Climate Adaptation
Paper Session
Friday, Jan. 6, 2023 10:15 AM - 12:15 PM (CST)
- Chair: John Whitehead, Appalachian State University
Designing More Cost-Effective Trading Markets for Renewable Energy
Abstract
In this paper we study the design of renewable energy portfolios standards (RPSs). We focus on solar energy and analyze two common RPS rules: cross-state trading restrictions and state-specific interim annual targets. Using historically observed RPSs, together with our estimated state-level solar supply curves, we find that allowing for cross-state trading reduces cost by 24% and significantly changes the geographic distribution of new solar installations. Removing interim annual targets over the 2015-2019 period reduces cost by 32% by back-loading installations to later years. These cost reductions become much larger when considering more ambitious RPS targets. Our results suggest that more flexible program design such as allowing for cross-state trading, back-loading interim targets, or banking and borrowing renewable energy credits can avoid escalating costs and preserve the political feasibility of renewable energy standards.Complementary Inputs and Industrial Development: Can Lower Electricity Prices Improve Energy Efficiency?
Abstract
The transition from traditional labor intensive to modern capital intensive production is a key factor of industrial development. Using half a million detailed observations from Indian manufacturing plants, I analyze the effects of a secular decrease in industrial electricity prices through the lens of a model with technology choices and complementarities between electricity and capital inputs. Using instrumental variables, I recover causal estimates at the micro level that can explain aggregate trends well and have the opposite sign of OLS estimates. While lower electricity prices increase electricity consumption and employment, they disproportionately increase output, and therefore improve electricity productivity and labor productivity. I show that the results are consistent with the predictions of the model, where plants upgrade to modern capital intensive production techniques that rely on electricity. I explore further mechanisms and find that lower electricity prices increase firm size, investment, productivity and markups. I estimate pass-through rates and calculate that the consumer incidence share of the price reduction was two thirds. The gains in either consumer or producer surplus are an order of magnitude higher than the costs from increased emissions at a social cost of carbon of 100\$US, because the productivity improvements limited increases in carbon emissions. The causal effects of industrial coal prices are of opposite sign, which has important implications for climate policy and industrial development.The Social Discount Rate for the Green Transition
Abstract
The discount rate is the key input variable for any dynamic cost benefit analysis of climate policies. This paper argues that the social discount rate should be used to evaluate such policies and it differs from discount rates inferred from capital markets. We characterize the wedge between the social and capital markets discount rate and show how it is connected to financial frictions. We apply these insights to various policies.Evidence of Climate Adaptation: Temperature and Groundwater Extraction in California Agriculture
Abstract
How are farmers adapting to high temperatures from climate change? While a rich literature characterizes the relationship between temperature and agricultural productivity, empirically identifying adaptive behavior has proven challenging. We use novel data from California's agricultural sector to directly estimate a key form of adaptation: groundwater pumping in response to temperature shocks. We construct a measure of groundwater use at the pump level by combining electricity consumption data (in kWh) with the rate at which each pump converts electricity into water (in AF/kWh). We find that shifting one day from 22-24 C to over 40 C increases the probability of groundwater consumption on that day by 3 percentage points. On the intensive margin, we estimate that farmers increase groundwater pumping 9% for each additional day in the hottest temperature bin, indicating more hours of pumping on hot days. High-frequency electricity consumption data also let us explore the time pattern of adaptation to temperature shocks. We find that farmers increase groundwater pumping in anticipation of a hot day and continue pumping after the hot day has passed, demonstrating both short-run anticipation and dynamic smoothing of irrigation. On an annual time scale, we estimate that one extra hot day causes the average farmer to spend an additional $300-400 in pumping costs. These effects increase in magnitude in drought years, at greater groundwater depths (making pumping more expensive), and for farmers without access to surface water from an irrigation district. Taken together, our results have important implications for policymakers tasked with slowing groundwater aquifer drawdowns while simultaneously helping maintain the stability of the global food system in a warming climate.JEL Classifications
- Q4 - Energy