Progress 10/01/10 to 10/01/15
Outputs
Target Audience:Other academic researchers: This project has generated several academic papers published in top economics journals. These target audience for these papers, and numerous associated presentations, is academic researchers conducting research in resource, energy, and agricultural economics. Policy implementing agencies (such as the California Air Resource Board and the US Environmental Protection Agency), and other stakeholders. Auffhammer and Fowlie have been very actively working with policy makers at the state, national, and international level to disseminate and extend research insights to policy makers. Specific examples include Fowlie's work on California's climate change policy and Auffhammer's work with the Intergovernmental Panel on Climate Change (IPCC). Students and instructors:Much of Karp'sresearch effort during the past two years, and especially the past year, has been devoted to writing an undergraduate/Masters level textbook on resource economics. Thetarget audience is undergraduate and masters students and instructors of those courses. Changes/Problems:Fowlie did encounter challenges on the data collection front. Using confidential census data to inform the design and implementation if California climate change policy proved far more onerous and time consuming than she anticipated. That said, although she is behind schedule, she is still on track! She was hoping to complete this work before this project concluded. Instead, this project will wrap up towards the end of 2016. What opportunities for training and professional development has the project provided?This project has generated many opportunities for training and professional development. These include (but are not limited to): * Dozens of conference presentations and academic seminars. * Presentations and training sessions with state, federal, and international policy makers. * Hosting campus visits from policy practitioners, stakeholders from California's agricultural and food processing sectors for the purpose of disseminating research results. * We have trained graduate students in the handling of very large spatial datasets. Several graduate students learned how to use geospatial information systems and extract and match data from public sources. Graduate students have also learned how to interact with and interview regulators and academics. How have the results been disseminated to communities of interest??Our papers and policy briefs have been disseminated widely to local, state and federal regulators including but not limited to economists on the President's Council of Economic Advisors and the Council on Environmental Quality. We further have discussed these results with industry representatives. What do you plan to do during the next reporting period to accomplish the goals?
Nothing Reported
Impacts
What was accomplished under these goals?
AUFFHAMMER: Auffhammer's work has addressed the fifth obnective concerning reformulated gasoline. Theprimary finding is that the effectiveness of gasoline regulations varies substantiallywith the flexibility with which refiners are permitted to respond. A set of federal gasoline regulations that limits the total evaporation of VOCs from gasoline--without regard to which VOCs are most reactive in forming ozone--is estimatedto have no economically or statistically significant effect on ground-levelozone concentrations. We attribute this result to the flexibility permitted by the regulations:refiners, free to choose which VOCs to remove from their gasoline, reduce the concentration of a type of VOC that is only weakly related to ozone formation.Refiners do not reduce concentrations of highly reactive VOCs because doing sois expensive and the overall VOC standard provides no compensating incentive ormandate. In contrast, California's gasoline regulations place strict content limits on preciselythose VOCs that are most important in forming ozone, thereby eliminatingrefiners' ability to avoid costly abatement of these compounds. As a result,California has enjoyed a significant improvement in air quality: we estimate thatthe introduction of California reformulated gasoline reduced ground-level ozoneconcentrations by 16 percent in the severely polluted Los Angeles-San Diego area.A conservative back of the envelope calculation indicates that the benefits fromthis air quality improvement outweigh the regulation's cost based on mortalityimpacts alone. These divergent outcomes speak to a trade-off inherent in setting the degree offlexibility of environmental regulations. Flexible regulatory approaches, such asthe federal VOC requirements for gasoline, are designed to reduce abatement costsrelative to more restrictive command-and-control regulations by allowing firms tochoose the least-cost compliance mechanism. However, flexibility may also result in reduced environmental benefits if different compliance mechanisms result in differentpatterns of emissions across space, time, or specific pollutants. ?FOWLIE: Meredith Fowlie' s research has met several of the goals identified at the outset of this project. With respect to the first objective, a recently published paper assesses the static and dynamic implications of alternative market-based policies limiting greenhouse gas