Three Essays in Environmental Economics and Policy

Abstract

This dissertation presents three essays in environmental economics and policy. In the first chapter, I examine the optimal timing for electric vehicle (EV) subsidies with the perspective of maximizing environmental return of the policy. I show that EV subsidies are best introduced before the time when EVs become cleaner than gasoline internal combustion engines (ICEs) for two reasons related to the dynamics of decarbonization and technology diffusion. First, the net lifetime damages of EVs can be less than those of gasoline ICEs. More importantly, policies boosting technology diffusion have positive spillover effects. As marginal emissions of the power grid decline in the long run, more EV adoption produces environmental gains in the process. I simulate an empirically calibrated EV diffusion model, calculate the discounted lifetime damages of EVs versus gasoline ICEs, and examine EV subsidies enacted in different years. Even when EVs are initially more polluting than ICEs, I find that the environmental return from the policy-induced EV diffusion process decreases when governments delay intervention.The second chapter (in collaboration with Yang Zhou, William A. Pizer, Libo Wu, and Yingjie Tian) analyzes the time pattern in averting behavior against air pollution. The results indicate that one standard deviation increase in Air Quality Index level leads to a significant 1-3 percent reduction in outdoor population counts in the evening hours and a 4-6 percent increase in electricity consumption during mid-day and early evening periods. Meanwhile, by comparing the intensity of averting behavior and the level of air pollution, we find a mismatch in that people have the least elastic behavior during peak pollution hours. We find that abatement efforts that better target the peak pollution hours when averting responses are inelastic can reduce pollution exposure by 13 percent and residential energy consumption by 82 percent compared to simulated outcomes based on the observed hourly improvements.The third chapter is a paper in collaboration with William A. Pizer, which was accepted in the Journal of Environmental Economics and Management in January 2021. This paper discusses the choice of discount rate for public project evaluation with costs today and benefits over long time horizons. We generalize the assumptions in the previous discounting literature to consider arbitrary patterns of future benefits, accruing either directly to consumers or indirectly through future investment. We derive an expression for the appropriate discount rate and show that it converges to the consumption rate for benefits increasingly far into the future. More generally, the bounding rates depend on the temporal pattern of the undiscounted dollars. As an application, we estimate the appropriate discount rate for climate change damages from carbon dioxide, finding it lies in a narrow range (+/- 0.5 percent) around the consumer rate of interest.