Browsing by Author "Pizer, WA"
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Item Open Access A discounting rule for the social cost of carbon(Journal of the Association of Environmental and Resource Economists, 2022-09-01) Newell, RG; Pizer, WA; Prest, BCWe develop a discounting rule for estimating the social cost of carbon (SCC) given uncertain economic growth. Diminishing marginal utility of income implies a relationship between the discount rate term structure and economic growth uncertainty. In the classic Ramsey framework, this relationship is governed by parameters reflecting pure time preference and the elasticity of the marginal utility of consumption, yet disagreement remains about the values of these parameters. We calibrate these parameters to match empirical evidence on both the future interest rate term structure and economic growth uncertainty, while also maintaining consistency with discount rates used for shorter-term benefit-cost analysis. Such an integrated approach is crucial amid growth uncertainty, where growth is also a key determinant of climate damages. This results in an empirically driven, stochastic discounting rule to be used in estimating the SCC that also accounts for the correlation between climate damage estimates and discount rates.Item Open Access Balancing Cost and Emissions Certainty: An Allowance Reserve for Cap-and-Trade(2008-07-15) Murray, BC; Newell, RG; Pizer, WAItem Metadata only Carbon Markets 15 Years after Kyoto: Lessons Learned, New Challenges(JOURNAL OF ECONOMIC PERSPECTIVES, 2013) Newell, RG; Pizer, WA; Raimi, DItem Open Access Carbon markets: Past, present, and future(Annual Review of Resource Economics, 2014-01-01) Newell, RG; Pizer, WA; Raimi, D© 2014 by Annual Reviews.Carbon markets are substantial and expanding. There are many lessons from experience over the past 9 years: fewer free allowances, careful moderation of low and high prices, and a recognition that trading systems require adjustments that have consequences for market participants and market confidence. Moreover, the emerging international architecture features separate emissions trading systems serving distinct jurisdictions. These programs are complemented by a variety of other types of policies alongside the carbon markets. This architecture sits in sharp contrast to the integrated global trading architecture envisioned 15 years ago by the designers of the Kyoto Protocol and raises a suite of new questions. In this new architecture, jurisdictions with emissions trading have to decide how, whether, and when to link with one another, and policy makers must confront how to measure both the comparability of efforts among markets and the comparability between markets and a variety of other policy approaches.Item Open Access Carbon mitigation costs for the commercial building sector: Discrete-continuous choice analysis of multifuel energy demand(Resource and Energy Economics, 2008-12-01) Newell, RG; Pizer, WAWe estimate a carbon mitigation cost curve for the U.S. commercial sector based on econometric estimation of the responsiveness of fuel demand and equipment choices to energy price changes. The model econometrically estimates fuel demand conditional on fuel choice, which is characterized by a multinomial logit model. Separate estimation of end uses (e.g., heating, cooking) using the U.S. Commercial Buildings Energy Consumption Survey allows for exceptionally detailed estimation of price responsiveness disaggregated by end use and fuel type. We then construct aggregate long-run elasticities, by fuel type, through a series of simulations; own-price elasticities range from -0.9 for district heat services to -2.9 for fuel oil. The simulations form the basis of a marginal cost curve for carbon mitigation, which suggests that a price of $20 per ton of carbon would result in an 8% reduction in commercial carbon emissions, and a price of $100 per ton would result in a 28% reduction. © 2008 Elsevier B.V. All rights reserved.Item Open Access Chinese residential electricity consumption: Estimation and forecast using micro-data(Resource and Energy Economics, 2017-11) Cao, J; Ho, MS; Li, Y; Newell, RG; Pizer, WA© 2017 Elsevier B.V. Based on econometric estimation using data from the Chinese Urban Household Survey, we develop a preferred forecast range of 85-143 percent growth in residential per capita electricity demand over 2009-2025. Our analysis suggests that per capita income growth drives a 43% increase, with the remainder due to an unexplained time trend. Roughly one-third of the income-driven demand comes from increases in the stock of specific major appliances, particularly AC units. The other two-thirds comes from non-specific sources of income-driven growth and is based on an estimated income elasticity that falls from 0.28 to 0.11 as income rises. While the stock of refrigerators is not projected to increase, we find that they contribute nearly 20 percent of household electricity demand. Alternative plausible time trend assumptions are responsible for the wide range of 85-143 percent. Meanwhile we estimate a price elasticity of demand of -0.7. These estimates point to carbon pricing and appliance efficiency policies that could substantially reduce demand.Item Open Access Designing Climate Mitigation Policy(2009-06) Aldy, JE; Krupnick, AJ; Newell, RG; Parry, IWH; Pizer, WAItem Open Access Discounting the distant future: How much do uncertain rates increase valuations?