emissions in the US cement industry. Results highlight two countervailing market distortions. First, emissions regulation exacerbates distortions associated with the exercise of market power in the domestic cement market. Second, emissions "leakage" in trade-exposed markets offsets domestic emissions reductions. Taken together, these forces can result in social welfare losses under policy regimes that fully internalize the emissions externality. Market-based policies that incorporate design features to mitigate the exercise of market power and emissions leakage deliver welfare gains when damages from carbon emissions are high. This paper has attracted the attention of both academic researchers and policy makers. In ongoing work with the California Air Resources Board, Meredith is working to extend the results of this research to the design of climate change policies in California. With respect to the third objective, Meredith has conducted important research on so called "differentiated" trading programs.For much of the air pollution currently regulated under U.S. emissions trading programs, health and environmental damages depend on the location of the source. Existing policies ignore this fact. Differentiated policies can accommodate non-uniformly mixed pollution by using emissions penalties that vary with damages. Under perfect certainty, damage-based policy differentiation is welfare improving. With uncertainty about damages and abatement costs, differentiated policies may not dominate undifferentiated designs. Using data from a U.S. emissions trading program, shefinds that the extant undifferentiated policy dominates the differentiated counterfactual because ex post abatement costs exceeded expectations. A differentiated price-based policy welfare dominates the differentiated quantity-based alternative. Revisions on this paper have been requested by a top tier economics journal. Existing and planned greenhouse gas regulations are ineluctably incomplete; they cover only a subset of the emissions sources contributing to the global climate change problem. The research program explores how regional climate change initiatives, such as California's Greenhouse Gas Emissions Trading Program and the proposed Clean Power Plan, will affect manufacturing and processing activities. KARP: Larry Karp's research has substantively improve our understanding of the theory that underpins the design of market-based environmental policies.Most research in dynamic environmental/resource problems uses the fiction of a "social planner" who chooses policy to maximize the discounted stream of future utility or welfare. This model has been productive, but it cannot distinguish between intra- and inter-generational transfers. For example, current actions to reduce carbon emissions (climate policy) typically creates current costs, and may benefit currently living people late in their life, and also benefit future generations. The infinitely lived agent model is unable to distinguish between these two types of transfers. A large part of my research uses a different paradigm, based on overlapping generations. In both sole- and jointly-authored papers, I show how equilibrium policy in this setting emerges from a dynamic game involving a sequence of "players" consisting of young and old generations. The players' identity changes as the young age and the old die off, and are replaced by new young. This type of model is closely related to a model of non-constant discounting. Discounting is the time-analog of spatial perspective: objects in the distance appear smaller than objects nearby. I develop this analogy by showing that spatial perspective corresponds to hyberbolic discounting (a decreasing, not a constant discount rate). This result is important because it provides evidence that hyperbolic discounting is to some extent part of our cultural DNA, and not a behavioral anomaly. Another branch of research examines the effect of different types of risk on the incentive to join an international environmental agreement.
Publications
- Type:
Journal Articles
Status:
Published
Year Published:
2016
Citation:
Market-Based Emissions Regulation and Industry Dynamics
Meredith Fowlie, Mar Reguant, and Stephen P. Ryan
Journal of Political Economy 2016 124:1, 249-302
- Type:
Conference Papers and Presentations
Status:
Other
Year Published:
2012
Citation:
Fowlie, Meredith
Presentation at Californi Cap and Trade Meeting
Cap-and-Trade Program:Emissions Leakage Research and Monitoring
http://www.arb.ca.gov/cc/capandtrade/meetings/073012/emissionsleakage.pdf
- Type:
Journal Articles
Status:
Published
Year Published:
2014
Citation:
Karp, Larry Overlapping generations and environmental policy: an introduction Front. Econ. China, 9(1): 6?24, 2014
- Type:
Journal Articles
Status:
Published
Year Published:
2015
Citation:
Ekeland, Ivar and Larry Karp and Rashid Sumaila Equilibrium resource management with altruistic overlapping generations Journal of Environmental Economics and Management, 70, 1 16, 2015
- Type:
Journal Articles
Status:
Published
Year Published:
2014
Citation:
Hong, Fuhai and Larry Karp International environmental agreements with endogenous and exogenous risk Journal of the Association of Environmental and Resource Economics vol. 1, No 3 pp 365-394, Sept 2014.
