Abstract: Over the past sixty years, forest tenure in China has oscillated unpredictably between private and common-property regimes. This policy-induced uncertainty has distorted land owners’ harvesting decisions and has lowered the value of China’s forest output. We provide an analytical framework for assessing these effects quantitatively and conclude that substantial losses in the net value of wood harvested over time have occurred. Understanding the consequences of this policy-induced uncertainty is particularly important since China is currently engaged in an ambitious plan to increase its domestic supply of timber. Contrary to the standard result in the literature that catastrophic risk—whether from natural disasters like forest fires or from government expropriation—necessarily leads to premature harvesting, we find that farmers may delay harvesting if sufficient compensation for loss is paid.

Abstract: Over the last half decade, a variety of federal legislative proposals for limiting greenhouse gas (GHG) emissions have been put forward, most of which would set a price on carbon. As of early 2013, the one politically plausible policy appears to be a carbon tax, passed as part of a larger fiscal reform package. Meanwhile, the US Environmental Protection Agency has begun regulating GHG emissions from a variety of sources using its authority under the Clean Air Act. It may be necessary to choose between these two policies, however. The Waxman–Markey cap-and-trade bill that failed in 2009 would have preempted much of this authority, and it appears likely that a carbon tax law would do the same. But how can one make this choice? What are the key questions and issues to consider? The purpose of this paper is to compare these policies. Our aim here is therefore not to determine whether an exchange is wise or unwise. Instead, our intention is to give policymakers and other interested readers an impartial assessment of both policies and, in particular, the features that are important to a comparative evaluation. We don’t give answers, but hope at least to give the right questions to ask.

Abstract: New Corporate Average Fuel Economy (CAFE) standards were recently passed in the United States with the twin goals of reducing greenhouse gas emissions and oil use. The new standards represent a dramatic change from recent policy. This paper examines the key features of the new rules, and compares them to previous CAFE standards in terms of flexibility and structure. The importance of consumer preferences and market forces on CAFE outcomes are identified. In the second part of the paper, the perspective of the consumer is explored. Consumer assessments of fuel economy savings with more fuel-efficient vehicles may be biased or incomplete, leading many to argue that there is an “energy efficiency gap” in consumer demand for vehicles. Reasons for such a gap, such as market failures, behavioral responses, and market barriers, are summarized. The implications for policy are discussed, including the role of combining CAFE with other policies.

Abstract: Biomass energy is expected to play a major role in the substitution of renewable energy sources for fossil fuels over the next several decades. The US Energy Information Administration (EIA 2012) forecasts increases in the share of biomass in US energy production from 8 percent in 2009 to 15 percent by 2035. The general view has been that carbon emitted into the atmosphere from biological materials is carbon neutral—part of a closed loop whereby plant regrowth simply recaptures the carbon emissions associated with the energy produced. Recently this view has been challenged, and the US Environmental Protection Agency (EPA) is considering regulations to be applied to biomass energy carbon emissions. A basic approach for analyses of environmental impacts has been the use of life cycle assessment (LCA), a methodology for assessing and measuring the environmental impact of a product over its lifetime—from raw material extraction through materials processing, manufacture, distribution, use, repair and maintenance, and disposal or recycling. However, LCA approaches vary, and the results of alternative methodologies often differ (Helin et al. 2012). This study investigates and compares the implications of these alternative approaches for emissions from wood biomass energy, the carbon footprint, and also highlights the differences in LCA environmental impacts.

Abstract: This is the first academic paper that reviews the economic, policy, and technology history of shale gas development in the United States. The primary objective of the paper is to answer the question of what led to the shale gas boom in the United States to help inform stakeholders in those countries that are attempting to develop their own shale gas resources. This paper is also a case study of the incentive, process, and impact of technology innovations and the role of government in promoting technology innovations in the energy industry. Our review finds that government policy, private entrepreneurship, technology innovations, private land and mineral rights ownership, high natural gas prices in the 2000s, and a number of other factors all made important contributions to the shale gas boom.

