HEEP Discussion Papers

2012
Simcoe, Timothy, and Michael W Toffel. “Public Procurement and the Private Supply of Green Buildings.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2012.Abstract

We measure the impact of municipal policies requiring governments to construct green buildings on private-sector adoption of the U.S. Green Building Council's Leadership in Energy and Environmental Design ({LEED}) standard. Using matching methods, panel data, and instrumental variables, we find that government procurement rules produce spillover effects that stimulate both private-sector adoption of the {LEED} standard and supplier investments in green building expertise. Our findings suggest that government procurement policies can accelerate the diffusion of new environmental standards that require coordinated complementary investments by various types of private adopters.

dp42_toffel-simcoe.pdf
Duflo, Esther, Michael Greenstone, and Rema Hanna. “Up in Smoke: The Influence of Household Behavior on the Long-Run Impact of Improved Cooking Stoves.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2012.Abstract

It is conventional wisdom that it is possible to reduce exposure to indoor air pollution, improve health outcomes, and decrease greenhouse gas emissions in the rural areas of developing countries through the adoption of improved cooking stoves. This belief is largely supported by observational field studies and engineering or laboratory experiments. However, we provide new evidence, from a randomized control trial conducted in rural Orissa, India (one of the poorest places in India), on the benefits of a commonly used improved stove that laboratory tests showed to reduce indoor air pollution and require less fuel. We track households for up to four years after they received the stove. While we find a meaningful reduction in smoke inhalation in the first year, there is no effect over longer time horizons. We find no evidence of improvements in lung functioning or health and there is no change in fuel consumption (and presumably greenhouse gas emissions). The difference between the laboratory and field findings appear to result from households’ revealed low valuation of the stoves. Households failed to use the stoves regularly or appropriately, did not make the necessary investments to maintain them properly, and usage rates ultimately declined further over time. More broadly, this study underscores the need to test environmental and health technologies in real-world settings where behavior may temper impacts, and to test them over a long enough horizon to understand how this behavioral effect evolves over time.

dp41_hanna-etal.pdf
Greenstone, Michael, and Rema Hanna. “Environmental Regulations, Air and Water Pollution, and Infant Mortality in India.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2012.Abstract

Using the most comprehensive data file ever compiled on air pollution, water pollution, environmental regulations, and infant mortality from a developing country, the paper examines the effectiveness of India’s environmental regulations. The air pollution regulations were effective at reducing ambient concentrations of particulate matter, sulfur dioxide, and nitrogen dioxide. The most successful air pollution regulation is associated with a modest and statistically insignificant decline in infant mortality. However, the water pollution regulations had no observable effect. Overall, these results contradict the conventional wisdom that environmental quality is a deterministic function of income and underscore the role of institutions and politics.

dp40_hanna-greenstone.pdf dp40_hanna-greenstone_two-page-summary.pdf
Hornbeck, Richard, and Pinar Keskin. “The Historically Evolving Impact of the Ogallala Aquifer: Agricultural Adaptation to Groundwater and Drought.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2012.Abstract

Agriculture on the American Great Plains has been constrained historically by water scarcity. In the latter half of the 20th century, technological improvements enabled farmers over the Ogallala aquifer to extract groundwater for large-scale irrigation. Comparing counties over the Ogallala with nearby similar counties, groundwater access increased agricultural land values and initially reduced the impact of droughts. Over time, land-use adjusted toward high-value water-intensive crops and drought-sensitivity increased. Farmers in nearby water-scarce counties have adopted lower-value drought- resistant practices that fully mitigate their naturally higher drought-sensitivity. The historically evolving impact of the Ogallala aquifer illustrates the importance of water for agricultural production, but also the large scope for agricultural adaptation to groundwater and drought.

dp39_hornbeck_keskin.pdf
Drake, David F. “Carbon Tariffs: Effects in Settings with Technology Choice and Foreign Comparative Advantage.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2012.Abstract