- Type:
Journal Articles
Status:
Published
Year Published:
2015
Citation:
Bierkandt, Robert, Maximilian Auffhammer and Anders Levermann. 2015. US power plant sites at risk of future sea-level rise. Environmental Research Letters. 10(12).
- Type:
Other
Status:
Under Review
Year Published:
2015
Citation:
Wentz, Leonie, Anders Levermann, Maximilian Auffhammer. 2015. North-South polarization of European electricity load under future warming. UC Berkeley Working Paper.
- Type:
Other
Status:
Under Review
Year Published:
2015
Citation:
Fowlie, Meredith and Nicholas Muller. 2014. Market-based emissions regulation when damages vary across sources:What are the gains from differentiation?
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Progress 10/01/13 to 09/30/14
Outputs
Target Audience: Maximilian Auffhammer has presented his work on the detection and attribution of climate change impacts at workshops on three continents, to national and local policymakers and has served as a lead author of the 5th assessment report of the IPCC. He has discussed the estimated impacts and methodologies at policy and academic conferences throughout California. As a consequence, the new IPCC D&A framework will likely be adopted for the next National Climate Assessment. Meredith Fowlie has presented her program evaluation work focusing on both energy efficiency and demand response programs to national and state stakeholders. In California, she has discussed this research with the California Public Utility Commission, two California utilities, and several research organizations. Meredith has also been actively engaged in the national discussion of the proposed Clean Power Plan. Along with two of her colleagues, she co-ordinated a larger group of leading economists in crafting a response to the proposed plan. She presented this response at national meetings, and met with California utilities to discuss the implications of the plan for California. A summary of this response appeared as a perspective piece in the journal Science. Changes/Problems: The only change has been a broadening of research scope. Our research agendas are informed in part by a desire to inform policy. Over the course of this project, we have responded to some emerging challenges in the realm of global and domestic climate change policy with a slight shift in research emphasis. Auffhammer's work on climate change impacts and Fowlie's work on energy efficiency and domestic climate chage policy reflect this change. What opportunities for training and professional development has the project provided? MAximilian Auffhammer and Meredith Fowlie actively engage undergraduates, graduate students, and post-doctoral students in these research activities. Moreover, both Auffhammer and Fowlie have participated in extension activities and short courses designed to make research findings accessible to a broader audience (including policy makers and private sector stakeholders). How have the results been disseminated to communities of interest? Maximilian Auffhammer has presented the detection and attribution framework at workshops on three continents, to national and local policymakers and has served as a lead author of the 5th assessment report of the IPCC. He has discussed the estimated impacts and methodologies at policy and academic conferences throughout California. As a consequence, the new IPCC D&A framework will likely be adopted for the next National Climate Assessment. Meredith Fowlie has presented her policy design work to academic and more policy-oriented audiences at the national and state level. She is also working closely with the California Air Resources Board to extend her research on incomplete emissions regulation to the case of California's greenhouse gas emissions regulation. What do you plan to do during the next reporting period to accomplish the goals? Researchers will be presenting research results from completed (or nearly completed) projects to both academic and non-academic audiences. Working papers will be submitted for publication. Both Auffhammer and Fowlie will continue their efforts to synthesize research findings and make them accessible to policy makers and stakeholders.
Impacts
What was accomplished under these goals?