(Journal of Environmental Economics and Management, 2003-07-01) Newell, RG; Pizer, WAWe demonstrate that when the future path of the discount rate is uncertain and highly correlated, the distant future should be discounted at significantly lower rates than suggested by the current rate. We then use two centuries of US interest rate data to quantify this effect. Using both random walk and mean-reverting models, we compute the "certainty-equivalent rate" that summarizes the effect of uncertainty and measures the appropriate forward rate of discount in the future. Under the random walk model we find that the certainty-equivalent rate falls continuously from 4% to 2% after 100 years, 1% after 200 years, and 0.5% after 300 years. At horizons of 400 years, the discounted value increases by a factor of over 40,000 relative to conventional discounting. Applied to climate change mitigation, we find that incorporating discount rate uncertainty almost doubles the expected present value of mitigation benefits. © 2003 Elsevier Science (USA). All rights reserved.Item Open Access Distributional Impacts of Energy Taxes(2017-04) Pizer, WA; Sexton, SItem Open Access Encouraging clean energy investment in developing countries: what role for aid?(Climate Policy, 2014-10-10) Buntaine, MT; Pizer, WAA large portion of foreign assistance for climate change mitigation in developing countries is directed to clean energy facilities. To support international mitigation goals, however, donors must make investments that have effects beyond individual facilities. They must reduce barriers to private-sector investment by generating information for developers, improving relevant infrastructure, or changing policies. We examine whether donor agencies target financing for commercial-scale wind and solar facilities to countries where private investment in clean energy is limited and whether donor investments lead to more private investments. On average, we find no positive evidence for these patterns of targeting and impact. Coupled with model results that show feed-in tariffs increase private investment, we argue that donor agencies should reallocate resources to improve policies that promote private investment in developing countries, rather than finance individual clean energy facilities.Item Open Access Horizontal Equity Effects in Energy Regulation(Journal of the Association of Environmental and Resource Economists, 2019-03) Fischer, C; Pizer, WAItem Open Access Indexed RegulationNewell, RG; Pizer, WASeminal work by Weitzman (1974) revealed prices are preferred to quantities when marginal benefits are relatively flat compared to marginal costs. We extend this comparison to indexed policies, where quantities are proportional to an index, such as output. We find that policy preferences hinge on additional parameters describing the first and second moments of the index and the ex post optimal quantity level. When the ratio of these variables' coefficients of variation divided by their correlation is less than approximately two, indexed quantities are preferred to fixed quantities. A slightly more complex condition determines when indexed quantities are preferred to prices. Applied to climate change policy, we find that the range of variation and correlation in country-level carbon dioxide emissions and GDP suggests the ranking of an emissions intensity cap (indexed to GDP) compared to a fixed emission cap is not uniform across countries; neither policy clearly dominates the other.Item Open Access Modeling endogenous technological change for climate policy analysis(Energy Economics, 2008-11-01) Gillingham, K; Newell, RG; Pizer, WAThe approach used to model technological change in a climate policy model is a critical determinant of its results in terms of the time path of CO2 prices and costs required to achieve various emission reduction goals. We provide an overview of the different approaches used in the literature, with an emphasis on recent developments regarding endogenous technological change, research and development, and learning. Detailed examination sheds light on the salient features of each approach, including strengths, limitations, and policy implications. Key issues include proper accounting