An Emissions Tax for Buildings and Welfare
Abstract: Several cities across the United States have recently taken aggressive steps to reduce greenhouse gas emissions produced in their jurisdictions by taxing excess carbon from large existing buildings above a specified threshold. I study the long-term impacts of such policies using a novel quantitative dynamic general equilibrium model of housing that features an emissions externality, heterogeneity in households and building quality, and forward-looking abatement investment decisions by landlords. I calibrate the key parameters of the model using novel data on building characteristics, energy utilization, and cash flows in New York City, as well as the carbon tax from New York's Climate Mobilization Act's Local Law 97 (LL97). Results suggest that the carbon tax rate enforced by the City is too large because it produces a higher share of green rental property than is socially optimal. This has distributional consequences, driven by worsened housing affordability and higher rates of homelessness, which are not offset by the benefits from improved environmental quality. Means-tested transfers efficiently reduce welfare losses under the carbon tax policy, supporting the case for carbon dividends. The model suggests a welfare optimizing tax rate of \$120 per \emph{excess} ton of carbon dioxide equivalent (tCO2e) would minimize disproportionate welfare losses, while making significant progress towards the City's climate goal. The lower tax rate represents a 55\% decrease relative to the LL97 penalty.
Converting brown offices to green apartments with Arpit Gupta and Stijn Van Nieuwerburgh
Abstract: The conversion of brown office buildings to green apartments can contribute towards a solution to three pressing issues: oversupply of office in a hybrid-and-remote-work world, shortage of housing, and excessive greenhouse gas emissions. We propose a set of criteria to identify commercial office properties that are are physically suitable for conversion, yielding about 9% of all office buildings across the U.S. We present a pro-forma real estate model that identifies parameters under which these conversions are financially viable. We highlight several policy levers available to federal, state, and local governments that could accelerate the conversion, and that may be necessary should policymakers desire the creation of affordable housing. We highlight the role that the Inflation reduction Act could play.