Maximilian Auffhammer has completed a survey of impact studies of air pollution and climate change on national and subnational economies. The database of impact studies entered the fifth assessment report of the intergovernmental panel on climate change. In addition to the survey of existing studies, he and coauthors completed work on a new framework which is used to detect and attribute impacts of environmental change in the form of local and global air pollutants on human and natural systems. The new methods allow for explicit detection and attribution and the quantification said impacts on these systems. Meredith Fowlie has continued her work on the design and implementation of policies that aim to reduce environmental impacts of energy production and consumption. Her paper analyzing market-based environmental regulation of the cement sector was accepted for publication. Together with two co-authors, she is working to build on this work in a way that informs the implementation of California's greenhouse gas emissions regulation. Concerns about the potentially adverse impacts of these regulations on industrial competitiveness are of particular concern to food manufacturing and agricultural production in the state. Meredith has also been condicting research on the design and implementation of the Clean Power Plan.
Publications
- Type:
Journal Articles
Status:
Published
Year Published:
2014
Citation:
Hansen Gerrit, Auffhammer, Maximilian and Andrew R. Solow. 2014. On the Attribution of a Single Event to Climate Change. Journal of Climate. 27, 82978301
- Type:
Journal Articles
Status:
Published
Year Published:
2014
Citation:
Auffhammer, Maximilian and Wolfram Schlenker. 2014. Empirical Studies on Agricultural Impacts and Adaptation. Energy Economics. 46, 555-561.
- Type:
Journal Articles
Status:
Published
Year Published:
2014
Citation:
Auffhammer, Maximilian and Erin T. Mansur. 2014. Measuring Climatic Impacts on Energy Expenditures: A Review of the Empirical Literature. Energy Economics. 14: 522-530.
- Type:
Other
Status:
Published
Year Published:
2014
Citation:
Cramer, Wolfgang, Gary Yohe, Maximilian Auffhammer, Christian Huggel, Ulf Molau, Maria Assun��o Faus da Silva Dias, Andrew Solow, D�ith� Stone, Lourdes Tibig. 2014: Detection and attribution of observed impacts. In: Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part A: Global and Sectoral Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Field, C.B., V.R. Barros, D.J. Dokken, K.J. Mach, M.D. Mastrandrea, T.E. Bilir, M. Chatterjee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, E.S. Kissel, A.N. Levy, S. MacCracken, P.R. Mastrandrea, and L.L.White (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA, pp. 979-1037.
- Type:
Journal Articles
Status:
Published
Year Published:
2013
Citation:
Distributing Pollution Rights in Cap-and-Trade Programs: Are Outcomes Independent of Allocation? (with Jeffrey Perloff). Review of Economics and Statistics, December 2013, 95(5).
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Progress 01/01/13 to 09/30/13
Outputs
Target Audience: Please see Prof Auffhammer's submission for his contributions. Please see Pfof. Karp's submission for his contributions. Although outreach and extension activities are a very important part of Fowlie's work, maternity leave during the academic semester covered by this reporting period reduced Fowelie's travel and outreach activities. Demands of a very young family meant that Fowlie did not accept as many seminar invitations and speaking engagements, although she did travel domestically to present her work in academic seminars (e.g. Columbia University , U Penn), professional conferences (e.g. the National Bureau of Economic Research), and workshops. During this study period, she has provided in-person and in-writing feedback on specific environmental policies being implemented in California. She has continued to serve as a technical advisor to the Department of Energy. Changes/Problems:
Nothing Reported
What opportunities for training and professional development has the project provided? Fowlie has worked closely with graduate students over the duration of this project. Students have aqcuired valuable research experience and analytical skills. How have the results been disseminated to communities of interest? Results of these papers have been widely disseminated to academic and policy audiences. In addition to academic papers, blog posts and policy briefs have made the key findings more accessible to non-academic audiences. What do you plan to do during the next reporting period to accomplish the goals? Fowlie has recently secured access to confidential Census micro-data through the Census Data Research Center on the UC Berkeley Campus. These data will allow her to considerably broaden the scope of her work that examines how firms in trade exposed industries respond to incomplete environmental regulation, and how compensation mechanisms can be designed to mitigate emissions leakage. This work will be data driven and resource intensive Much of Fowlie's time will be spent working with these data and working closely with the California Air Resources Board to inform policy design decisions pertaining to leakage monitoring and mitigation. Fowlie has submitted the paper on market-based regulation of non-uniformly mixed pollution to an academic journal. The next reporting period will be spent responding to referee reports and moving that paper towards publication. Fowlie looks forward to numerous seminars and speaking engagements in the coming months which will provide ample opportunity to disseminate the results of this research.
