Working Paper Type: Working Paper

  • Groundwater and Crop Choice in the Short and Long Run

    Groundwater and Crop Choice in the Short and Long Run

    by Fiona Burlig, Louis Preonas, and Matt Woerman

    How do agents respond to policy when investments have high up-front costs and lasting payoffs? We estimate farmers’ short- and long-run responses to changes in groundwater pumping costs in California—where perennial crops with these features are prevalent—using both fixed effects and dynamic discrete choice models that leverage quasi-experimental variation. In the short run, farmers’ groundwater demand elasticity is −0.76, and they do not change crops. In contrast, the long-run elasticity is −0.38, driven in part by meaningful reductions in water intensive perennial cropping. Meeting California’s sustainability targets would require reallocation of 9% of acres, including a 50% increase in fallowing.

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  • Climate Change Economics over Time and Space

    Climate Change Economics over Time and Space

    by Klaus Desmet and Esteban Rossi-Hansberg

    With average temperature ranging from −20◦C at the North Pole to 30◦C at the Equator and with global warming expected to reach 1.4◦C to 4.5◦C by the year 2100, it is clear that climate change will have vastly different effects across the globe. Given the abundance of land in northern latitudes, if population and economic activity could freely move across space, the economic cost of global warming would be greatly reduced. But spatial frictions are real: migrants face barriers, trade and transportation are costly, physical infrastructure is not footloose, and knowledge embedded in clusters of economic activity diffuses only imperfectly. Thus, the economic cost of climate change is intimately connected to these spatial frictions. Building on earlier integrated assessment models that largely ignored space, in the past decade there has been significant progress in developing dynamic spatial integrated assessment models (S-IAMs) aimed at providing a more realistic evaluation of the economic cost of climate change, both locally and globally. This review article discusses this progress and provides a guide for future work in this area.

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  • Long-Range Forecasts As Climate Adaptation: Experimental Evidence From Developing-Country Agriculture

    Long-Range Forecasts As Climate Adaptation: Experimental Evidence From Developing-Country Agriculture

    by Fiona Burlig, Amir Jina, Erin M. Kelley, Gregory Lane, and Harshil Sahai

    Climate change increases weather variability, exacerbating agricultural risk in poor countries. Risk-averse farmers are unable to tailor their planting decisions to the coming season, and underinvest in profitable inputs. Accurate, long-range forecasts enable farmers to optimize for the season ahead. We experimentally evaluate monsoon onset forecasts in India, randomizing 250 villages into control; a forecast group receiving information well in advance of onset; and a benchmark index insurance group. Forecast farmers update their beliefs and their behavior: farmers who receive “bad news” relative to their priors substantially reduce land under cultivation and certain input expenditures, while those receiving “good news” significantly increase input expenditures. The forecast also impacts crop choice, as farmers tailor their investments. These investment changes meaningfully alter ex post outcomes. In contrast, insurance, which provides no information, increases investments but does not change crops. Our results demonstrate that forecasts are a promising tool for climate adaptation.

    The study was funded by the Becker Friedman Institute for Economics at the University of Chicago, The International Growth Center (IGC), J-PAL’s Agricultural Technology Adoption Initiative and King Climate Action Initiative, and the World Bank.

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  • The Case for Closing Global Air Quality Data Gaps with Local Actors: A Golden Opportunity for the Philanthropic Community

    The Case for Closing Global Air Quality Data Gaps with Local Actors: A Golden Opportunity for the Philanthropic Community

    by Christa Hasenkopf, Nishka Sharma, Farah Kazi, Polash Mukerjee, and Michael Greenstone

    Fine particulate air pollution (PM2.5) is the greatest external threat to public health with the average person on the planet losing more than 2 years of life expectancy according to the Air Quality Life Index, with the loss even higher at 3.1 years outside of OECD countries.

    Why is reliable air quality monitoring so important for addressing air pollution? The history of progress on air pollution in countries including Japan, the United States, England, and China, reveals that improvements in air quality were preceded by the public demanding improvements and causing air quality to become a political priority. The foundation for these demands was data that illustrated the depth of the problem and then, later, data to assess progress. Thus, our theory of change is that closing air quality data gaps can allow people to lead healthier and longer lives.

