm-level productive efficiency. In the first wave of the experiment, we have randomized over 500 Turkish manufacturing firms using a clustering algorithm to maximize power to detect domestic spillovers (i.e., leakage) of the intervention to untreated firms. Combining newly collected survey data on firm-level investments, production practices, and carbon emissions with administrative data on the universe of Turkish firm-to-firm linkages and sales, we will assess the tradeoffs between environmental and firm growth outcomes and explore whether policies can simultaneously achieve both goals.
Environmental Spillovers of Trade Policy
with David Atkin and Banu Demir
Abstract: A large share of trade tariffs in recent years have targeted heavily polluting industries such as iron and steel production, raising the possibility that trade policy focused on these industries may have unintended environmental consequences. We leverage firm-level administrative data from Türkiye to estimate the effects of the 2018 tariff increases implemented by the United States and subsequent retaliatory tariffs implemented by China, the European Union, and other trading partners. First, we document that Turkish iron and steel firms with higher pre-2018 export shares to the US differentially reallocated exports to the EU after tariffs on Türkiye were introduced. Second, we provide evidence that these Turkish firms concurrently increased their investments in less carbon-intensive production through purchases of specific “green” production technologies prioritized by EU importers. We plan to conduct a full accounting of the carbon emissions consequences of this tariff-driven trade reallocation, decomposing technique, scale, and composition effects.
Spatially Governing the Commons
with Karl M. Aspelund
Abstract: Environmental regulators seek to achieve resource sustainability targets in the face of ecological and economic shocks that affect different areas, producers, and time periods unevenly. While alternative instruments such as taxes, quotas, closures, or input restrictions can deliver the same stock targets in expectation, they differ in how they expose participants in the commons to volatility in harvests and profits. Inequality aversion, diminishing returns to contemporaneous harvests, and the shadow value of future resource stocks make differences in volatility welfare-relevant from a social planner’s perspective. We develop a framework, nesting canonical results from the prices versus quantities literature, to evaluate when and how instrument design matters under uncertainty. We use the framework to illustrate how instrument choices in different areas can be cast as a portfolio-choice problem in which regulators can choose levels of risk over aggregate harvests or certain distributional outcomes. The framework explains why policies that appear second-best in a deterministic setting, such as input restrictions or long seasonal closures, can be preferred once their risk-stabilizing properties are recognized. To apply our framework, we collect detailed harvest, price, and ecological data from the U.S. Atlantic scallop fishery, one of the nation’s highest-value fisheries, and illustrate how alternative policy mixes can meaningfully impact welfare outcomes under different degrees of inequality aversion.
Internalizing Environmental Externalities: A Coasean Approach to Urban Solid Waste Management in Kampala, Uganda
with Mychaela Paetow
Funding: IGC SPF Grant
Abstract: Cities in developing countries are generating increasing volumes of solid waste, straining existing waste management systems. Open dumping and burning are commons means of disposal, generating meaningful environmental and health externalities, especially in low-income communities and informal settlements. We partner with the Kampala Capital City Authority to test a new intervention designed to deter dumping: installing nets to catch household solid waste that would otherwise flow through rainwater drainage channels, causing flooding downstream. We are piloting a mechanism to elicit downhill households’ willingness-to-pay, and uphill households’ willingness-to-accept, to install nets along shared drainage channels, facilitating Coasean bargaining to realign private and social costs from improper waste management practices.
The Economics of Informal Recycling Markets: Evidence from Indonesia’s Waste Banks
with Mychaela Paetow
Funding: J-PAL K-CAI
China’s Fishing Subsidies in the 21st Century
with Andrés de Loera