Three Essays in Energy and Environmental Economics

Abstract

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.