Abstract: A carbon tax will interact with other policies that are intended to reduce carbon dioxide emissions and encourage clean sources of energy and energy efficiency. This paper examines these policy interactions. A well-designed carbon tax can be an efficient instrument for reducing emissions, yet whether it will be implemented in an efficient manner is uncertain. A legislatively determined tax may not fully reflect up-to-date scientific and economic information. Behavioral and institutional factors suggest that a tax may not have its fully intended effect. These considerations suggest that climate policy should and will continue to be a complex mix of regulaions at various levels of government, even with a carbon price. Nonetheless, the possibility of unintended interactions among policies remains. The role for policies to encourage renewables and energy efficiency depends on the stringency of the carbon tax and presence of externalities related to technological learning and the energy efficiency gap.

Abstract: Several recent studies have used simulation models to quantify the potential effects of recent environmental regulations on power plants, including the Mercury and Air Toxics Standards (MATS), one of the US Environmental Protection Agency’s most expensive regulations. These studies have produced inconsistent results about the effects on the industry, making general conclusions difficult. We attempt to reconcile these differences by representing the variety of assumptions in these studies within a common modeling platform. We find that the assumptions, and their differences from the way MATS will be implemented, make a substantial impact on projected retirement of coal-fired capacity and generation, investments that are required, and emissions reductions. Almost uniformly, the actual regulation, when examined in its final form and in isolation, provides more flexibility than is represented in most models. We find this leads to a smaller impact on the composition of the electricity generating fleet than most studies have predicted.

Abstract: National and subnational economies have started implementing carbon pricing systems unilaterally, from the bottom up. Therefore, the potential linking of individual cap-and-trade programs to capture efficiency gains and other benefits is of keen interest. This paper introduces a two-tiered framework to guide policymakers, with an interest in North American policy outcomes. One tier discusses program elements that need to be aligned before trading of allowances across programs can occur. The second identifies benefits of incremental alignment of program elements even prior to trading between programs—which we call “linking by degrees.” We apply this framework to California’s cap-and-trade program and the Regional Greenhouse Gas Initiative. These programs are already linking through cooperation and sharing of information. Many aspects of the program designs are ready for the exchange of allowances within a common market; however, the difference in allowance prices remains an issue to be considered before formal linking could occur.

Abstract: There is little evidence from impact evaluation studies of ambitious residential energy conservation programs, especially in developing countries. In this paper, I investigate the short- and long-term impacts of the most ambitious electricity conservation program to date. This was an innovative program of private incentives and conservation appeals implemented by the Brazilian government in 2001-2002 in response to supply shortages of over 20%. I nd that the program reduced average electricity consumption per customer by 25% over a nine-month period in affected areas. Importantly, the program reduced consumption by 12% in the long run. Such persistent effects, which arose mostly from behavioral adjustments, may substantially improve the cost-effectiveness of ambitious conservation programs. Finally, I show that a price elasticity estimated out-of-crisis would have to be increased fivefold to rationalize conservation efforts by the private incentives alone. Appeals to social preferences likely amplify consumers' responsiveness in times of crisis.

Abstract: REDD+ (Reduced Emissions from Deforestation and Forest Degradation, “plus” afforestration) is a tool that supports forest carbon-enhancing approaches in the developing world in order to mitigate and hopefully reverse climate change. A key issue within REDD+ is to appropriately bring in the almost 25% of developing country forests that are effectively controlled by communities. Many authors have discussed the social aspects of appropriateness, but there is limited analysis of the actual carbon sequestration potential of better-managed community controlled forests (CCFs). Drawing on an analytical framework that relies heavily on the common property and social capital literatures, our paper contributes to closing this research gap and sheds light on whether community forest management structures should be given serious consideration as REDD+ partners in the battle to mitigate climate change. Using household and community level data from four regional states in Ethiopia, we examine whether CCFs with design features known to be associated with better management appear to sequester more carbon than community systems with lower levels of these characteristics. The empirical analysis suggests that the quality of local level institutions may be important determinants of carbon sequestration. Developing country CCFs may therefore play a positive role within the context of REDD+ and other carbon sequestration initiatives. However, because of the nature of our data, results should be considered indicative. Better and smarter data combined with innovative techniques are needed to conclusively evaluate linkages between CCFs, carbon sequestration and REDD+.

