Outside Thinking
Two Wrongs Can Sometimes Make a Right: The Environmental Benefits of Market Power in Oil
John Asker et al.
NBER Working Paper, November 2024
Abstract:
Market power reduces equilibrium quantities and distorts production, typically causing welfare losses. However, as Buchanan (1969) noted, market power may mitigate overproduction from negative externalities. This paper examines this in the global oil market, where OPEC’s market power affects oil production and carbon intensity. We estimate that from 1970 to 2021, OPEC’s market power reduced emissions by over 67 GtCO2, equating to $4,073 billion in climate damages and 17.8% of the carbon budget needed for the 1.5◦ C Paris Agreement target. This environmental benefit outweighs the welfare loss from distorted production allocation.
Power Decarbonization in a Global Energy Market: The Climate Effect of U.S. LNG Exports
Constanza Abuin
Harvard Working Paper, November 2024
Abstract:
Investment in clean power depends on the price of internationally traded fossil fuels. To what extent can major fossil fuel exporters like the U.S. influence global electricity decarbonization through their trade policy? To answer this question, I develop and estimate a dynamic, multi-country model of power asset investment, where the carbon intensity of electricity generation is affected by the entry and exit of plants using alternative fuels and the local price of fossil inputs is determined in a global trade equilibrium. Using this model, I assess the climate impact of granting federal approval to all proposed U.S. liquified natural gas (LNG) export terminal projects, which would double U.S. export capacity by 2030. Results indicate a net decrease in global emissions through 2070, primarily due to higher local gas prices in the U.S., leading to lower domestic gas generation and accelerated renewable adoption. In the rest of the world, short-term emissions fall as reliance on coal drops, yet delayed renewable uptake drives long-term emissions up. Combining the LNG expansion with carbon policies in importing countries substantially boosts carbon savings. Conversely, reverting LNG capacity to baseline by 2050 shows little impact, underscoring the risk of carbon lock-in in settings with long-lived infrastructure.
Expecting Climate Change: A Nationwide Field Experiment in the Housing Market
Daryl Fairweather et al.
NBER Working Paper, November 2024
Abstract:
Climate change presents new risks for property in the United States. Due to the high cost and sometimes unavailability of location-specific property risk data, home buyers can greatly benefit from acquiring knowledge about these risks. To explore this, a large-scale nationwide natural field experiment was conducted through Redfin to estimate the causal impact of providing home-specific flood risk information on the behavior of home buyers in terms of their search, bidding, and purchasing decisions. Redfin randomly assigned 17.5 million users to receive information detailing the flood risk associated with the properties they searched for on the platform. Our analysis reveals several key findings: (1) the flood risk information influences every stage of the house buying process, including the initial search, bidding activities, and final purchase; (2) individuals are willing to make trade-offs concerning property amenities in order to own a property with a lower flood risk; (3) the impact of the flood risk information on behavior is more pronounced for users conducting searches in high flood risk areas, but does not differ significantly between buyers in Republican and Democrat Counties; and (4) the information resulted in changes to property prices and altered the market's hedonic equilibrium, providing a new finding that climate adaptation can be forward-thinking and proactive.
The Effects of “Buy American”: Electric Vehicles and the Inflation Reduction Act
Hunt Allcott et al.
NBER Working Paper, October 2024
Abstract:
We study electric vehicle (EV) tax credits in the US Inflation Reduction Act (IRA), the largest climate policy in US history, with three goals. First, we provide the first ex-post microeconomic welfare analysis of this central component of the IRA. Event studies around changes in eligibility for EV tax credits find that short-run economic incidence falls largely on consumers. Additionally, domestic content restrictions on tax credits for purchased vehicles have driven enormous shifts to leasing. Our equilibrium model shows that compared to pre-IRA policy, IRA EV credits generated $1.87 of US benefits per dollar spent in 2023, at taxpayer cost of $32,000 per additional EV sold. Compared to scenarios with no EV credits, however, the IRA EV credits created only $1.02 of benefits per dollar of government spending. Second, we characterize the gains from policies targeting heterogeneity in externalities across vehicles. We find that relative to uniform credits, differentiating credits across EVs according to their heterogeneous externalities would substantially increase policy benefits. Third, we quantify tradeoffs in the IRA EV credits between foreign and domestic welfare and between trade and the environment. We find that the IRA EV credits benefit the environment but undermine trade, since they decrease global carbon emissions but use profit shifting to decrease foreign producer surplus. A controversial IRA loophole that removes domestic content restrictions on tax credits for EV leases has negative domestic benefits.
