Publications

Powering Forward: Overcoming “Right of First Refusal” Obstacles in America’s Energy Grid

Jason M. Walter, Meagan McCollum, and Eric Olson

https://manhattan.institute/article/overcoming-obstacles-in-americas-energy-grid

ABSTRACT: The U.S. electrical grid faces unprecedented challenges that threaten its reliability, sustainability, and affordability. A significant portion of the U.S. population could face electricity reliability challenges in the coming years without swift and substantial investments in transmission infrastructure and grid modernization. Exacerbating these challenges are Right of First Refusal (ROFR) laws, which grant incumbent utilities the first right to construct and operate new transmission lines. These laws, previously enacted by several states and recently reinstated at the federal level by the Federal Energy Regulatory Commission’s Order No. 1920, will entrench bottlenecks in essential transmission infrastructure development. To address these critical issues, we propose key policy recommendations.

CITATION: Walter, J. M.; M. McCollum; and E. Olson  "Powering Forward: Overcoming “Right of First Refusal” Obstacles in America’s Energy Grid," Manhattan Institute, December 2024.

Political differences in air pollution abatement under the Clean Air Act

Zach Raff, Andrew Meyer, and Jason M. Walter

https://doi.org/10.1016/j.jpubeco.2022.104688

ABSTRACT: In this paper, we study how local politics affect state level implementation of a critical federal environmental policy, the Clean Air Act, in the electricity generation sector. The analysis focuses on the installation of capital intensive air pollution abatement technology in highly regulated ‘‘nonattainment” areas, which violate federal air quality standards. The primary research design uses a regression discontinuity in the vote share for Republican governors and event study analyses of close elections. In nonattainment areas, Republican gubernatorial control differentially decreases new air pollution abatement capital spending by 90% and the probability of installing the most effective nitrogen oxide abatement technology by nine percentage points, relative to attainment areas and the counterfactual of Democratic gubernatorial control. The health benefits from reduced nitrogen oxide emissions in nonattainment areas likely exceed the additional costs of new air pollution abatement technology at electric utilities. However, the estimated benefit-cost ratios are smaller than those from many other air pollution abatement policies and net benefits may be negative for technology that will operate for fewer than five years.

CITATION: Raff, Z.; Meyer, A.; and Walter, J. M.  "Political differences in air pollution abatement under the Clean Air Act," Journal of Public Economics, 2022, 212:104688.

KEYWORDS: Abatement technology, close elections, Clean Air Act, electric utilities

JEL CLASSIFICATION: K23, L51, Q53, Q58, R11 

The Political Economy of Market-based and Information-based Environmental Policies 

Jason M. Walter

http://dx.doi.org/10.1561/101.00000137

ABSTRACT: Contemporary research shows consumers are willing to pay a premium for eco-friendly products, suggesting eco-labels and other information-based policies may be an alternative to market-based policy tools. Emission taxes and tradable permits incentivize pollution reduction through monetary penalties, thereby punishing dirtier firms. Eco-labeling, instead, incentivizes pollution reduction through monetary rewards, allowing producers to leverage environmentally concerned consumers’ willingness-to-pay to increase their profits. A comparison of emission taxes and eco-labels illustrates a “carrot” versus “stick” approach to environmental policy. Both approaches yield environmental benefits; however, the political nature of environmental policy can create scenarios where the socially-optimal environmental policy is not implemented. This paper compares the political and economic impacts from traditional market-based policies to the popularized use of information-based eco-labels. The political nature of environmental policy suggests the “stick” provides an unpopular but effective environmental guidance, whereas the “carrot” shifts cost to consumers and yields only minor environmental benefits.

CITATION: Walter, J. M. 2021. "The Political Economy of Market-based and Information-based Environmental Policies," International Review of Environmental and Resource Economics, 15 (4), 359-385. 

KEYWORDS: Market-based environmental policy; information-based environmental policy; eco-certification; emission tax; eco-label; tradable permit

JEL CLASSIFICATION: Q58, H23, P48, D62, D43

Evaluating the Efficacy of Ambient Air Quality Standards at Coal-Fired Power Plants 

Zach Raff and Jason M. Walter

http://dx.doi.org/10.22004/ag.econ.303600

ABSTRACT: This study evaluates the health benefits and abatement costs of the PM2:5 National Ambient Air Quality Standards (NAAQS) at coal-fired power plants. We find that the emission reductions from the PM2:5 NAAQS between 1995 and 2016 are sizable and that the health benefits from these reductions far exceed the abatement expenditures of affected plants. We then use this ex post analysis to simulate future health benefits and abatement costs in this sector from more stringent PM2:5 standards. Our policy simulation shows that tightening these standards to levels recommended by the World Health Organization also passes a benefit-cost test.