for the opportunity costs of climate-related knowledge generation, treatment of knowledge spillovers and appropriability, and the empirical basis for parameterizing technological relationships. No single approach appears to dominate on all these dimensions, and different approaches may be preferred depending on the purpose of the analysis, be it positive or normative. © 2008 Elsevier B.V. All rights reserved.Item Open Access Prices versus quantities versus bankable quantities(Resource and Energy Economics, 2012-11-01) Fell, H; MacKenzie, IA; Pizer, WAQuantity-based regulation with banking allows regulated firms to shift obligations across time in response to periods of unexpectedly high or low marginal costs. Despite its wide prevalence in existing and proposed emission trading programs, banking has received limited attention in past welfare analyses of policy choice under uncertainty. We address this gap with a model of banking behavior that captures two key constraints: uncertainty about the future from the firm's perspective and a limit on negative bank values (e.g. borrowing). We show conditions where banking provisions reduce price volatility and lower expected costs compared to quantity policies without banking. For plausible parameter values related to U.S. climate change policy, we find that bankable quantities produce behavior quite similar to price policies for about two decades and, during this period, improve welfare by about a $1 billion per year over fixed quantities. © 2012 Elsevier B.V.Item Open Access Prices Versus Quantities with Policy Updating(2016-06) Pizer, WA; Prest, BCItem Open Access Should governments use a declining discount rate in project analysis?(Review of Environmental Economics and Policy, 2014-01-01) Arrow, KJ; Cropper, ML; Gollier, C; Groom, B; Heal, GM; Newell, RG; Nordhaus, WD; Pindyck, RS; Pizer, WA; Portney, PR; Sterner, T; Tol, RSJ; Weitzman, MLAt a workshop held at Resources for the Future in September 2011, twelve of the authors were asked by the US Environmental Protection Agency (EPA) to provide advice on the principles to be used in discounting the benefits and costs of projects that affect future generations. Maureen L. Cropper chaired the workshop. Much of the discussion in this article is based on the authors' recommendations and advice presented at the workshop. © The Author 2014.Item Open Access Terminating links between emission trading programs(Journal of Environmental Economics and Management, 2015-05-01) Pizer, WA; Yates, AJ© 2015 Elsevier Inc.Links between emission trading programs are not immutable, as highlighted by New Jersey's exit from the Regional Greenhouse Gas Initiative in 2011. This raises the question of what to do with existing permits that are banked for future use-choices that have consequences for market behavior in advance of, or upon speculation about, delinking. We consider two delinking policies. One differentiates banked permits by origin, the other treats banked permits the same. We describe the price behavior and relative cost-effectiveness of each policy. Treating permits differently generally leads to higher costs, and may lead to price divergence, even with only speculation about delinking.Item Open Access The Social Cost of Carbon: Advances in Long-Term Probabilistic Projections of Population, GDP, Emissions, and Discount Rates(Brookings Papers on Economic Activity, 2021-09-01) Rennert, K; Prest, BC; Pizer, WA; Newell, RG; Anthoff, D; Kingdon, C; Rennels, L; Cooke, R; Raftery, AE; Ševčíková, H; Errickson, FThe social cost of carbon (SCC) is a crucial metric for inform-ing climate policy, most notably for guiding climate regulations issued by the US government. Characterization of uncertainty and transparency of assump-tions are critical for supporting such an influential metric. Challenges inherent to SCC estimation push the boundaries of typical analytical techniques and require augmented approaches to assess uncertainty, raising important considerations for discounting. This paper addresses the challenges of projecting very long-term economic growth, population, and greenhouse gas emissions, as well as cali-bration of discounting parameters for consistency with those projections. Our work improves on alternative approaches, such as nonprobabilistic scenarios and constant discounting, that have been used by the government but do not fully characterize the uncertainty distribution of fully probabilistic model input data or corresponding SCC estimate outputs. Incorporating the full range of economic uncertainty in the social cost of carbon underscores the importance of adopting a stochastic discounting approach to account for uncertainty in an integrated manner.Item Open Access Who Did the Ethanol Tax Credit Benefit? An Event Analysis of Subsidy Incidence(2016-02) Bielen, DA; Newell, RG; Pizer, WA