Browsing by Author "Pizer, William Aaron"

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This dissertation includes three papers discussing different aspects of environmental and energy economics and policy. The first paper ("Peaking Interest: How awareness drives the effectiveness of time-of-use electricity pricing") analyzes what factors drive consumer responses to time-of-use electricity pricing. Such pricing is an increasingly common policy that is designed to reduce reliance on high-cost, inefficient, and often polluting power plants. Using both survey and meter data on Irish households, I find that behavioral factors drive consumer responses: consumer awareness and information are key to inducing responses, and marginal prices have minimal effects.

The second paper ("Prices versus Quantities with Policy Updating", with William Pizer) is a theoretical study considering how intertemporal trading ("banking") under cap-and-trade style policies changes the traditional trade-off between price and quantity regulation (Weitzman 1974). Our theoretical model illustrates an unappreciated advantage of quantity regulation: expected policy updates are incorporated immediately through secondary markets via a no arbitrage condition. This helps us understand the welfare implications of observed price volatility in permit markets and has implications for the design of environmental regulations, such as the debate over the relative merits of a carbon tax versus "cap and trade'' policy.

The third paper ("Trophy Hunting vs. Manufacturing Energy: The Price Responsiveness of Shale Gas", with Richard Newell and Ashley Vissing) uses well-level data to estimate how the shale revolution has changed the price responsiveness of U.S. natural gas supply. We find that U.S. natural gas supply is approximately three times more price responsive as a result of the shale revolution, owing entirely to higher production per well. This improves our understanding of the market dynamics around natural gas supply.

Each of these papers has implications for environmental and energy policy. The first paper aims to understand how to improve the effectiveness of time-of-use electricity pricing policies. The second paper addresses an important feature of climate policy design, given high observed volatility in carbon allowance prices in the United States and Europe. The third paper aims to improve understanding of the recent changes in U.S. natural gas markets, with important implications for the fuel mix in electricity generation (in particular, coal-fired versus gas-fired generation) and hence CO2 emissions.

Policymakers are increasingly turning to second- or third-best policy interventions targeted to specific sectors of the economy for mitigating pollution and climate damages despite long-standing agreement among economists that pricing pollution externalities is the efficient (and hence first-best) solution. The essays composing this dissertation explore the rationale for such policy preferences by measuring the environmental benefits of one such policy intervention and evaluating the expected welfare outcomes of calibrated pollution pricing policies. In particular, the first two chapters examine the efficiency and equity implications of rooftop solar policy, an example of a targeted intervention in the electricity sector. The final chapter discusses what appears to be a policy preference for including emission targets in climate policy and then presents an alternative welfare metric that both rationalizes the desire for an emissions target and allows us to evaluate different "hybrid tax" policies.

In the first chapter, "Distributional Benefits of Rooftop Solar Capacity," my co-author Travis Dauwalter and I study the equity and environmental justice implications of rooftop solar policy in the U.S. It is an accepted fact today that households of color and low-income households face disproportionate exposure to pollution and poor environmental conditions. The effects of environmental policies on improving or perhaps even worsening the pollution gap are less understood, however. We provide the first robust evidence on the distribution of benefits of rooftop solar capacity, contributing to the growing economics literature on environmental justice and the distributional consequences of policy. We find the current distribution of environmental benefits from rooftop solar is regressive, but that households of color receive slightly larger benefits per capita than White households. Most interestingly, we demonstrate the lack of an efficiency-equity tradeoff in this context: rooftop solar capacity allocations that maximize total environmental benefits also maximize benefits received by households of color and low-income households. Our results suggest that current rooftop solar policy, reflected at least in part by existing capacity, fails to achieve policymakers’ desired distributional outcomes and could be better targeted to achieve more efficient and more equitable allocations.

The second chapter, "Heterogeneous Solar Capacity Benefits, Appropriability, and the Costs of Suboptimal Siting," co-authored with Steven Sexton, Justin Kirkpatrick, and Nicholas Muller provides the foundation for the first chapter. In this paper, we provide the first zip-code level estimates of the environmental benefits of rooftop solar capacity by estimating marginal power plant emissions responses to changes in electricity load. We use these estimates to compute the total environmental benefits of rooftop solar and show that about $1 billion in benefits would be gained annually were capacity optimally sited. Together, these chapters demonstrate that current solar policy cannot be rationalized on either efficiency or equity grounds.