Impacts
What was accomplished under these goals?
Please see Professor Auffhammer and Karp's submissions for their respective accomplishments. Fowlie has focused her efforts on (1) characterizing industry responses to alternative market-based emissions policy designs and (2) the design and implementation of emissions regulation when pollution is non-uniformly mixed. During the reporting period, Fowlie has concluded an investigation both the short and long-run dynamic implications of alternative market-basedregional climate change policy designs in the (highly concentrated) domestic cement industry. This research underscores the importance of accounting for jurisdictional limitations, and any distortions associated with the exercise of market power, in the design and implementation of market-based emissions regulation. This work has caught the attention of policy makers. The California Air Resources Board are funding research a new, large scale research project which seeks to inform the design of emissions leakage mitigation efforts in California?s greenhouse gas emissions trading program. Fowlie will be the the principal investigator on this new project which will build directly on the research funded by NIFA. During the reporting period, Fowlie has also completed work on the regulation of non-uniformly mixed air pollution. We use a stochastic integrated assessment model of pollution formation, transport, and deposition to characterize the complex relationships between emissions of a non-uniformly mixed pollutant (nitrogen oxide) and pollution damages in unprecedented detail. We then integrate an econometrically estimated model of fi?rm-level compliance decisions to simulate plant-level abatement decisions under both undifferentiated and differentiated policy regimes. We arrive at the surprising conclusion that a differentiated emissions trading program designed to maximize ex ante expected welfare would likely have resulted in welfare loss vis a vis the undifferentiated policy that was implemented. This research highlights some of the implementation challenges associated with cost effective regulation of complex air quality problems, and highlights some promising policy design alternatives. In particular, it highlights the advantages of a differentiated emissions tax when source-specific marginal damages are approximately constant. This finding is particularly germane to the current debate over the design and implementation of cross-state air pollution regulation. During this reporting period, Fowlie has also begun to investigate the implications of regulating greenhouse gas emissions from existing sources under Section 111(d) of the Clean Air Act. Work she has done to compare ex ante predicted and ex post realized returns to investments in energy efficiency helps to illustrate the challenges inherent in credibly crediting energy efficiency investments for greenhouse gas emissions reductions.
Publications
- Type:
Journal Articles
Status:
Published
Year Published:
2013
Citation:
Distributing Pollution Rights in Cap-and-Trade Programs: Are Outcomes Independent of Allocation? Meredith Fowlie and Jeffrey M. Perloff
Review of Economics and Statistics 2013 95:5, 1640-1652
- Type:
Journal Articles
Status:
Under Review
Year Published:
2014
Citation:
Market-based Emissions Regulation and the Evolution of Market Structure (with Mar Reguant and Stephen Ryan).
