Second-Best Carbon Policy
POSITION FILLED
FACULTY SUPERVISOR(S):
Nicholas Ryan and Samuel Kortum
PROJECT AND POSITION DESCRIPTION:
The pre-doc would work on projects related to energy markets, the environment and international trade. The pre-doc would split time between projects supervised by Samuel Kortum and Nicholas Ryan. Project descriptions are below.
Samuel Kortum (Yale) and David Weisbach (University of Chicago Law School)
Unilateral Carbon Policy: Optimal to Practical
Carbon emissions are a global externality, yet countries have not come close to settling on a harmonized carbon price. As the United States moves toward implementing carbon policy, possibly a carbon tax, it should consider policy designs that minimize “carbon leakage” (the increased foreign emissions resulting from the US policy) from countries that do not put a price on carbon. In earlier work, we derived the optimal design of a unilateral policy in such a setting. A key finding is the advantage of sharing the burden of a carbon tax between producers of energy (fossil fuel extraction) and users of energy (firms and households). Current legislation for a US carbon tax leaves US energy extraction untaxed after accounting for the proposed border adjustment on energy imports (taxing them) and energy exports (removing the tax). In principle, tweaking such a policy, by reducing the level of the border adjustment, gets it to approximate the optimal policy. That conclusion is based on a highly simplified model, however, in which we know the key elasticities of foreign responses to the energy price. Implementing such a policy, by setting the right level of the border adjustment, requires estimates of those elasticities, the elasticity of foreign extraction in particular. The current project will build a quantitative version of our theoretical model, incorporating many countries with energy sources (including renewables) differing by carbon intensity. With data on the distribution of extraction costs from each source in each country we can estimate the key elasticities and compute the optimal split between supply and demand-side carbon taxes.
Nicholas Ryan (Yale)
Carbon Offset Markets
The least expensive means to reduce global emissions may be in poorer countries. It costs less to build renewable energy to displace construction of a new coal-fired power plant in a developing country than to displace a plant already operating in a developed country. Furthermore, developing countries justly object to using less energy, or more expensive energy, to compensate for the historical emissions of industrialized countries. Both efficiency and equity point to using transfer payments from developed countries to support green growth in developing countries. This project will study how well the Clean Development Mechanism (CDM), the largest such transfer program in the world, has actually worked. Have such offset programs reduced emissions below what would have occurred without them? Project proponents, who have more information than the certifiers of such projects, may claim (and be paid for) large emissions reductions that never happen. By assembling a new database on financial projections for CDM projects, together with firm-level data for the manufacturing sector in India and China, we can test whether the claimed emissions reductions took place. Such evidence is crucial in deciding whether the CDM should be adopted as part of a U.S. carbon policy.
REQUISITE SKILLS AND QUALIFICATIONS:
The ideal candidate would have a strong background in economics, mathematics and/or computer science and an interest in the application of economics to environmental policy and climate change. Coursework in statistics and econometrics appreciated. Statistical programming experience n Python, Matlab, R, Julia or Stata a strong plus.