Ambient exposure to fine particulate matter with oxidative potential affects oxidative stress biomarkers in pregnancy
Qi Meng et al.
American Journal of Epidemiology, forthcoming
Abstract:
Prenatal exposures to ambient particulate matter (PM2.5) from traffic may generate oxidative stress, and thus contribute to adverse birth outcomes. We investigated whether PM2.5 constituents from brake and tire wear affect levels of oxidative stress biomarkers (malondialdehyde (MDA), 8-hydroxy-2’-deoxyguanosine (8-OHdG)) using urine samples collected up to three times during pregnancy in 156 women recruited from antenatal clinics at the University of California Los Angeles. Land use regression models with co-kriging were employed to estimate average residential outdoor concentrations of black carbon (BC), PM2.5 mass, PM2.5 metal components, and three PM2.5 oxidative potential metrics during the 4-weeks prior to urine sample collection. 8-OHdG concentrations in mid-pregnancy increased by 24.8% (95% CI: 9.0, 42.8) and 14.3% (95% CI: 0.4%, 30.0%) per interquartile range (IQR) increase in PM2.5 mass and BC, respectively. The brake wear marker (barium) and the oxidative potential metrics were associated with increased MDA concentration in the 1st sample collected (10-17 gestational week), but 95% CIs included the null. Traffic-related air pollution contributed in early to mid-pregnancy to oxidative stress generation previously linked to adverse birth outcomes.
Marine Microplastics and Infant Health
Xinming Du, Shan Zhang & Eric Zou
NBER Working Paper, October 2024
Abstract:
A century of plastic usage has led to an accumulation of plastic waste in waterways and oceans. Over time, these wastes break down into particles smaller than 5 microns -- or “microplastics” -- which can infiltrate human biological systems. Despite decades of research into this emerging source of pollution, there is a paucity of direct evidence on the health impacts of microplastics exposure at a population scale. This paper reports the first empirical link between in-utero microplastic exposure and adverse birth outcomes. Our analysis is based on a dataset of 3 million births that occurred in coastal areas of 15 countries spanning four continents, which we merge with novel remote-sensing measurements of marine microplastic concentrations. We show that in-utero exposure to microplastics, particularly during the second and third trimesters, leads to a significant increase in the likelihood of low birth weight. A doubling of exposure increases low birth weight hazard by 0.37 per 1,000 births, which implies that over 205,000 cases per year globally can be attributed to microplastic exposure. We further show that aerosolization -- whereby microplastic particles become airborne and inhalable due to seawater evaporation -- is an important pathway for health impact, a challenge likely to escalate as ocean temperatures rise.
Does Air Pollution Affect the Likelihood of a Fatal Car Crash? Evidence from the US
Irina Firsova
University of California Working Paper, November 2024
Abstract:
This paper examines the impact of fine particulate matter (PM2.5) on fatal car accidents across the United States, using instrumental variable (IV) analysis with wind direction as an instrument for air pollution. I find that a 1 μg/m³ increase in daily PM2.5 levels is associated with a 1.34% increase in daily fatal accidents after accounting for weather conditions and fixed effects. Extending the analysis to hourly data, I find that a 1 μg/m³ increase in PM2.5 levels in the hour prior to an accident results in a 1.97% increase in fatal crashes, suggesting that short-term pollution exposure impairs cognitive function and increases accident risk in real time. Reducing PM2.5 by 1 μg/m³ could prevent approximately 550 fatalities annually, leading to an estimated economic savings of $4.06 billion based on the value of a statistical life (VSL). These findings contribute to the literature on the cognitive effects of air pollution and suggest that the social costs of pollution may be underestimated.
Money and cooperative federalism: Evidence from EPA civil litigation
Juan Pablo González & Hye Young You
Journal of Law, Economics, and Organization, forthcoming
Abstract:
The federalism structure of the US government requires active cooperation from state governments to successfully enforce federal environmental regulations. What explains the variation in state governments’ participation in lawsuits against firms that are accused of violating major environmental statutes? We argue that firms’ political connections with state politicians affect a state government’s decision to join the litigation process. By constructing a novel dataset on the EPA’s civil cases and settlements for the period 1998–2021, we show that state environmental agencies are less likely to join the EPA in court when the defendant firms contributed to Republican state legislators. We do not find the same pattern when firms have connections with Democratic legislators. We present various mechanisms of how state politicians influence behaviors of state bureaucrats. Our findings highlight how state politics can be an avenue for firms to exert influence on federal environmental regulations.