- Type:
Journal Articles
Status:
Published
Year Published:
2013
Citation:
The Economics of Solar Electricity Annual Review of Resource Economics
Vol. 5: 387-426 (Volume publication date June 2013)
- Type:
Journal Articles
Status:
Under Review
Year Published:
2014
Citation:
Market-based emissions regulation when damages vary across sources:
What are the gains from differentiation? (with Nicholas Muller)
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Progress 01/01/12 to 12/31/12
Outputs
OUTPUTS: Auffhammer has generated a database of emissions regulations for US vehicle manufacturers by engine type. Further we have put together a database which contains the vehicle emissions from end of life simulations for every vehicle on US roads since 1995. He has also assembled a vehicle level database from California's smog check program. Further he has collected a matrix, which maps emissions of criteria pollutants into Marginal Damage estimates for each county in the US. This data collection has taken over a year and he is in the process of running our first models estimating damages by vehicle type and location. He is keenly interested in differentiating the Marginal Damages from Diesel Engines compared to Otto combustion engines. He will take these simulations to study how emissions regulations incentivize suboptimal portfolios of vehicles by manufacturer. Fowlie has presented her work on emissions policy design and implementation at academic conferences and meetings at Duke, MIT, Stanford, Stockholm, the University of Minnesota, Carnegie Mellon, and several UC schools. She has served as a technical advisor to the Department of Energy and the California Air Resources Board. She has been asked to use the models and methods she has developed as part of this project to inform the design of California climate policy. Karp has constructed theoretical models to develop new insights about the incentives to use environmental policy in non-cooperative settings. His work challenges previous views concerning the incentives of nations to join international environmental agreements. A separate line of research shows how environmental policy affects asset prices via general equilibrium channels. These asset price effects can create a significant incentive for people to protect natural resources, even when these people have little concern for future generations. PARTICIPANTS: Ryan Kellogg University of Michigan Economics. Nick Muller, Middlebury College Mar Reguant, Stanford Stephen Ryan, UT Austin Matthew Zaragoza Watkins, University fo California Berkeley Eric Naevdal, Frisch Center, Oslo Norway Rolf Golembek, Frishch Center, Oslo Norway Armon Rezai, University of Vienna, Vienna Austria TARGET AUDIENCES: Nothing significant to report during this reporting period. PROJECT MODIFICATIONS: Not relevant to this project.
Impacts
Project: Environmental impacts of automotive emissions: We have collaborated closely with EPA and the California Air Resources Board to put together a database, which as discussed above will provide an invaluable data repository at the model level for future research. We anticipate a new working paper by June this year which leverages this new dataset. Project: Market‐based climate policy and the evolution of industry structure: We assess the long-run dynamic implications of market-based regulation of carbon dioxide emissions in the US Portland cement industry. We consider several alternative policy designs, including mechanisms that use production subsidies to partially offset compliance costs and border tax adjustments to penalize emissions associated with foreign imports. Our results now highlight two general countervailing market distortions. First, inefficiencies associated with the exercise of market power counteract the social benefits of pricing carbon. Second, trade exposure to unregulated foreign competitors leads to emissions "leakage" which offsets domestic emissions reductions. Taken together, these forces result in social welfare losses under policy regimes that fully internalize the emissions externality. We have presented this early work both domestically and internationally. We were invited to submit this paper for a special issue at the Journal of Project: Political Economy. This project is now serving as foundation for a new collaboration with the California Air Resources Board . Project: Market-based emissions regulation when damages vary across sources: What are the gains from differentiation We assess the welfare implications of replacing an existing "undifferentiated" emissions trading regime with a differentiated policy that is designed to accommodate non-uniformly mixed pollution using emissions penalties that vary with emissions damages. Using rich data from a major U.S. emissions trading program, we estimate the welfare impacts of policy differentiation. Surprisingly, we find that differentiated emissions trading results in welfare loss as compared to the undifferentiated trading regime that is currently in place. This result manifests because ex post realized abatement costs appear to have exceeded expectations. We have presented this work at academic conferences (UC Berkeley, Duke, MIT, Carnegie Mellon, Stanford) and at the US EPA. This work is germane cross-state air pollution regulations which will need to be redesigned in the near future. Project: Overlapping generations and environmental policy. Most economic policy analysis assumes the existence of a social planner who takes into account the future stream of policy costs and benefits. Our research adopts a fundamentally different perspective, recognizing that policy emerges from a game involving different generations with diverse interests. The complexity of this setting has limited its past use. We have constructed tractable models and used a combination of analytical and numerical methods to reveal new insights about equilibrium environmental policies in noncooperative dynamic games.
Publications
- Hong, Fuhai and Larry Karp "International environmental agreements with mixed strategy and investment", Journal of Public Economics vol. 96 pp. 685 - 697, 2012.