Abstract: While shale gas development can result in rapid local economic development, negative externalities associated with the process may adversely affect the prices of nearby homes. We utilize a difference-in-differences estimator with additional controls for house fixed effects and the boundary of the public water service area in Washington County, Pennsylvania to identify the capitalization of groundwater contamination risk in property values, differentiating it from other externalities, lease payments to homeowners, and local economic development. We find that proximity to wells increases property values. However, groundwater contamination concerns fully offset those gains by reducing property values up to 26 percent.

Abstract: When every individual's effort imposes negative externalities, self-interested behavior leads to socially excessive effort. To curb these excesses when effort cannot be monitored, competing output-sharing partnerships can form. With the right-sized groups, aggregate effort falls to the socially optimal level. We investigate this theory experimentally and and find it makes correct qualitative predictions but there are systematic quantitative deviations, always in the direction of the socially optimal investment. By using data on subjects' conjectures of each other's behavior we show that deviations are consistent with both altruism and conformity (but not extremeness aversion).

Abstract: REDD (Reduced Emissions from Deforestation and Degradation) aims to slow carbon releases caused by forest disturbance by making payments conditional on forest quality over time. Like earlier policies to slow deforestation, REDD must change the behaviour of forest degraders. Broadly, it can be implemented with payments to potential forest degraders, thus creating incentives; through payments for enforcement, thus creating disincentives; or through addressing external drivers such as urban charcoal demand. In Tanzania, community-based forest management (CBFM), a form of participatory forest management (PFM), was chosen as the model for implementing REDD pilot programs. Payments are made to villages that have the rights to forest carbon. In exchange for these payments, the villages must demonstrably reduce deforestation at the village level. Using this pilot program as a case study, we provide insights for REDD implementation in sub-Saharan Africa. We pay particular attention to leakage, monitoring and enforcement. We suggest that implementing REDD through CBFM-type structures can create appropriate incentives and behavioural change when the recipients of the REDD funds are also the key drivers of forest change. When external forces drive forest change, however, REDD through CBFM-type structures becomes an enforcement program, with local communities rather than government agencies being responsible for the enforcement. That structure imposes costs on local communities, whose local authority limits the ability to address leakage outside the particular REDD village. In addition, for REDD to lead to lower emissions, implementation will have to emphasize conditionality of payments on measurable decreases in forest loss.

Abstract: The parsimony of economic theory provides general insights into an otherwise complex world. However, even the most straightforward organizing principles from theory have not often taken hold in environmental policy or in the decentralized climate policy regime that is unfolding. One reason is inadequate recognition of a variety of institutions. This paper addresses three ways the standard model may inadequately anticipate the role of institutions in the actual implementation of climate policy: multilayered authority across jurisdictions, the impressionistic rather than deterministic influence of prices through subsidiary jurisdictions, and the complementary role of prices and regulation in this context. The economic approach is built on the premise that incentives affect behavior. We suggest an important pathway of influence for economic theory is to infuse incentive-based thinking into existing institutions and the conventional regulatory framework. In a complex policy regime, incentives can be shaped by shadow prices as well as market prices.