CITATION: Raff, Z. and Walter, J. M. 2020. "Evaluating the Efficacy of Ambient Air Quality Standards at Coal-Fired Power Plants," Journal of Agricultural and Resource Economics, 45, 428-444.

KEYWORDS: Health benefits, National Ambient Air Quality Standards, particulate matter, policy simulation 

JEL CLASSIFICATION: D22, Q53, Q58 

Regulatory Avoidance and Spillover: The Effects of Environmental Regulation on Emissions at Coal-Fired Power Plants 

Zach Raff and Jason M. Walter

https://doi.org/10.1007/s10640-019-00394-z

ABSTRACT: The Clean Air Act's National Ambient Air Quality Standards (NAAQS) and New Source Review (NSR) permitting work in conjunction to improve ambient air quality in the United States. However, all previous studies of the NAAQS ignore this joint nature and focus solely on the effects of NAAQS non-attainment designation on various economic outcomes. Additionally, previous studies ignore the potentiality of regulatory spillover, i.e., abatement for one pollutant decreasing emissions of other, non-regulated pollutants, from the NAAQS. In this paper, we first examine the actions of plant managers who face varying degrees of regulatory oversight. We then estimate the differential effects of the NAAQS and NSR on emissions at coal-fired power plants, while also examining spillover effects. Collectively, this study adds to the literature on environmental regulation in two key ways. First, we use comprehensive data on facility-level NSR permit receipt to examine the differential effects of the NAAQS on plants regulated jointly by NSR and NAAQS non-attainment and those plants regulated only by NAAQS non-attainment. We investigate how the monitoring of areas with non-attainment designation leads to the avoidance of regulatory scrutiny by local plants and find that regulated facilities not subjected to the technological requirements of NSR decreased NOx emissions by 20%. We also examine the mechanisms through which this abatement occurs, e.g., technology, use of cleaner inputs. Second, we identify the spillover effects of the NAAQS for certain pollutants by examining the effects of disparate non-attainment designations from the emissions in question. We find a significant decrease in NOx and CO2 emissions as a result of carbon monoxide and SO2-affected non-attainment designation, respectively. We provide evidence that regulatory spillover in this case is the result of different emission control strategies. 

CITATION: Raff, Z. and Walter, J. M. 2020.  "Regulatory Avoidance and Spillover: The Effects of Environmental Regulation on Emissions at Coal-Fired Power Plants," Environmental and Resource Economics, 75 (3), 387-420.

KEYWORDS: Co-benefits; coal-fired power plants; National Ambient Air Quality Standards; New Source Review; nitrogen oxide; spillover; sulfur dioxide  

JEL CLASSIFICATION: D21, Q53, Q58 

Environmental policies and political feasibility: Eco-labels versus emission taxes 

Jason M. Walter and Yang-Ming Chang

https://doi.org/10.1016/j.eap.2020.04.004

ABSTRACT: This paper examines the economic and political implications of two market-based policies, eco-certifications and emission taxes. We evaluate each policy’s effects on the environment, investment in clean technology, and social welfare under imperfect competition. We find that eco-certification reduces total damage to the environment, increases consumer benefits, and is socially desirable. However, polluting firms will never voluntarily accept the socially optimal eco-standard, leading to suboptimal certification programs. Unless the marginal damage to the environment from emissions is sufficiently low and demand is sufficiently large, environmental damage occurring under voluntary eco-certification is higher in comparison to alternative policies. We examine the welfare impacts of each policy to identify social preferences. Using realized market benefits to construct policy preferences, we show conditions under which the socially optimal environmental policy is unlikely to be politically feasible. Our results explain the popularity and suboptimal qualities of eco-certification programs. 

CITATION: Walter, J. M. and Chang, Y.M. 2020. "Environmental policies and political feasibility: Eco-labels versus emission taxes," Economic Analysis and Policy, 66, 194-206. 

KEYWORDS: Eco-certification; emission taxes; environmental regulations; green consumers

JEL CLASSIFICATION: H23, Q5, D62, D43, Q58

Comparing the Effectiveness of Market-based and Choice-based Environmental Policy 

Jason M. Walter

https://doi.org/10.1016/j.jpolmod.2019.07.006

ABSTRACT: This paper examines the welfare effects of market-based (permits, taxes) and choice-based (voluntary emission certifications, eco-labels) environmental policy. My analysis shows that choice-based eco-labels can be a welfare-improving policy. However, these welfare gains occur through “green” consumer surplus as opposed to (social benefiting) emission reductions while emission taxes and permits increase welfare by causing “dirtier” or less efficient firms to leave the market. Although greater environmental conscientiousness makes eco-labeling an effective tool to improve overall welfare, eco-labels are not as effective at reducing environmental damage relative to traditional market-based emission taxes or permits. Using research on consumer preferences and previously implemented environmental policies, the effectiveness of traditional emission taxes and eco-labeling programs are estimated. The results suggest that consumers participation in the eco-labeled product market benefits producers, but overall, eco-labeling programs are an inefficient policy tool relative to traditional market-based emission taxes or permits. 

