Equity Effects in Energy Regulation
November 2017–Carolyn Fischer and William. A. Pizer
Some choices in energy regulation, particularly those that price emissions, raise household energy prices more than others. Those choices can lead to a large variation in burden both across and within income groups because of wide variation in household energy use. The latter, within-income group variation can be particularly hard to remedy. In this paper, we review alternative welfare perspectives that give rise to equity concerns within income groups (“horizontal equity”) and consider how they might influence the evaluation of environmental policies. In particular, we look for sufficient statistics that policymakers could use to make these evaluations. We use Consumer Expenditure Survey data to generate such statistics for a hypothetical carbon price versus tradable carbon performance standard applied to the electric power sector. We show how horizontal equity concerns could overwhelm efficiency concerns in this context.
June 2017–Nicole M. Dalzell, Gale A. Boyd, and Jerome R. Reiter
Lack of information is commonly cited as a market failure resulting in an energy-efficiency gap. Government information policies to ll this gap may enable improvements in energy efficiency and social welfare because of the externalities of energy use. The U.S. Department of Energy Industrial Assessment Center (IAC) program is one such policy intervention, providing no-cost assessments to small and medium enterprises (SME). The IAC program has assembled a wealth of data on these assessments, but the database does not include information about participants after the assessment or on non-participants. This study addresses that lack by creating a new linked dataset using the public IAC and non-public data at the Census Bureau. The IAC database excludes detail needed for an exact match, so the study developed a linking methodology to account for uncertainty in the matching process. Based on the linking approach, a difference in difference analysis for SME that received an assessment was done; plants that received an assessment improve their performance over time, relative to industry peers that did not. This new linked dataset is likely to shed even more light on the impact of the IAC and similar programs in advancing energy efficiency.
A Better Calculus for Regulators: From Cost-Benefit Analysis to theSocial Welfare Function
March 2017–Matthew D. Adler
The social welfare function (SWF) is a powerful tool that originates in theoretical welfare economics and has wide application in economic scholarship, for example in optimal tax theory and environmental economics. This paper provides a comprehensive introduction to the SWF framework. It then shows how that framework can be used as the basis for regulatory policy analysis and why it improves on cost-benefit analysis (CBA). Two types of SWFs are especially plausible: the utilitarian SWF, which sums individual well-being numbers, and the prioritarian SWF, which gives extra weight to the well-being of the worse off. Either one of these is an improvement over CBA, which uses a monetary metric to quantify well-being and is thereby distorted by the declining marginal utility of money. The paper employs a simulation model based on the U.S. population survival curve and income distribution to illustrate, in detail, how the two SWFs differ from CBA in selecting risk-regulation policies.