PUBLICATIONS
The Gas Trap: Outcompeting Coal vs. Renewables (with Bård Harstad). Journal of Political Economy (Forthcoming).
We analyze a fundamental dilemma and time-inconsistency problem facing climate-concerned producers of natural gas. In the short term, it is tempting to produce more to outcompete coal. When this policy is anticipated, however, investments in renewables fall and emissions may ultimately increase. When the gas producers cannot pre-commit, its policies can be counterproductive. A simulated version applied to Europe verifies that the gas trap is quantitatively important. We discuss the robustness of this result and possible solutions, ranging from direct investments in renewables to taxes on the search and exploration of gas.
The Dynamics of Linking Permit Markets (with Kristoffer Midttømme). Journal of Public Economics, 2021.
This paper presents a novel benefit of linking emission permit markets. We let countries issue permits non-cooperatively, and with endogenous technology we show there are environmental benefits from permit trade even if countries are identical. Linking the permit markets of different countries will turn permit issuance into intertemporal strategic complements. The strategic complementarity arises because issuing fewer permits today increases investments in green energy capacity in all permit market countries, and countries with a higher green energy capacity will respond by issuing fewer permits in the future. Hence, each country faces incentives to withhold emission permits when permit markets are linked.
Supply-Side Climate Policy in Norway. Nordic Economic Policy Review, 2019: Climate Policies in the Nordic countries.
To reach the Paris Agreement target – keeping global warming well below two degrees Celsius – there is a need for emission reductions on top of those already pledged. Norway has an ambitious climate policy targeting demand, while on the supply side exports of oil and gas contribute significantly to global emissions. This paper reviews the literature to assess whether a reduction in Norwegian oil extraction constitutes a cost-efficient policy to reduce global emissions. Key factors are the costs of reducing domestic supply and demand, the effect of domestic reductions on global emissions and the effect on the technological development.
Faustmann and the Climate (with Michael Hoel and Bjart Holtsmark). Journal of Forest Economics, 2014.
The paper presents an adjusted Faustmann Rule for optimal harvest of a forest when there is a social cost of carbon emissions. The theoretical framework takes account of the dynamics and interactions of forests’ multiple carbon pools and assumes an infinite time horizon. Our paper provides a theoretical foundation for numerical model studies that have found that a social cost of carbon implies longer optimal rotation periods and that if the social cost of carbon exceeds a certain threshold value the forest should not be harvested. At the same time we show that it could be a net social benefit from harvesting even if the commercial profit from harvest is negative. If that is the case, the optimal harvest age is decreasing in the social cost of carbon.
Optimal Harvest Age Considering Multiple Carbon Pools - A comment (with Michael Hoel and Bjart Holtsmark). Journal of Forest Economics, 2013.
In two recent papers, Asante and Armstrong (2012) and Asante et al. (2011) considered the question of optimal harvest ages. They found that the larger are the initial pools of dead organic matter (DOM) and wood products, the shorter is the optimal rotation period. In this note, it is found that this conclusion follows from the fact that the authors ignored all release of carbon from decomposition of DOM and wood products after the time of the first harvest. When this is corrected for, the sizes of the initial stocks of DOM and wood products do not influence the optimal rotation period. Moreover, in contrast to the conclusions in the two mentioned papers, our numerical analysis indicates that inclusion of DOM in the model leads to longer, not shorter, rotation periods.
WORKING PAPERS
Shock Therapy for Clean Innovation: Within-firm Reallocation of R&D Investments (with Esther Ann Bøler and Karen Helene Ulltveit-Moe)
We study how a negative profitability shock in the fossil energy supply chain affects firms’ direction of innovation. We develop a stylized model to show that adjustment costs in R&D create incentives for exposed firms to reallocate innovation toward clean technologies. Next, we propose a novel method to identify firms’ exposure to the 2014 oil price collapse, and find that more exposed firms significantly increased clean R&D relative to less exposed peers. The results suggest that firms in the fossil energy supply chain possess transferable capabilities for clean innovation, and that declining fossil profitability—e.g., via carbon pricing—can accelerate the clean transition along the fossil energy supply chain.
The Marginal Equity-Adjusted Cost of Public Funds (with Åsmund Sunde Valseth)
To evaluate the marginal welfare effects of taxation and of public spending, we must account for both distortionary and distributional effects. The distributional consequences of taxation, in terms of welfare, cannot be fully captured in in the measures currently used in the literature, such as the Marginal Costs of public Funds (MCF) or the the Marginal Value of Public Funds (MVPF). We propose a measure for these welfare effects and define the Marginal Equity-Adjusted Cost of Public Funds (MECF). The MECF can be applied to any tax instrument and for any set of welfare weights. The MECF enables comparison of the marginal welfare effects of tax instruments with different tax incidence. We derive the MECF in a stylized model with linear taxation and provision of a public good. Finally, we define the analogous measure for the marginal welfare effects of public spending, and derive the Marginal Equity-Adjusted Value of Public Funds (MEVF). The MEVF enables comparison of the value of spending with different beneficiaries.
Can Revenue Recycling Kill Green Technology?
Carbon tax revenue recycling -- returning tax revenue to firms or households that are covered by the carbon tax -- can potentially increase political acceptance for carbon taxation and prevent undesirable distributional outcomes and off-shoring. This paper uses a stylized theoretical model to analyze the long-run effects of carbon tax revenue recycling in a sector where there are knowledge spillovers between firms. The paper shows that recycling tax revenue to polluting firms can impede incentives to invest in green innovation and, in some settings, completely curb green investment. This is the case even if the individual transfers are small relative to aggregate government revenues and not contingent on firm-level emissions or investment levels. The disincentive to invest when revenues are recycled arises because a firm investing in green innovation may lower not only their own emissions, but also those of other firms, when there are knowledge spillovers between them. When revenues are recycled, the emission reductions from the rest of the industry will lower the transfer received by the investing firm.
Is the Marginal Cost of Public Funds Sensitive to the Choice of Taxed Goods? (with Bjart Holtsmark).
The Marginal Cost of public Funds (MCF) is a measure of the marginal costs of taxation. The main contribution of this paper is to disentangle the confusion in the literature concerning the sensitivity of the MCF to the choice of taxed goods. Specifically, we show that the MCF is invariant to the choice between direct and indirect taxation, in the second-best allocation.