Abstract: This article develops a “real options” approach for planning new water resources infrastructure investments and their operating strategies in a world of climate change uncertainty. The approach is illustrated with an example: investments in large new multipurpose dam alternatives along the Blue Nile in Ethiopia. The approach incorporates flexibility in design and operating decisions – the selection, sizing, and sequencing of new dams, and reservoir operating rules. The analysis relies on a simulation model that includes linkages between climate change and system hydrology, and tests the sensitivity of the economic outcomes of investments in new dams to climate change and other uncertainties. Not surprisingly, the results for the Blue Nile basin show that there is no single investment plan that performs best across a range of plausible future climate conditions. The value of the real options framework is that it can be used to identify dam configurations that are both robust to poor outcomes and sufficiently flexible to capture high upside benefits if favorable future climate and hydrological conditions arise. The real options approach could be extended to explore design and operating features of development and adaptation projects other than dams.

Abstract: The Clean Air Act has assumed the central role in US climate policy, directing the development of regulations governing greenhouse gas emissions from existing coal-fired power plants. This paper examines the operation of coal-fired generating units over 25 years to estimate the marginal costs and potential magnitude of emissions reductions from improving their efficiency. We find that a 10 percent increase in coal prices causes a 0.2 to 0.5 percent heat rate reduction, broadly consistent with engineering assessments. We also find that coal prices have a significant effect on utilization. The results are used to compare cost-effectiveness of alternative policies.

Abstract: A prevailing view in the literature is that social sanctions can support, in equilibrium, high levels of obedience to a costly norm. The reason is that social disapproval and stigmatization faced by the disobedient are highest when disobedience is the exception rather than the rule in society. In contrast, the (Bayesian) model introduced here shows that imperfect information causes the expected social sanction to be lowest precisely when obedience is more common. This, amongst other findings, draws a distinct line between social and moral sanctions, both of which may depend on others' behavior but not on action observability.

Abstract: The failure of consumers to make seemingly cost-effective investments in energy efficiency is commonly referred to as the energy efficiency gap. We review the most recent literature relevant to the energy efficiency gap and in particular discuss what the latest insights from behavioral economics might mean for the gap. We find that engineering studies may overestimate the size of the gap by failing to account for all costs and neglecting particular types of economic behavior. Nonetheless, empirical evidence suggests that market failures such as asymmetric information and agency problems affect efficiency decisions and contribute to the gap. Behavioral anomalies have been shown to affect economic decisionmaking in a variety of other contexts and are being increasingly cited as an explanation for the gap. The relative contributions of the various explanations for the gap differ across energy users and energy uses. This heterogeneity poses challenges for policymakers, but also could help elucidate when different policy interventions will most likely be cost-effective. If behavioral anomalies can be more cleanly linked to energy efficiency investments, then policymakers will face new challenges in performing welfare analysis of energy efficiency policies.

Abstract: Previous studies on improved cookstove adoption in developing countries use cross-sectional data, which makes it difficult to control for unobserved heterogeneity and investigate what happens to adoption over time. We use robust non-linear panel data and hazard models on three rounds of panel data from urban Ethiopia to investigate the determinants and dynamics of electric cookstove adoption. We find the price of electricity and firewood, and access to credit as major determinants of adoption and transition. Our findings have important implications for policies aiming at promotion of energy transition and reduction of the pressure on forest resources in developing countries.

Abstract: Land conflicts can be detrimental. An important goal of development policy is to help define and instill respect for borders. This is often implemented through mandatory and expensive interventions that rely on the expansion of government land administration institutions. We bring to the table a new policy that, in theory, promotes neighborly relations and equitable divisions at low cost. The salient features of this policy would be the existence of a regulatory institution and the option to bypass regulation in favor of a cooperative solution. Such a policy is particularly relevant when the government formally owns the land but tenure rights are about to be individualized. The key idea combines the logic of forward induction with the insight that social preferences transform social dilemmas into coordination problems. As a first and low-cost pass at empirical evaluation, we conduct a framed field experiment among farmers in the Ethiopian highlands, a region exhibiting features typical of many countries where borders are often disputed.