CITATION: Walter, J. M. 2020. "Comparing  the Effectiveness of Market-based and Choice-based Environmental Policy," Journal of Policy Modeling, 42 (1), 173-191. 

KEYWORDS: Emission taxes, environmental policy, eco-labeling 

JEL CLASSIFICATION: D41, D62, L52, L98

Regulating Mediators of Internet Piracy: P2P Websites and Cyberlockers

Jason M. Walter

https://doi.org/10.1108/DPRG-05-2019-0035 

ABSTRACT: Contemporary copyright infringement has significantly changed in the digital era, and due to the unique attributes of internet piracy and method of exchange, traditional regulatory approaches are ineffective. The characteristics of digital goods enable users to almost costlessly copy and exchange content. Much of contemporary research fails to incorporate the necessary components of exchange that is central to digital piracy. This paper examines the role of P2P network hosts and the often-omitted cyberlocker. I provide a simple framework that describes how these entities facilitate digital piracy and operate financially. This framework illustrates the objectives of piracy mediators, highlighting the avenues by which regulation can craft policy. My examination of online piracy highlights the challenges of contemporary policy to combat digital piracy due to the secondary consequences. Recent policies, aimed at diminishing piracy, would infringe on consumers’ privacy, hurt business finances, or become strategically used by rival firms to hurt the operations of other legal entities. 

CITATION: Walter, J. M. 2019. "Regulating Mediators of Internet Piracy: P2P Websites and Cyberlockers," Digital Policy, Regulation and Governance, 21 (5): 494-509.

KEYWORDS: Digital piracy; Information goods; P2P network; Cyberlockers  

JEL CLASSIFICATION: L11, L82, L86 

The Rise of Streaming Music and Implications for Music Production

R. Scott Hiller and Jason M. Walter

https://doi.org/10.1515/rne-2017-0064      

ABSTRACT: In this paper, we model the potential for streaming music, a nondurable product, to upend and displace durable music sales. As the popularity of streaming music increases producers will adjust their production to focus on the non-durable channel. We identify conditions under which the changes in music delivery will encourage musicians to release fewer songs, but at a higher quality, leading to market deepening and increased engagement. This change will complete the unbundling process in music production making the traditional bundled album of little importance. This tendency toward unbundling for individual musicians depends on a robust bundle from a delivery platform to provide value for consumer subscriptions. Beyond a model of consumer utility and producer profit, we analyze the most played songs of the large streaming music platform, Spotify, and compare those results to traditional album sales using Nielsen data.

CITATION: Hiller, R. S. and Walter, J. M. 2018. "The Rise of Streaming Music and Implications for Music Production," Review of Network Economics,  16 (4): 351-381. 

KEYWORDS: Information goods, Non-durable goods, Streaming music.

JEL CLASSIFICATION: L11, L82, O3  

Understanding the dynamics of clean technology: implications for policy and industry

Jason M. Walter

https://doi.org/10.1007/s10018-017-0197-2      View only version: http://rdcu.be/xyNR 

ABSTRACT: Using an optimal control approach, I examine the effectiveness of various strategies for firms investing in clean technology when faced with an emissions tax in a duopolistic market. Explicitly allowing for the cumulative nature of R&D, I show that emissions per unit of output are lowest when the firms cooperate in R&D, as compared to the scenarios when they compete in R&D or merge into a single entity. It is shown that R&D cooperation leads to the highest level of social welfare among the three alternative scenarios, and that a profit maximizing firm will never choose the most environmentally conscience investment strategy. In contrast to the traditional static analysis, which ignores the temporal effects associated with R&D, my dynamic analysis has implications for emission tax policy and environmental innovation to improve overall welfare 

CITATION: Walter, J. M. 2018. "Understanding the dynamics of clean technology: implications for policy and industry," Environmental Economics and Policy Studies, 20 (2), 365-386. 

