Essays in Energy and Environmental Economics

Abstract

This dissertation includes three essays related to energy and environmental economics, with an emphasis on policy. Topics discussed pertain to policies aimed at internalizing externalities, or encouraging adaptation to climate change. I discuss these topics in the context of the transportation sector, natural disaster insurance, and infrastructure policy. I analyze consumer behavior in a vehicle arms race—where preferences for safety lead to strategic purchases of large vehicles—as a potential contributing factor to the rise in vehicle sizes in the U.S. First, I test for arms race purchasing behavior by exploiting quasi-random next-door neighbor fatalities in fatal car accidents in order to examine how shifts in preferences for safety impact demand for heavy vehicles. I find that households neighboring an individual who dies in an accident respond by purchasing significantly larger and safer vehicles than households neighboring someone who survives an accident. Second, I explore how gasoline taxes counteract arms race behavior by estimating a discrete choice model of vehicle purchases, allowing for consumer preferences on relative weight. My specification allows preferences for vehicle size to vary based on the size of cars in the households’ area. Counterfactual simulations illustrate that an arms race can be reversed with a sufficiently high Pigouvian tax, which will depend on the distribution of vehicle weights, specific to the area. The next study examines the unintended role government policies can play in discouraging climate change adaptation. Despite the large costs of covering flood losses, little is known about whether flood insurance availability affects the decision to live and stay in more flood-prone areas. In this paper, we present evidence that suggests households in flood-prone areas would have otherwise moved to less risky areas absent flood insurance availability. We identify the effect of flood insurance availability on population flows by exploiting the within- and across-county variation in the various programs that the federal government implemented to encourage flood-prone areas to join the National Flood Insurance Program (NFIP). Results suggest that flood insurance availability caused population to increase by 4 to 5 percent in high flood-risk counties. Furthermore, we find that NFIP causes a 4.4% increase in population per one standard deviation increase in risk. Finally, I analyze how infrastructure policy may encourage coal plants to convert to clean natural gas energy. The U.S. Environmental Protection Agency’s (EPA’s) Mercury and Air Toxics Standards (MATS) have imposed significant costs on coal-fired power plants in recent years. To many old, inefficient coal plants, high costs of compliance have prompted a trend toward conversions to natural gas—a much cleaner source of energy. Transportation frictions may inhibit some of these conversions from taking place. In this paper, I analyze the role that the natural gas pipeline infrastructure plays in incentivizing these conversions. Exploiting MATS’ increased pressure on coal electric generating units (EGUs) with capacity 25 megawatts or greater within a triple-differences framework, I estimate that a 10% reduction in pipeline distance produces an additional 6.4% increase in likelihood of conversion for an EGU regulated under MATS. Isolating the impact of pipeline costs within a dynamic model of the plant’s decision to convert (still fully exploiting MATS), I find that pipeline subsidies alone can produce one-third of the conversions as emissions reduction mandates under MATS, and present value of external benefits of $10.1 billion from reduced emissions. In addition, I estimate a marginal benefit of$2.6 million per-mile of pipeline