Do Differentiated Performance Standards Help Coal? CO2 Policy in the U.S. Electricity Sector

December 2014 – by David A. Bielen

The U.S. Environmental Protection Agency (EPA) is developing regulations for carbon dioxide (CO2) emissions from existing fossil fuel power plants. Due to the heavy carbon-intensity of coal as a fuel, the coal industry and related interests appear likely to bear much of the regulatory burden. In response, regulatory features aimed at mitigating some of the adverse impacts on coal and its constituents have been discussed, either in the interest of equity or as a means of easing political and legal opposition. This paper examines one approach motivated by the current EPA proposal: differentiation in the context of tradable performance standards, whereby the standard is relaxed for coal generation and tightened for natural gas generation. It explores the economic incentives induced by such a policy and evaluates three key distributional outcomes: aggregate coal usage, coal plant projects, and regional wholesale electricity prices.

Consumption, Risk and Prioritarianism

October 2014 – by Matthew D. Adler and Nicolas Treich

This paper examines consumption decisions under risk assuming a prioritarian social welfare function, namely, a concave transformation of individual utility functions. Under standard assumptions, there is always more current consumption under ex ante prioritarianism than under utilitarianism. Thus, a concern for equity (in the ex ante prioritarian sense) means less concern for the risky future. In contrast, there is usually less current consumption under ex post prioritarianism than under utilitarianism. The paper concludes with a discussion of the robustness of these results to learning and to other forms of prioritarian social welfare functions.

Preference Heterogeneity and Adoption of Environmental Health Improvements: Evidence from a Cookstove Promotion Experiment

September 2014 – by Marc Jeuland, Subhrendu K. Pattanayak, and Jie-Sheng Tan Soo

Household preferences should influence adoption of environmental health-improving technologies, but there has been limited empirical research to isolate their importance, perhaps due to challenges of measurement and attribution. This paper explores heterogeneity in household preferences for different features of improved cookstoves (ICS) and assesses the degree to which these preferences are associated with actual adoption of electric and biomass-burning cookstoves during a randomized stove promotion campaign in northern India. Latent class analysis of data from a discrete choice experiment conducted in baseline surveys of 1,060 households identified three preference types: disinterested (54%), low demand but primarily interested in reduced smoke emissions (27%), and high demand with interest in most features of the ICS (20%). The ICS intervention, which was stratified according to communities’ prior history of interactions with the NGO marketing the stoves, was then randomized to 762 of these households. The main findings are that households in the disinterested class are less likely to purchase an ICS, that preference class is more strongly related to stove purchase than common sociodemographic drivers of technology adoption identified in the literature, and that distaste for smoke emissions appears to be a particularly strong driver for adoption of an electric ICS.

Terminating Links between Emission Trading Programs

August 2014 – by William A. Pizer and Andrew J. Yates

Compliance links between CO2emission trading programs—where firms regulated under one region’s tradable permit program can comply using permits from another region, and vice versa—are beginning to arise as a vehicle to lower costs, increase liquidity, and strengthen institutions while achieving the same environmental outcome. These links are not immutable, raising the question of how to manage a delink and, in particular, what to do with existing permits that are banked for future use—choices that can have important consequences for market behavior in advance of, or upon speculation about, a delinking event. This paper considers two delinking policies. One differentiates banked permits by origin, where banked permits originating in one region are only valid for compliance in that region after the delink occurs. The other treats all banked permits the same: each banked permit is split into two pieces, with one piece valid in one region and the other piece valid in the other region. Using a two-region, two-period model, the paper describes the price behavior and relative cost-effectiveness of each policy. Treating permits differently generally leads to higher costs, and may lead regional prices to diverge, even when there is only speculation about delinking. The paper illustrates these results with a numerical example of the EU-Australian link contemplated in 2013.

Bundles, Duties, and Rights: A Revised Framework for Analysis of Natural Resource Property Rights Regimes

August 2014 – by Christopher S. Galik and Pamela Jagger

In their 1992 paper, Schlager and Ostrom presented a property rights framework characterized by nested, cumulative attributes. It has become arguably the most ubiquitous framework for analysis of natural resources and property rights. This paper revisits their contribution and discusses how the framework could evolve to address increasingly complex situations, with particular attention to institutional change. It devotes attention to duties and liabilities associated with right allocation, tying the framework to a broader property rights literature. It concludes with an application to reducing emissions from deforestation and forest degradation (REDD+), illustrating how revisions to the framework facilitate contemporary institutional analysis.

Preferences for Improved Cook Stoves: Evidence from North Indian Villages

July 2014 – by M.A. Jeuland, V. Bhojvaid, A. Kar, J.J. Lewis, O. Patange, S.K. Pattanayak, N. Ramanathan, I.H. Rehman, J.S. Tan Soo, and V. Ramanathan

Because emissions from solid fuel burning in traditional stoves affect global climate change, the regional environment, and household health, there is a real fascination with improved cook stoves (ICS). Surprisingly little is known about what households like about these energy products. This paper reports on preferences for ICS attributes in a sample of 2,120 rural households in north India, a global hotspot for biomass fuel use. Households have a strong preference for traditional stoves but on average are willing to pay (WTP) about $10 and $5 for realistic reductions in smoke emissions and fuel needs, respectively, or about half of the price of less expensive ICS. Still, preferences for stove attributes are highly varied and are related to household characteristics (e.g., expenditures, gender of household head, patience, and risk preferences). These results suggest that households exhibit cautious interest in the promise of ICS but that significant barriers to achieving widespread adoption remain. Therefore the policy community must reinvigorate a supply chain that (a) experiments with product attributes and (b) segments the market based on consumer education, wealth, and location in order to scale up ICS distribution and deliver household and global benefits.