KEYWORDS: Dynamic investment, Clean technology, Emission taxation 

JEL CLASSIFICATION: C61, O31, Q55

Green certification, heterogeneous producers, and green consumers: a welfare analysis of environmental regulations

Jason M. Walter and Yang-Ming Chang

https://doi.org/10.1007/s11149-017-9339-5       View only version: http://rdcu.be/vbIw 

ABSTRACT: We develop a vertical differentiation model to analyze welfare implications of environmental policies in a competitive market with production and consumption heterogeneity. Consumers with heterogeneous preferences choose between non-green and certified green products, while producers with heterogeneous production costs decide whether to engage in green production. In order for green products to be recognized by consumers, producers must join a green club. Key findings are summarized as follows. (i) The number of green producers, environmental standard, and overall welfare under the market solution are all socially sub-optimal. (ii) The introduction of a subsidy policy for greener production and standards is shown to increase social welfare, but is not Pareto optimal. (iii) A dual policy, which combines abatement subsidizes for a greener production standard and a tax charge for green certification, is shown to be the Pareto-optimal outcome. 

CITATION: Walter, J. M. and Chang, Y.M. 2017. "Green certification, heterogeneous producers, and green consumers: a welfare analysis of environmental regulations," Journal of Regulatory Economics, 52 (3):  333-361.  

KEYWORDS: Eco-certification, Clubs, Producer heterogeneity, Green consumers, Environmental regulations  

JEL CLASSIFICATION: Q58, D41, D71, H23  

Strategic R&D and the innovation of products: understanding the role of time preferences and product differentiation 

Jason M. Walter and Jeffrey M. Peterson

http://dx.doi.org/10.1080/10438599.2016.1249063

ABSTRACT: We evaluate the effects of innovation on competition using an optimal control approach that incorporates firms' time preferences. Using a model where firm(s) innovates by investing in research and development to create a more appealing product for heterogeneous consumers, we examine conditions that maximize social welfare. When firm(s) choose discount rate regardless of market structure, a monopoly will develop more innovative products. However, we show that duopolies may increase innovation if competition alters firms' outlook. Finally, we identify firm incentives to behave myopically, which in the context of collusion may impede industry-wide innovation.

CITATION: Walter, J. M. and Peterson, J. M. 2017.  "Strategic R&D and the innovation of products: understanding the role of time preferences and product differentiation," Economics of Innovation and New Technology, 26 (7): 575-595. 

KEYWORDS: Dynamic R&D, product appeal, firm outlook

JEL CLASSIFICATION: L15, O32, C6

Digital piracy: Price-quality competition between legal firms and P2P network hosts

Yang-Ming Chang and Jason M. Walter

https://doi.org/10.1016/j.infoecopol.2015.04.002

ABSTRACT: This paper examines competition between firms that produce legal information goods and host sites that index P2P links. Specifically, we develop a simple model in which a legal firm determines price for its information good and a P2P host site decides on its investment to improve the quality and accessibility of the information goods linked to its site for free download. In the analysis, users choose between goods that are both horizontally and vertically differentiated. We show conditions under which the profitability of legal firms may or may not be negatively affected by the presence of a P2P network. In addition, we demonstrate the resilience of P2P host sites to distribute digital goods. Our approach extends earlier studies in the literature to further allow for price-quality competition between legal firms and P2P network hosts.

CITATION: Chang, Y. M. and Walter, J. M.  2015. "Digital piracy: Price-quality competition between legal firms and P2P network hosts," Information Economics and Policy, 31: 22-32.

KEYWORDS: Digital piracy, Legal information goods, P2P network, Market competition

JEL CLASSIFICATION: L11, L82, L86

International trade and macroeconomic dynamics: The case of U.S. bilateral trade with G-7 countries

Jason M. Walter, Jungho Baek, and Won W. Koo

https://doi.org/10.1016/j.rie.2012.06.003

ABSTRACT: The short- and long-run effects of exchange rates, income, interest rates and government spending on U.S. bilateral trade with the other G-7 countries are investigated using an autoregressive distributed lag (ARDL) model. The primary contribution of this study is to consider separating the analysis of exports and imports in an integrated model that empirically encompasses four major schools of thoughts – elasticity, Keynesian income, absorption and monetary approaches – in order to identify macroeconomic linkages to U.S. bilateral trade with the other G-7 countries accurately. Results suggest that, in both the short- and long-run, U.S. imports and exports are highly sensitive to changes in U.S. and foreign income, while U.S. imports and exports are relatively insensitive to changes in bilateral exchange rate. It is also found that both exports and imports are more responsive to changes in government spending than changes in interest rates in both the short- and long-run.

CITATION: Walter, J. M.; Baek, J.; and Koo, W. W. 2012. "International trade and macroeconomic dynamics: The case of U.S. bilateral trade with G-7 countries." Research in Economics, 66 (4): 398-405. 

KEYWORDS: ARDL, Japan, Trade, U.S.

JEL CLASSIFICATION: C20, F10, F31