Findings

Dirty jobs

Kevin Lewis

January 11, 2017

Fracking, Drilling, and Asset Pricing: Estimating the Economic Benefits of the Shale Revolution

Erik Gilje, Robert Ready & Nikolai Roussanov

NBER Working Paper, December 2016

Abstract:
We quantify the effect of a significant technological innovation, shale oil development, on asset prices. Using stock returns on major news announcement days allows us to link aggregate stock price fluctuations to shale technology innovations. We exploit cross-sectional variation in industry portfolio returns on days of major shale oil-related news announcements to construct a shale mimicking portfolio. This portfolio can explain a significant amount of variation in aggregate stock market returns, but only during the time period of shale oil development, which begins in 2012. Our estimates imply that $3.5 trillion of the increase in aggregate U.S. equity market capitalization since 2012 can be explained by this mimicking portfolio. Similar portfolios based on major monetary policy announcements do not explain the positive market returns over this period. We also show that exposure to shale oil technology has significant explanatory power for the cross-section of employment growth rates of U.S. industries over this period.

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Institutions and the shale boom

Ilia Murtazashvili

Journal of Institutional Economics, forthcoming

Abstract:
This paper uses the institutional economics of Douglass North to explain three features of the shale boom: why fracking technology emerged in the United States, the rapid increase in production of natural gas in the United States and the uneven response to these new economic opportunities in shale-rich economies. It argues that the institutional matrix of the United States, in particular private ownership of minerals, encouraged experimentation on the barren Texas oil and gas fields, where fracking technology emerged and the rapid transfer of mineral rights to gas companies. Institutional entrepreneurs, namely landmen and lawyers, facilitated contracting between owners of mineral rights and drillers. Private ownership of minerals and an ideology supportive of drilling provide insight into the adoption of regulations that encourage hydraulic fracturing.

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Energy Efficiency Standards Are More Regressive Than Energy Taxes: Theory and Evidence

Arik Levinson

NBER Working Paper, December 2016

Abstract:
Economists promote energy taxes as cost-effective. But policymakers raise concerns about their regressivity, or disproportional burden on poorer families, preferring to set energy efficiency standards instead. I first show that in theory, regulations targeting energy efficiency are more regressive than energy taxes, not less. I then provide an example in the context of automotive fuel consumption in the United States: taxing gas would be less regressive than regulating the fuel economy of cars if the two policies are compared on a revenue-equivalent basis.

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The Law of the Test: Performance-Based Regulation and Diesel Emissions Control

Cary Coglianese & Jennifer Nash

Yale Journal on Regulation, forthcoming

Abstract:
The Volkswagen diesel emissions scandal of 2015 not only pushed that company’s stock and retail sales into freefall, but also raised serious questions about the efficacy of existing regulatory controls. The same furtive actions taken by Volkswagen had been taken nearly twenty years earlier by other firms in the diesel industry. In that previous scandal, the U.S. Environmental Protection Agency (EPA) discovered that diesel truck engine manufacturers had, like Volkswagen would later do, programmed on-board computers to calibrate their engines one way to satisfy the required emissions test. Those manufacturers had also programmed the on-board computers to re-calibrate the engines automatically to achieve better fuel economy and responsiveness when the trucks were on the road, even though doing so increased emissions above the mandated level. This paper provides an in-depth retrospective study of the federal government’s efforts to regulate diesel emissions. In particular, it chronicles the earlier saga over heavy-duty diesel truck engines to reveal important lessons for regulators who use a regulatory strategy known as performance-based regulation. Endorsed around the world and used in many settings, performance-based regulation mandates the attainment of outcomes — the passing of a test — but leaves the means for doing so up to the regulated entities. In theory, performance standards are highly appealing, but their actual performance in practice has remained virtually unstudied by scholars of regulation. This paper’s extensive analysis of U.S. diesel emissions control provides a new basis to learn how performance-based regulation works in action, revealing some of its previously unacknowledged limitations. Precisely because performance-based regulation offers flexibility, it facilitates, if not invites, private-sector firms to innovate in ways that allow them to pass mandated tests while confounding regulators’ broader policy objectives. When regulating the diesel industry or any other aspect of the economy, policymakers should temper their enthusiasm for performance standards and, when they use them, maintain constant vigilance for private-sector tactics that run counter to proper regulatory goals.

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EU air pollution regulation: A breath of fresh air for Eastern European polluting industries?