Carbon regulation is intended to reduce global emissions, but there is growing concern that such regulation may simply shift production to unregulated regions and increase global emissions in the process. Carbon tariffs have emerged as a possible mechanism to address these concerns by imposing carbon costs on imports at the regulated region's border. I show that, when firms choose from discrete production technologies and offshore producers hold a comparative cost advantage, carbon leakage can result despite the implementation of a carbon tariff. In such a setting, foreign firms adopt clean technology at a lower emissions price than firms operating in the regulated region, with foreign entry increasing only over emissions price intervals within which foreign firms hold this technology advantage. Further, domestic firms are shown to conditionally offshore production despite the implementation of a carbon tariff, adopting cleaner technology when they do so. As a consequence, when carbon leakage does occur under a carbon tariff, it conditionally decreases global emissions. Three sources of potential welfare improvement realized through carbon tariffs require both foreign comparative advantage and endogenous technology choice, underscoring the importance of considering both in value assessments of such a policy.

dp38_drake.pdf
Drake, David F, Paul R Kleindorfer, and Luk N Wassenhove. “Technology Choice and Capacity Portfolios Under Emissions Regulation.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2012.Abstract

We study the impact of emissions tax and emissions cap-and-trade regulation on a firm's long-run technology choice and capacity decisions. We study the problem through a two-stage, stochastic model where the firm chooses capacities in two technologies in stage one, demand uncertainty resolves between stages (as does emissions price uncertainty under cap-and-trade), and then the firm chooses production quantities. As such, we bridge the discrete choice capacity literature in Operations Management ({OM}) with the emissions-related sustainability literature in {OM} and Economics. Among our results, we show that a firm's expected profits are greater under cap-and-trade than under an emissions tax due to the option value embedded in the firm's production decision, which contradicts popular arguments that the greater uncertainty under cap-and-trade will erode value. We also show that improvements to the emissions intensity of the "dirty" type can increase the emissions intensity of the firm's optimal capacity portfolio. Through a numerical experiment grounded in the cement industry, we find emissions to be less under cap-and-trade, with technology choice driving the vast majority of the difference.

dp37_drake-kleindorfer-wassenhove.pdf
Schmalensee, Richard, and Robert N Stavins. “The SO2 Allowance Trading System: The Ironic History of a Grand Policy Experiment.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2012.Abstract

Two decades have passed since the Clean Air Act Amendments of 1990 launched a grand experiment in market-based environmental policy: the {SO}2 cap-and-trade system. That system performed well but created four striking ironies. First, by creating this system to reduce {SO}2 emissions to curb acid rain, the government did the right thing for the wrong reason. Second, a substantial source of this system‘s cost-effectiveness was an unanticipated consequence of earlier railroad deregulation. Third, it is ironic that cap-and-trade has come to be demonized by conservative politicians in recent years, since this market-based, cost-effective policy innovation was initially championed and implemented by Republican administrations. Fourth, court decisions and subsequent regulatory responses have led to the collapse of the {SO}2 market, demonstrating that what the government gives, the government can take away.

dp36_schmalensee-stavins.pdf
Meeks, Robyn. “Water Works: The Economic Impact of Water Infrastructure.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2012.Abstract

Billions of hours are spent each year on water collection in developing countries. This paper explores whether improvements in water technology enable changes in household time allocation patterns and, thereby, productivity gains. To do so, it exploits differences in the timing of shared public water tap construction across Kyrgyz villages to provide evidence on the extent to which such changes in time allocation are aided by access to better water infrastructure, a technology that decreases the labor intensity of home production. Households in villages that receive this labor-saving technological improvement are, on average, 15% more likely to be within 200 meters of their water source. This, in turn, reduced the time intensity of home production activities that are impacted by water, such as bathing, going to the doctor, and caring for children. Village-level incidence of acute intestinal infections amongst children fell by 30%. Although adults themselves show no signs of improved health, they benefit from the reductions in time spent caring for sick children. These reductions in the time intensity of home production allowed for greater time allocated towards leisure activities and market labor, specifically work on the household farm. As a result, average production of cash crops (specifically, cereals such as wheat and barley) increased by 645 kilograms per household per year. The labor supply and productivity estimates imply a rate of return to labor valuing approximately \$0.43/hour, which mirrors the hourly wage for farm labor. Taken together, these results suggest that the main channel of influence through which productivity gains were realized was increased labor supply in an environment where the classic separation of household production and consumption activities appears to hold.