    The report outlines:

    • Why closing air quality data gaps is a key catalytic step
      for reducing the most human health-harming outdoor
      air pollutant, PM2.5. (Section 1);
    • The countries with the largest opportunities for a small,
      well-supported effort to effect positive national-level
      changes by closing data gaps, (Section 2);
    • The local actors who are well-poised to close these gaps
      (Section 3); and
    • Four guiding tenets for philanthropies on how to inject
      more resources into the space in a maximally effective
      way (Section 4).

    Section 1 spells out the theory of change for how closing PM2.5 data gaps can create the foundation for—and in some cases directly spur—reductions in PM2.5 levels by sharing examples in countries across the world.

    In Section 2, we identify 46 countries where there are especially high opportunities for relatively small investments to support local actors in building the necessary data infrastructure to advance policy that reduces PM2.5 pollution. 838 million citizens in these 46 high opportunity countries
    breathe air with PM2.5 levels that are 4 times higher than the World Health Organization (WHO) guideline. Sixty-one percent of high opportunity countries are located in Africa, 22 percent in Asia, 15 percent in Latin America, and 2 percent in Europe. Meanwhile, across all of these countries, there are a total of only 30 government-run PM2.5 monitors. In comparison, the country of Finland, one of the few countries that already meets the WHO guideline for PM2.5, has more monitors for its population whose size is 1/152ndth of those 46 countries. Seventy-four percent of these high opportunity countries receive less than 100,000 USD annually from international donors to address outdoor air pollution (100,000 USD is a rough threshold for the amount needed to sustainably run a single government-grade PM2.5 monitor each year). In fact, the combined total outdoor air pollution funds from international donors known to be received annually by these 34 countries is less than 73,000 USD.

    Section 3 analyzes a landscape of 75 local actors working on closing PM2.5 data gaps within their country and share the results of 26 in-depth interviews to identify challenges and opportunities, and spotlights several local efforts globally. The most frequently cited amount of funding that local actors would find meaningful to their work was 50,000-100,000 USD per year. As a point of comparison, the entire African continent currently receives less than 300,000 USD in philanthropic funding annually for addressing outdoor air pollution.

    Section 4 puts these geographical and local actor analyses together from a funder’s perspective. It finds that a 4 to 8 million USD annual injection of funding could make substantial progress in closing country-level PM2.5 data gaps across the world. It also finds that if even one effort in one small country were to catalyze clean air action that modestly lowered their national annual PM2.5 levels, the avoided health damages in that one country alone would offset the cost of that annual global injection of funding. Section 4 also provides four guiding tenets for entities interested in funding in this space.

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  • Impacts of the Jones Act on U.S. Petroleum Markets

    Impacts of the Jones Act on U.S. Petroleum Markets

    By Ryan Kellogg and Richard L. Sweeney

    We study how the Jones Act—a 100-year-old U.S. regulation that constrains domestic waterborne shipping—affects U.S. markets for crude oil and petroleum products. We collect data on U.S. Gulf Coast and East Coast fuel prices, movements, and consumption, and we estimate domestic non Jones shipping costs using freight rates for Gulf Coast exports. We then model counterfactual prices and product movements absent the Jones Act, allowing shippers to arbitrage price differences between the Gulf and East Coasts when they exceed transport costs. Eliminating the Jones Act would have reduced average East Coast gasoline, jet fuel, and diesel prices by $0.63, $0.80, and $0.82 per barrel, respectively, during 2018–2019, with the largest price decreases occurring in the Lower Atlantic. The Gulf Coast gasoline price would increase by $0.30 per barrel. U.S. consumers’ surplus would increase by $769 million per year, and producers’ surplus would decrease by $367 million per year.

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  • Does the World Free Ride on US Pledges to Reduce Greenhouse Gas Emissions? Evidence from the Paris Climate Agreement

    Does the World Free Ride on US Pledges to Reduce Greenhouse Gas Emissions? Evidence from the Paris Climate Agreement

    by Trevor Houser, Kate Larsen, and Michael Greenstone

    The US is widely believed to play a pivotal role in the development of international agreements to reduce greenhouse gas emissions, but do other countries free ride on US pledges? This paper provides what we believe is the first empirical evidence by proposing the US Climate Reciprocity Ratio (CRR); this summary statistic is the ratio of the rest of the world’s pledged reductions to the US’ pledged reductions through international climate negotiations. The analysis begins by quantifying countries’ Nationally Determined Contributions (NDCs) and Net Zero targets under the Paris Agreement by taking the difference between their pledges and leading “business as usual” projections of their emissions at the time of their pledges (e.g., from the International Energy Administration). Using these pledged reductions, there are two main findings: 1) pledged emissions reductions under the Paris Agreement, if successfully achieved, would reduce global net GHG emissions by 12% – 24% in 2030 and by 38% – 54% in 2050; and 2) the estimated CRR ranges from 2.5 to 10.8, with the upper end of the range applying to the middle of the century when the US’ share of global emissions has declined. Although pledges are not the same as reductions, these findings suggest that US climate policy can have indirect benefits by unlocking pledged reductions in other countries that benefit the US.