- Anderson, Michael and Maximilian Auffhammer. 2011. Vehicle Weight, Highway Safety, and Climate Change Policy. (Revisions Requested from the Review of Economic Studies)
- McKone Thomas, W. Nazaroff, M. Auffhammer, P. Berck, T. Lipman, M. Torn, E. Masanet, A. Lobscheid, N. Santero, U. Mishra, A. Barrett, M. Bomberg, K.Fingerman, C. Scown, B. Strogen, A. Horvath. 2011. Grand Challenges for Life-Cycle Assessment of Biofuels. Environmental Science and Technology. 45(5):1751-1756. Second Runner Up Best Paper in ES&T 2011.
- Fowlie, Meredith, Stephen Holland and Erin Mansur "What Do Emissions Markets Deliver and to Whom Evidence from Southern California's NOx Trading Program". American Economic Review. 102(2): 965-93. April 2012.
- Fowlie, Meredith, Chris Knittel and Catherine Wolfram. "Sacred Cars Cost‐Effective Regulation of Stationary and Non‐stationary Pollution Sources" American Economic Journal: Economic Policy. 4(1): 98-126. February 2012.
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Progress 01/01/11 to 12/31/11
Outputs
OUTPUTS: Maximilian Auffhammer has participated in 15+ academic conferences and meetings presenting this work in California, Washington DC, Seattle, Munich, Berlin, Heidelberg, Dresden, Paris, Madrid Max has served as an invited speaker at governor Brown's first climate change conference on extreme events in San Francisco which was widely covered by the press. Max has advised the California Energy Commission, International Energy Agency, Energy Information Administration, Environmental Protection Agency, California Air Resources Board and local stakeholders on climate change and air pollution impacts issues. Meredith Fowlie has presented this work at academic conferences and meetings at Harvard University, MIT, the National Bureau of Economic Research, Stanford, the University of Toronto, the University of Michigan, and several UC schools. Meredith has been asked to apply the models and methods developed as part of this project in an analysis for the California Air Resources Board. This analysis will inform future policy design and implementation. Larry Karp has presented papers at conferences at Yale, Exeter, Seattle and Beijing. PARTICIPANTS: Maximilian Auffhammer (UC Berkeley) Meredith Fowlie (UC Berkeley) Larry Karp (UC Berkeley) Collaborators included : Ryan Kellogg (University of Michigan); Stephen Ryan(MIT); Mar Reguant(Stanford). This grant has supported research assistance and valuable training for graduate students at UC Berkeley. TARGET AUDIENCES: Target audiences include policy makers, stakeholders, academic researchers. PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.
Impacts
Our work on gasoline reformulation has reaffirmed current reformulation regulation for CARB and put further into question the federal reformulation standards. We have provided maps which display directly the locational impacts of the policies, which allow targeted impact estimation. We are working on using this information to estimate health impacts of ozone air pollution. Other work has analyzed the static and dynamic effects of market-based emissions regulation in highly concentrated and carbon intensive industries. This work highlights how reductions in product market surplus due to market power can counteract the social benefits of climate change regulations. This work has practical implications for policy design and implementation. We are now extending this work, using the models and analytics developed in this project to analyze the impacts of climate change regulations in California on the domestic cement industry. Finally, other research funded by this grant has demonstrated that intuition based on simple models regarding trading partners' response to unilateral strengthening of domestic pollution laws, may be incorrect. Market interactions can cause stricter domestic pollution laws to also reduce pollution in trading partners. A critical review of recent empirical literature explains the difficulty of finding convincing evidence of the widely held view that stricter domestic pollution laws cause polluting activities to move abroad. A game theoretic model shows that anticipated learning about climate damages has ambiguous effects on both equilibrium participation in a climate agreement and on the resulting welfare, contrary to earlier claims.
Publications
- Auffhammer, Maximilian and Ryan Kellogg. 2011. Clearing the Air The Effects of Gasoline Content Regulation on Air Quality. American Economic Review. Vol. 101(6). 2687-2722
- Karp, Larry S. 2012. The effect of learning on membership and welfare in an International Environmental Agreement. Climatic Change, Vol. 110 pp 499-505.
- Karp, Larry Karp S. 2011. The Environment and Trade. Annual Review of Resource Economics Vol 3, pp 397-417.
