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Politics of Environmental Policymaking

Paper Session

Friday, Jan. 3, 2020 2:30 PM - 4:30 PM (PDT)

Manchester Grand Hyatt, Gaslamp D
Hosted By: Association of Environmental and Resource Economists
  • Chair: Ivan Rudik, Cornell University

The Macro Effects of Climate Policy Uncertainty

Stephie Fried
,
Arizona State University
Kevin Novan
,
University of California-Davis
William Peterman
,
Federal Reserve Board

Abstract

The uncertainty surrounding if and when the U.S. government will implement a federal climate policy introduces risk in the decision to invest in long-lived capital assets that are used in conjunction with fossil fuels. To understand how the macroeconomy responds to this climate policy risk, we develop a quantitative model that includes investment in long-lived, sector-specific assets such as coal power plants or wind farms. We infer firms' beliefs about the likelihood of a future carbon tax, using the observed internal carbon prices firms voluntarily levy on themselves. We find that the risk of climate policy in the future reduces emissions today by distorting investment towards a cleaner mix of capital and by depressing overall investment. The emissions reduction caused by climate policy risk is equivalent to the reduction that would be achieved by imposing a carbon tax of $3.21/ton of CO2. More generally, our results demonstrate that, by ignoring the impacts of climate policy risk, existing studies have overstated both the welfare costs and emissions reductions resulting from a carbon tax policy.

Micro-targeting Consumers’ Group Identities to Improve Consumptive Efficiency

Tamara L. Sheldon
,
University of South Carolina
J.R. DeShazo
,
University of California-Los Angeles
Bronwyn Lewis Friscia
,
University of California-Los Angeles

Abstract

Using data gathered from an online choice experiment with a field experiment component, we estimate willingness to pay (WTP) for energy efficiency in the context of light bulbs. Using an identity economics framework, we find that liberals have a higher WTP than conservatives, and that both have a significantly positive WTP to conform to their group’s norm energy efficiency consumption level. We introduce two treatments, environmental and patriotic messaging, to highlight negative externalities associated with electricity consumption, as well as a baseline frugality message, finding heterogeneous responses of consumers to the alternative treatments. Using a machine learning model, we simulate energy efficiency decisions if the policy maker were able to optimally “micro-target” consumers with the most effective of the three messages. We show micro-targeting can improve energy efficiency significantly more than a homogeneous messaging campaign or substantial subsidies.

Solar Geoengineering in a Regional Analytic Climate Economy

Felix Meier
,
Leipzig University
Christian Traeger
,
University of Oslo

Abstract

The paper analyzes geoengineering and strategic interactions in an integrated assessment model (IAM) of climate change. For this purpose, we (i) derive a new class of solutions to analytic IAMs that allows us to (ii) solve an integrated assessment model with sulfur-based geoengineering and damages in closed form, and to (iii) model realistic strategic interactions between regions. Temperatures respond to carbon dioxide (standard carbon cycle), sulfur injections into the stratosphere (fitted to scientific data), and a potential counter-geoengineering agent that can offset some of the sulfur-based cooling. Damages arise from the increase in temperatures, the chemical agent(s) employed for geoengineering, and the modulation of the radiative energy balance through geoengineering. Our dynamic game involves two active players that are either partially or fully affected by the other region’s geoengineering measures and have the ability to contribute, remain inactive, or offset some of the other region’s cooling measures. We shine new light on the“free-driver" problem popularized by Weitzman (2015), the climate-clash equilibria suggested by Heyen et al. (2019), a somewhat extreme sensitivity of geoengineering measures to potential damages, and the colloquial “slippery slope" argument showing how the active regions and the rest of the world respond to (some region’s) availability of geoengineering measures. We discuss these findings using analytic solutions for the social cost of carbon (globally or regionally optimal carbon tax).

Yea or Nay for Carbon Taxes: Political Economy and Willingness to Pay for Carbon Reduction in Washington

Nathan W. Chan
,
University of Massachusetts-Amherst

Abstract

In this study, I investigate the political economy of carbon taxes using voting outcomes for two recent
carbon tax initiatives in Washington State. Using spatial analysis, I merge precinct-level voting outcomes
with data on household characteristics at the zip code level. I compare and contrast the predictors of
support between the two initiatives, revealing how distinct provisions from each initiative beget
different voting patterns that align with economic theory. Using additional data on consumption
patterns and an extensive catalog of carbon footprints for various consumer activities, I quantify the
implied cost of each initiative for a representative household in every precinct. Exploiting cross-sectional
variation across zip codes, I estimate a demand curve for carbon taxes and estimate the willingness to
pay to reduce carbon emissions.
Discussant(s)
Roberton Williams III
,
University of Maryland
Erica Myers
,
University of Illinois
Ivan Rudik
,
Cornell University
Yoram Bauman
,
Standupeconomist.com
JEL Classifications
  • Q5 - Environmental Economics
  • H2 - Taxation, Subsidies, and Revenue