dp35_meeks.pdf
Lu, Eric. “The Impacts of Green Pigovian Taxes on Urban Inequality in China.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2012. dp34_lu.pdf
Ranson, Matthew, and Robert N Stavins. “Post-Durban Climate Policy Architecture Based on Linkage of Cap-and-Trade Systems.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2012.Abstract

The outcome of the December 2011 United Nations climate negotiations in Durban, South Africa, provides an important new opportunity to move toward an international climate policy architecture that is capable of delivering broad international participation and significant global {CO}2 emissions reductions at reasonable cost. We evaluate one important component of potential climate policy architecture for the post-Durban era: links among independent tradable permit systems for greenhouse gases. Because linkage reduces the cost of achieving given targets, there is tremendous pressure to link existing and planned cap-and-trade systems, and in fact, a number of links already or will soon exist. We draw on recent political and economic experience with linkage to evaluate potential roles that linkage may play in post-Durban international climate policy, both in a near-term, de facto architecture of indirect links between regional, national, and sub-national cap-and-trade systems, and in longer-term, more comprehensive bottom-up architecture of direct links. Although linkage will certainly help to reduce long-term abatement costs, it may also serve as an effective mechanism for building institutional and political structure to support a future climate agreement.

dp33_ranson-stavins.pdf
Li, Shanjun, Joshua Linn, and Erich Muehlegger. “Gasoline Taxes and Consumer Behavior.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2012.Abstract

Gasoline taxes can be employed to correct externalities associated with automobile use, to reduce dependency on foreign oil, and to raise government revenue. Our understanding of the optimal gasoline tax and the efficacy of existing taxes is largely based on empirical analysis of consumer responses to gasoline price changes. In this paper, we directly examine how gasoline taxes affect consumer behavior as distinct from tax-exclusive gasoline prices. Our analysis shows that a 5-cent tax increase reduces gasoline consumption by 1.3 percent in the short-run, much larger than that from a 5-cent increase in the tax-exclusive gasoline price. This difference suggests that traditional analysis could significantly underestimate policy impacts of tax changes. We further investigate the differential effect from gasoline taxes and tax-exclusive gasoline prices on both the intensive and extensive margins of gasoline consumption. We discuss implications of our findings for the estimation of the implicit discount rate for vehicle purchases and for the fiscal benefits of raising taxes.

dp32_li_lin_muehlegger.pdf
Clemenz, Gerhard. “Unilateral Emission Tax and Intra-Industry Trade: An Ideal Variety.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2012.Abstract

This paper compares total emissions of a uniformly mixing pollutant and welfare levels of a large country in autarky and with free trade with another large country that does not implement any environmental policies. There is intra-industry trade between the two countries which is modeled by using the ideal variety approach. Two abatement technologies are considered, a clean technology approach and an end-of-pipe approach. Emissions are influenced by an emission tax. With clean technology abatement emissions may be lower in the free trade regime than in autarky, with end-of-pipe abatement total emissions are greater with free trade. With both methods of abatement under free trade no emission tax may be levied at all if emissions per unit of output are very large, and if the gains from intra-industry trade due to an increase of available varieties are relatively small, autarky may yield a higher welfare level than free trade.

dp31_clemenz.pdf
Chan, Gabriel, Robert N Stavins, Robert C Stowe, and Richard Sweeney. “The SO2 Allowance Trading System and the Clean Air Act Amendments of 1990: Reflections on Twenty Years of Policy Innovation.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2012.Abstract

The introduction of the U.S. SO2 allowance-trading program to address the threat of acid rain as part of the Clean Air Act Amendments of 1990 is a landmark event in the history of environmental regulation. The program was a great success by almost all measures. This paper, which draws upon a research workshop and a policy roundtable held at Harvard in May 2011, investigates critically the design, enactment, implementation, performance, and implications of this path-breaking application of economic thinking to environmental regulation. Ironically, cap and trade seems especially well suited to addressing the problem of climate change, in that emitted greenhouse gases are evenly distributed throughout the world’s atmosphere. Recent hostility toward cap and trade in debates about U.S. climate legislation may reflect the broader political environment of the climate debate more than the substantive merits of market-based regulation.