Heterogeneous Effects of Information on Household Behaviors to Improve Water Quality

July 2014 – by Joe Brown, Amar Hamoudi, Marc Jeuland, and Gina Turrini

Providing information about health risks only sometimes induces protective action, raising questions about whether and how risk information is understood and acted on and about how responses vary across contexts. This analysis stratified a randomized experiment across two periurban areas in Cambodia, which differed in terms of socioeconomic status and infrastructure. In one area, showing households specific evidence of water contamination altered their beliefs about health risk and increased their demand for a treatment product; in the other area, it had no effect on these outcomes. These findings highlight the importance of identifying specific drivers of responses to health risk information.

Assessing the Value of Marine and Coastal Ecosystem Services in the Sargasso Sea

July 2014 – by L. Pendleton, F. Krowicki, P. Strosser, and J. Hallett-Murdoch

The Sargasso Sea is both ecologically and economically important. However, quantifying the exact economic contribution of areas of the high seas, like the Sargasso Sea, remains a challenge because of the absence of fluid and official boundaries for these ecosystems and the fact that they are remote from most human settlements. This paper examines the economic value of selected commercially important activities that depend directly on ecosystem health in the Sargasso Sea–an area of the open ocean situated within the North Atlantic Subtropical Gyre that is largely high seas. It finds that the economic values directly or potentially linked to the Sargasso Sea are on the order of several tens to hundreds of millions of dollars per year.

Decentralized Management Hinders Coastal Climate Adaptation: The Spatial Dynamics of Beach Nourishment

June 2014 – by Sathya Gopalakrishnan, Dylan McNamara, Martin D. Smith, and A. Brad Murray

This analysis is part of a growing literature on the spatial-dynamics of renewable resources. It models the behavior of two adjacent communities adapting to shoreline change and finds that long-run beach width and therefore property values are lower in both communities under status quo decentralized management than they would be under spatially coordinated management. Because of spatial-dynamic feedbacks in the coastal zone, decentralized management fails to achieve the coordinated social optimum. Intensifying erosion—consistent with accelerating sea level rise—exacerbates the problem and increases losses from failure to coordinate. Despite larger efficiency gains from coordination, higher erosion increases inequality in the distribution of benefits across communities under spatially coordinated management. This disincentive to coordinate suggests the need for higher-level government intervention to address what has been viewed traditionally as a local problem. A policy that subsidizes local nourishment in a spatially targeted manner can achieve welfare-maximizing outcomes by removing incentives to free ride on neighboring communities.

Spillovers in Regional Fisheries Management: Do Catch Shares Cause Leakage?

June 2014 – by Sam Cunningham, Lori S. Bennear, and Martin D. Smith

U.S. fisheries are managed by regional councils, and fishermen can participate in fisheries managed by multiple councils. Effort controls in one region could lead to effort leakage into another. Using difference-in-differences, the authors test for leakage across regional fisheries boundaries for a catch share program in New England. They find evidence that the New England groundfish sector program caused leakage into adjacent Mid-Atlantic fisheries. Aggregate mid-Atlantic harvest volume and landed values increased among sector members after the policy change. Leakage is most acute in fisheries with low institutional barriers, similar gear, and high market substitutability with sector species.

Geoengineering Coastlines? From Accidental to Intentional

June 2014 – by Martin D. Smith, A. Brad Murray, Sathya Gopalakrishnan, Andrew G. Keeler, Craig E. Landry, Dylan McNamara, and Laura J. Moore

On developed coastlines, humans react to physical processes in coastal environments by stabilizing shorelines against chronic erosion and by taking measures to prevent destruction of coastal infrastructure during storms. Over decades or longer, even localized anthropogenic shoreline manipulations influence large-scale patterns of coastline change as much as physical, climate-related forcing does. The long-range spatial and temporal spillovers of localized human actions in coastal environments, combined with widespread localized shoreline-stabilization and storm protection efforts, amount to an unintentional geo-engineering of our coastlines. In essence, investments in coastal engineering fail to consider tradeoffs that can unfold over long temporal or large spatial scales. A more purposeful geo-engineering of coastlines requires a richer understanding of the two-way couplings between physical and human coastline dynamics, including efforts to reduce uncertainties in forecasting future scenarios for the coupled system. Steering toward preferred outcomes for our coastlines and coastal economies will involve coordination across local, state, and federal jurisdictions to mitigate spatial externalities that extend beyond local communities.

Why Have Greenhouse Emissions in RGGI States Declined? An Econometric Attribution to Economic, Energy Market, and Policy Factors

May 2014 – by Brian C. Murray, Peter T. Maniloff, and Evan M. Murray

The Regional Greenhouse Gas Initiative (RGGI) is a consortium of northeastern U.S. states that limit carbon dioxide emissions from electricity generation through a regional emissions trading program. Since RGGI started in 2009, regional emissions have sharply dropped. We use econometric models to quantify the emissions reductions due to RGGI and those due to other factors such as the recession, complementary environmental programs and lowered natural gas prices. The analysis shows that RGGI has induced greater emissions reductions within the region than have been achieved proportionally in the rest of the United States, though some extramural leakage may have occurred.