Three Essays on Energy Efficiency and Climate Change

Abstract

This dissertation is comprised of three essays which explore selected aspects of climate change mitigation and adaptation. The first two essays examine the energy-efficiency gap as barrier to the adoption of more efficient, greener technologies. The first essay presents a welfare analysis of energy policies within a behavioral framework of temptation and self-control. We find that, in the presence of temptation, Pigovian taxes alone are not first-best and may be dominated by energy efficiency standards, while a policy combining standards with a Pigovian tax can yield higher social welfare than a Pigovian tax alone, implying that the two instruments should be viewed as complements rather than substitutes. The second essay investigates empirically the role of temptation as potential factor behind the energy-efficiency gap by adapting the above framework of temptation and self-control to the U.S. refrigerator market. Using household-level data, we derive a distribution of household implicit discount rates ranging from 18% to 36%, suggesting excessive discounting in this market. Alternatively, under a reasonably low discount rate, observed consumer behavior in the data is found to be consistent with the model of temptation and self-control, which implies that temptation can be viewed as another potential cause for under-investment in energy-efficient products. We find that, if temptation is present, energy efficiency standards are on average welfare-improving in this market. The third essay shifts the focus towards adapting to some of the climate change-related impacts. Due to sea-level rise, the magnitude and frequency of coastal storms are expected to increase, which necessitates evaluating flood adaptation measures. We develop a dynamic benefit-cost framework, which allows us to determine the optimal timing of initiating flood protection in any coastal region, and apply this framework to a coastal area in Connecticut. Our results suggest that the optimal timing of protection may vary across census blocks within the study area. If negative environmental and aesthetic impacts of sea barriers are taken into account, delaying protection becomes more desirable, with the extent of delay being sensitive to the relative magnitude of one-time costs (loss of view and recreational opportunities) vs. continuous costs (shoreline erosion, loss of wetlands)