Environmental and Energy Economics

March 5-6, 2010
Don Fullerton and David Popp, Organizers

Thijs Dekker, VU University Amsterdam; Herman R.J. Vollebergh, Netherlands Environmental Assesment Agency and Tinbergen Institute; Frans P. de Vries, University of Stirling; and Cees A. Withagen,Tilburg University
Inciting Protocols: How International Environmental Agreements Trigger Knowledge Transfers

Using a uniquely constructed patent data set on SO2 abatement technologies filed in 15 signatory and non-signatory countries during 1970-97, Dekker, Withagen, Vollebergh, and De Vries study patenting decisions by firms in relation to the negotiation and signing of international environmental agreements. Their data enable them to track intended knowledge flows by separating so-called mother patents, or original inventions, from family patents, which represent the same invention but are patents filed in foreign countries. Their results suggest that not only local regulations matter for knowledge investment decisions. International agreements are likely to reduce investment uncertainty for inventing firms and provide an additional signal about new opportunities for profitable investment in new inventions, as well as where to transfer this new knowledge.

Juan-Pablo Montero, Pontificia Universidad Catolica de Chile
Prices vs quantities for the development of clean technologies: The role of commitment

It is widely accepted that one of the most important characteristics of an effective climate policy is to provide firms with credible incentives to make long-run investments in R and D that can drastically reduce emissions. Recognizing that a government may be tempted to revise its policy design after innovations become available, Montero compares the performance of two policy instruments in such a setting: prices (uniform taxes) and quantities (tradeable pollution permits). In the case of drastic innovations, he shows that the combination of (auctioned) permits and subsidies to firms adopting the new technology allows the regulator to implement the social optimum. Taxes, on the other hand, perform poorly because of commitment problems and the fact that subsidies provide no extra gain. In the case of modest innovations, a government that can commit to its policy design can still implement the social optimum with a combination of (auctioned) permits and subsidies. And if the government cannot commit, it makes no difference whether it uses prices or quantities.

David Albouy, University of Michigan and NBER; Walter F. Graf; Ryan Kellogg, University of Michigan and NBER; and Hendrik Wolff, University of Washington
Aversion to Extreme Temperatures, Climate Change, and Quality of Life

Albouy,Kellogg, Graf, and Wolff use hedonic methods and variation in wages and housing costs to estimate households' valuation of climate amenities. They find that, on the margin, households are willing to pay more to reduce extreme heat than to reduce extreme cold. Combining these estimates with "business as usual" climate forecasts for the United States, they find welfare losses in most areas by 2100, with particularly large effects in California, southern states, and urban centers. On average, the cost of hotter summers exceeds the gain from warmer winters by 2 to 3 percent of income per year. These results account for taste heterogeneity and sorting; moreover, they are not substantially attenuated by allowing for migration.

Grant Jacobsen, UC, Santa Barbara; and Matthew Kotchen, Yale University and NBER
Are Building Codes Effective at Saving Energy? Evidence from Residential Billing Data in Florida

In response to the 1973 oil embargo, many states began passing building energy codes in order to promote energy efficiency. While the vast majority of states have energy codes in place, policymakers are now attempting to legislate energy codes at the federal level to help address more recent concerns about energy and climate change. Despite widespread implementation of energy codes and calls for greater stringency in the future, surprisingly little is known about whether energy codes are an effective way to reduce energy consumption in practice. While the existing evidence comes mostly from engineering simulations, Jacobsen and Kotchen provide one of the first evaluations of an energy-code change that uses residential billing data on electricity and natural-gas consumption. Using data from Gainesville, Florida, they find that the state's energy-code change that took effect in 2002 is associated with a 4-percent decrease in electricity consumption and a 6-percent decrease in natural-gas consumption. The pattern of savings is consistent with reduced consumption of electricity for air-conditioning and reduced consumption of natural gas for heating. They also estimate economic costs and benefits. They find that, under the best-case scenario, the private payback period for the average residence is 7.5 years. The social payback period, which accounts for the avoided costs of air-pollution emissions, ranges between 4 and 6 years, depending on whether avoided damages from carbon dioxide are included.

Suzanne Scotchmer, UC, Berkeley and NBER
Cap-and-Trade, Emissions Taxes, and Innovation

Emissions taxes and carbon caps both can lead to efficient production of energy, in the sense of controlling carbon emissions to the extent that is efficient with existing technologies. However, the regulatory policy has a second objective, which is to create incentives to develop lower-carbon technologies. With both objectives in mind, does one policy dominate the other? Scotchmer addresses this question in a model of technology switching. She shows (under mild conditions) that, for both policies, the innovator's licensing revenue is a given fraction of gross profit in the energy market, where the fraction is the innovator's reduction in the emissions rate. This implies that the emissions tax is more lucrative for the innovator than a carbon cap when the regulatory policies are fixed and initially equivalen;, that an adjustment for efficiency increases licensing revenue in the cap-and-trade regime, but reduces licensing revenue in the taxation regime; and that the two regulatory policies are equally lucrative when they would be adjusted after the innovation for static efficiency.

Wolfram Schlenker, Columbia University and NBER; and Reed Walker, Columbia University
The Effect of Airports on Air Quality and Respiratory Problems

Schlenker and Walker exploit exogenous changes in daily airport traffic congestion in California to look at the relationship between airport congestion and local pollution levels. They measure congestion as the time it takes airplanes to taxi from the gate to the runway and instrument it with congestion at other airports outside California. In doing so, they develop a useful framework through which to estimate the effects of exogenous shocks to local air pollution on contemporaneous measures of health. They address several longstanding issues pertaining to non-random selection and behavioral responses to pollution exposure that may bias previous results. The estimated effects are significant: a one standard deviation change in congestion at Los Angeles International Airport increases pollution levels of carbon monoxide (CO) by 17 percent of the day-to-day variance at a distance of 5km from the airport. Correspondingly, they find significant short-term health effects associated with these arguably exogenous pollution shocks. They test for non-random behavioral responses to pollution exposure, but find no evidence of heterogeneous compensatory behavior that covaries with exposure to pollution shocks.

NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us