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  • How Should Climate Change Uncertainty Impact Social Valuation and Policy?

    How Should Climate Change Uncertainty Impact Social Valuation and Policy?

    by Michael BarnettWilliam BrockLars Peter Hansen, Hong Zhang

    We study the uncertain transition to a carbon-neutral economy. The requisite technological innovation is made more probable through research and development (R&D). We explore multiple channels of economic and geoscientific uncertainties that impact this transition, and we show how to assess the relative importance of their varied contributions. We represent the social benefit of R&D and cost of global warming as expected discounted values of social payoffs using a probability measure adjusted for concerns about model misspecification and prior ambiguity. Our quantitative results show the value of R&D investment even when the timing of its technological success is highly uncertain.

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  • Environmental Consequences of Hydrocarbon Infrastructure Policy

    Environmental Consequences of Hydrocarbon Infrastructure Policy

    by Thomas Covert and Ryan Kellogg

    We study policies that aim to “keep carbon in the ground” by blocking fossil fuel infrastructure investment. Our analysis relies on a model of hydrocarbon production and transportation, incorporating substitution between pipeline infrastructure and flexible alternatives, like crude-byrail. We apply the model to the Dakota Access Pipeline (DAPL), which moves oil from North Dakota to Texas and was controversially completed in 2017. Had DAPL’s construction been enjoined, we estimate that 81% of the blocked pipeline flows would move by rail instead. This substitution induces both private costs and local environmental damage, since rail transport imposes greater local externalities than pipelines.

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  • Energy storage solutions to decarbonize electricity through enhanced capacity expansion modelling

    Energy storage solutions to decarbonize electricity through enhanced capacity expansion modelling

    by Todd Levin, John Bistline, Ramteen Sioshansi, Wesley J. Cole, Jonghwan Kwon, Scott P. Burger, George W. Crabtree, Jesse D. Jenkins, Rebecca O’Neil, Magnus Korpås, Sonja Wogrin, Benjamin F. Hobbs, Robert Rosner, Venkat Srinivasan, and Audun Botterud

    To meet ambitious global decarbonization goals, electricity system planning and operations will change fundamentally. With increasing reliance on variable renewable energy resources, energy storage is likely to play a critical accompanying role to help balance generation and consumption patterns. As grid planners, non-profit organizations, non-governmental organizations, policy makers, regulators and other key stakeholders commonly use capacity expansion modelling to inform energy policy and investment decisions, it is crucial that these processes capture the value of energy storage in energy-system decarbonization. Here we conduct an extensive review of literature on the representation of energy storage in capacity expansion modelling. We identify challenges related to enhancing modelling capabilities to inform decarbonization policies and electricity system investments, and to improve societal outcomes throughout the clean energy transition. We further identify corresponding research activities that can help overcome these challenges and conclude by highlighting tangible real-world outcomes that will result from pursuing these research activities.

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  • Carbon Prices and Forest Preservation Over Space and Time in the Brazilian Amazon

    Carbon Prices and Forest Preservation Over Space and Time in the Brazilian Amazon

    by Juliano J. Assunção, Lars Peter Hansen, Todd Munson, and José A. Scheinkman

    Some portions of land in Brazilian Amazon are forested, and other portions used in agriculture. Deforestation (reforestation) emits (captures) carbon, which has consequence for the global climate. The social and private productivities for these alternative land uses vary across locations within the Amazon region. In this research, we build and analyze a spatial/dynamic model of socially efficient land allocation to establish a benchmark for ad-hoc policies. We show how to incorporate the stochastic evolution of agricultural prices, and we explore the consequences of ambiguity in the location specific productivities on the socially efficient policy. Finally, we assess the consequences of imposing alternative social costs of carbon emissions on the spatial/dynamic allocation of land use. Our results indicate that with modest transfers per ton of net CO2, Brazil would find it optimal to choose policies that produce substantial capture of greenhouse gasses in the next 30 years, suggesting that the management of tropical forests could play an important role on climate change mitigation in the near future.

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