so2-brief_digital_final.pdf
2011
Aldy, Joseph E, and Robert N Stavins. “The Promise and Problems of Pricing Carbon: Theory and Experience.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2011.Abstract

Because of the global commons nature of climate change, international cooperation among nations will likely be necessary for meaningful action at the global level. At the same time, it will inevitably be up to the actions of sovereign nations to put in place policies that bring about meaningful reductions in the emissions of greenhouse gases. Due to the ubiquity and diversity of emissions of greenhouse gases in most economies, as well as the variation in abatement costs among individual sources, conventional environmental policy approaches, such as uniform technology and performance standards, are unlikely to be sufficient to the task. Therefore, attention has increasingly turned to market‐based instruments in the form of carbon‐pricing mechanisms. We examine the opportunities and challenges associated with the major options for carbon pricing: carbon taxes, cap‐and‐trade, emission reduction credits, clean energy standards, and fossil fuel subsidy reductions.

dp30_stavins-aldy.pdf
Aldy, Joseph E, and Robert N Stavins. “Using the Market to Address Climate Change: Insights from Theory and Experience.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2011. dp29_stavins-aldy.pdf
Glassman, Jonathan, and Vilas Rao. “Evaluating the Economic Benefits and Future Opportunities of the Maine Island Trail Association.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2011. dp28_glassman-rao.pdf
Salovaara, Jackson. “Coal to Natural Gas Fuel Switching and CO2 Emissions Reduction.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2011.Abstract

US natural gas prices fell in 2009 on account of weak demand and increased supply from shale gas production. The fall in prices led to a reduction in coalfired electricity generation and a concomitant increase in natural gas-fired electricity generation. Low natural gas prices conjoined with static coal prices and underutilized natural gas power plant capacity to create an environment primed for switching from natural gas to coal. Due to differences in chemical make-ups and plant efficiencies between the two fuels, this switching led to a significant reduction in carbon dioxide emissions. This thesis models how the fuel switching effect occurred and how it translated to an emissions reduction. It also analyzes several hypothetical policies aimed at augmenting the effect to achieve further reductions in emissions. Throughout the analysis, it considers the other impacts— environmental, human health, and economic—of a large-scale shift from a fuel system based on coal to one based on natural gas.

dp27_salovaara.pdf
Cross, Robin, Andrew J Plantinga, and Robert N Stavins. “The Value of Terroir: Hedonic Estimation of Vineyard Sale Price.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2011. dp26_cross-plantinga-stavins.pdf
2010
Henderson, Rebecca, and Richard G Newell. “Accelerating Energy Innovation: Insights from Multiple Sectors.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2010. dp25_henderson-newell.pdf
Jack, Kelsey B. “Allocation in environmental markets: A field experiment with tree planting contracts.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2010.Abstract

The use of market based instruments in developing countries is rapidly expanding, particularly in environmental policy. Several different market mechanisms theoretically lead to efficient allocation of investments in environmental quality without ex post trading, though their empirical performance in these contexts remains untested. This study provides the first evidence from a developing country field experiment to directly compare alternative allocation mechanisms: a uniform-price, sealed bid procurement auction and a posted o¤er market. The experiment was conducted in Malawi for the allocation of tree planting contracts. Results reveal highly divergent outcomes for the two strategically equivalent mechanisms. The auction set the clearing price for both mechanisms and enrolled the 38 percent of the auction treatment group that bid below the price. In the posted offer treatment group, 99.5 percent of participants accepted the contract at that price. Compliance results show significantly more trees surviving per contract allocated under the auction. Results point to a violation of procedure invariance and show a tradeoff between quantity and quality across the two mechanisms. The auction achieves a better selection of high compliance landholders, but potentially at greater cost than the posted offer market.

dp14_jack.pdf

Pages