In the third chapter, "Using Carbon Taxes to Meet an Emission Target," my co-author Billy Pizer and I explore emissions and cost outcomes of simple, rule-based hybrid carbon tax policies, contributing to a growing literature on carbon tax adjustment mechanisms. This work is particularly important as current policy debate in the U.S. has frequently discussed the ability (or inability) of carbon taxes to achieve certainty over emissions outcomes. We show that simple adjustment mechanisms can achieve substantial increases in emissions certainty relative to an ordinary, exogenous tax.

This dissertation is a collection of three essays in the field of environmental and energy economics. While each essay addresses different questions, they all contribute to the understanding of environment or energy economics related to energy demand using empirical analyses. The first two papers focus on domestic energy demand modeling and forecasting; one highlights the importance of appliance adoption with income growth, and the other estimates the impact of climate change on electricity consumption in China.

The trend of energy demand growth applies to not only China but also the developing countries in the Southeast Asia region. To meet the rapid increase in energy demand, most countries built coal-fired power plants though cleaner options such as solar and wind technologies are getting cheaper. The involvement of Chinese finance into coal-fired power plants is controversial and often leads to concerns on environmental outcomes and carbon footprints. Hence, in the third paper, I examine the environmental impact of coal-fired power plants China financed overseas.

The first paper (“Chinese residential electricity consumption estimation and forecast using micro-data”, with Jing Cao, Mun Sing Ho, Richard G. Newell, and William A. Pizer) was published in Resource and Energy Economics in 2017. Based on econometric estimation using data from the Chinese Urban Household Survey, we develop a preferred forecast range of 85 to 143 percent growth in residential per capita electricity demand over 2009 to 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 0.14 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 to 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.

The second paper turns attention from income growth to climate change. Estimating the impacts of climate change on energy use across the globe is essential for analysis of both mitigation and adaptation policies. Yet existing empirical estimates are concentrated in western countries, especially the United States. In the second paper (“Climate change and residential electricity consumption in the Yangtze River Delta, China”, with William A. Pizer and Libo Wu), we use daily data on household electricity demand to estimate how electricity demand would change in Shanghai in the context of climate change. For colder days below 7 degree C, a 1 degree C increase in daily temperature reduces electricity demand by 2.8%. On warm days above 25 degree C, a 1 degree C increase in daily temperatures leads to a 14.5% increase in electricity consumption. As income increases, households’ weather sensitivity remains the same for hotter days in the summer but increases during the winter.

We use this estimated behavior in conjunction with a collection of downscaled global climate models (GCMs) to construct a relationship between future annual global mean surface temperature (GMST) changes and annual residential electricity demand. We find that annual electricity demand increases by 9.3% per +1 degree C in annual GMST. In comparison, peak daily electricity use increases by as much as 36.3% per +1 degree C in annual GMST, almost four times the average electricity increase. Though most accurate for Shanghai, our findings could be most credibly extended to the urban areas in the Yangtze River Delta, covering roughly one-fifth of China’s urban population and one-fourth of GDP. The second paper was published in the Proceedings of the National Academy of Sciences of the United States of America (PNAS) in 2018.

While the first two papers focus on domestic energy demand in China and use micro data sets, the third paper (“Environmental Impact of overseas coal-fired power plants financed by China”) examines the infrastructure support to energy consumption, i.e. power plants, and their environmental outcomes. Using satellite measures, we first show that the SO2 increased substantially after the operation of the power plants. We further compared the performance of coal plants financed by China with the rest of coal plants in the region. Due to the small number of Chinese-financed plants that started operating during the period of 2006-2016, we have only limited results from our comparison of Chinese and non-Chinese financed plants. We find no significant difference in SO2 impact in general, but observe higher SO2 increase after operation for the ones financed by China among the plants using subcritical technologies and lower for those using supercritical technologies, though not significantly different from the rest. Among plants larger than 500 MW, the percentage of supercritical power plants among Chinese financed coal plants is higher than the rest.