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Progress 01/01/10 to 12/31/10
Outputs
OUTPUTS: Project: Market‐based climate policy and the evolution of industry structure: We have constructed a dataset linking two decades of panel on the US Portland cement industry from public (i.e. USGS, DOE) and industry (Portland Cement Association). Using these data, we have estimated a fully dynamic model of domestic cement producers' strategic entry, exit, production, and investment decisions. We are using the model to simulate counterfactual outcomes under alternative market-based emissions regulation scenarios. Project: Defining the terms of emissions trading when location matters We have generated source-specific marginal damage estimates from nitrogen oxide (NOx) emissions at US coal plants regulated under a major NOx emissions trading program using a stochastic version of the Air Pollution Emission Experiments and Policy analysis model (APEEP, Muller, Mendelsohn, 2007;2009), AP2. We then use these marginal damage estimates to simulate permit market outcomes under the existing (i.e. emissions-based) policy and a series of counterfactual (i.e. damage-based) designs. More precisely, we use an econometric model of the environmental compliance decisions to simulate investment in NOx abatement and the associated, source-specific ozone season NOx emissions. We then process these simulated source-specific NOx emissions through AP2 in order to generate estimates of aggregate health and environmental impacts under each policy scenario. Project: Gasoline Reformulation Regulation and Ozone: We have generated a national level database of daily ozone concentrations for the universe of monitors in the EPA AIRS database. We have matched these pollution data to extensive weather data (Tmin, TMax, Precip). Further, we have collected data on every gasoline reformulation regulation by date and county. We have generated, maps, data tables and time series figures to demonstrate the variability in the data, which we exploit for econometric identification. PARTICIPANTS: UC Berkeley researchers: Meredith Fowlie, Maximilian Auffhammer Collaborators: Ryan Kellogg (University of Michigan); Nicholas Muller (Middlebury College); Mar Reguan (MIT); Stephen Ryan (MIT) TARGET AUDIENCES: Nothing significant to report during this reporting period. PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.
Impacts
Project: Market‐based climate policy and the evolution of industry structure: We currently have results from a proof of concept exercise that investigates the welfare implications of the permit allocation design choice in two regional cement markets: Salt Lake City and San Francisco. We consider the three most common allocation designs: grandfathering, auctioning, and contingent allocation updating. We are finding that entry, exit, and investment in new capacity differs significantly across the policy scenarios we consider. Differences in industry structure beget differences in the cost effectiveness of emissions abatement, producer profits, consumer surplus, and emissions leakage. We have presented this early work to academic audiences (at UC Berkeley, MIT, Harvard). The California Air Resources Board has expressed interest in using our modeling framework to analyze policy design questions in the context of AB32. We are actively pursuing this possibility. Project:Defining the terms of emissions trading when location matters We have estimated the efficiency implications of using an emissions-based, versus exposure-based, permit market design in the context of a major regional NOx emissions trading program. We define the net benefits of a given policy to be equal to the monetized benefits associated with the mandated emissions reduction (i.e. the avoided damages) less the costs incurred to reduce NOx emissions. Estimated net-benefits increase by 17 percent when spatial variation in damages is accounted for. This estimate is somewhat conservative in that we assume policy makers would face political constraints that would limit their ability to implement the optimal policy design. If we remove these constraints, cost savings exceed 30 percent. We have presented this work at academic conferences (UC Berkeley, MIT, ASSA) and at the US EPA. Lawmakers at the EPA has been particularly interested in our results as they are germane to the proposed Interstate Transport Rule. Project: Gasoline Reformulation Regulation and Ozone: We have submitted the findings of our work, which shows that lack of regulatory stringency leads to suboptimal environmental outcomes to state legislators (CEC, CARB), federal regulators (EPA, White House, NEC) as well academic audiences. We have received much positive feedback on our work and hope that the findings will influence future gasoline reformulation policy.
Publications
- Auffhammer, Maximilian and Ryan Kellogg. 2010. Improving Air Quality by Reformulating Gasoline: How California Got It Right. ARE Update. 13(5): pp. 1-5.
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