Igor Bagayev & Julie Lochard

Journal of Environmental Economics and Management, forthcoming

Abstract:
Does air quality regulation in the European Union (EU) foster polluting activity in emerging and developing countries? In this paper, we propose an original variable that evaluates regulation stringency, based on the EU Air Quality Framework Directive. Focusing on the underlying mechanism and controlling for endogeneity in the relation between regulation and trade, we provide robust evidence that EU countries implementing more stringent air pollution regulations import relatively more in pollution-intensive sectors from developing and emerging countries in Europe and Central Asia.

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Identifying the Impacts of Critical Habitat Designation on Land Cover Change

Erik Nelson et al.

Resource and Energy Economics, February 2017, Pages 89–125

Abstract:
The US Endangered Species Act (ESA) regulates what landowners, land managers, and industry can do on lands occupied by listed species. The ESA does this in part by requiring the designation of habitat within each listed species’ range considered critical to their recovery. Critics have argued that critical habitat (CH) designation creates significant economic costs while contributing little to species recovery. Here we examine the effects of CH designation on land cover change. We find that the rate of change from 1992 to 2011 in developed (urban and residential) and agricultural land in CH areas was not significantly different compared to similar lands without CH designation, but still subject to ESA regulations. Although CH designation on average does not affect overall rates of land cover change, CH designation did slightly modify the impact of land cover change drivers. Generally, variation in land prices played a larger role in land cover decisions within CH areas than in similar areas without CH designation. These trends suggest that developers may require a greater than typical expected return to development in CH areas to compensate for the higher risk of regulatory scrutiny. Ultimately, our results bring into question the very rationale for the CH regulation. If it is for the most part not affecting land cover choices, is CH helping species recover?

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Does the Modernization of Environmental Enforcement Reduce Toxic Releases? An Examination of Self-policing, Criminal Prosecutions, and Toxic Releases in the United States, 1988–2014

Paul Stretesky et al.

Sociological Spectrum, January/February 2017, Pages 48-62

Abstract:
According to modernization theory, enforcement schemes that rely on end-of-the-pipe regulation are not as effective at achieving improved environmental performance as market-based approaches that encourage pollution prevention. Consistent with that observation, the U.S. Environmental Protection Agency transitioned to the use of self-policing to encourage pollution prevention. Other studies note that environmental compliance is significantly affected by traditional “command-and-control” strategies. Using Prais Winston regression we examine these contrasting views by estimating the relationship between toxic releases, self-policing, and criminal prosecutions from 1988 through 2014. Initial correlations suggest that (1) self-policing is not associated with toxic releases but that (2) criminal prosecutions may reduce toxic releases through general deterrence signals. Subsequent analyses controlling for gross domestic product revealed that neither self-policing nor criminal enforcement correlate with toxic releases but that gross domestic product was the strongest predictor of emissions. The implications of these findings for the control of toxic emissions are discussed.

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Corrective Policy and Goodhart's Law: The Case of Carbon Emissions from Automobiles

Mathias Reynaert & James Sallee

NBER Working Paper, December 2016

Abstract:
Firms sometimes comply with externality-correcting policies by gaming the measure that determines policy. We show theoretically that such gaming can benefit consumers, even when it induces them to make mistakes, because gaming leads to lower prices by reducing costs. We use our insights to quantify the welfare effect of gaming in fuel-consumption ratings for automobiles, which we show increased sharply following aggressive policy reforms. We estimate a structural model of the car market and derive empirical analogs of the price effects and choice distortions identified by theory. We find that price effects outweigh distortions; on net, consumers benefit from gaming.

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Has the Clean Air Interstate Rule Fulfilled Its Mission? An Assessment of Federal Rule-Making in Preventing Regional Spillover Pollution

Derek Glasgow & Shuang Zhao

Review of Policy Research, forthcoming

Abstract:
The Environmental Protection Agency developed the Clean Air Interstate Rule (CAIR) to minimize sulfur dioxide and nitrogen oxide emissions from power plants and prevent pollution spillover into downwind states. While observers of CAIR claim success in the reduction of air pollution, our innovative multivariate statistical analysis based on spatial and facility-level panel data finds mixed results concerning the rule's effectiveness. On the one hand, we find that CAIR facilities are associated with increases in the reduction rate of pollution compared to non-CAIR facilities. However, the evidence suggests that sulfur dioxide levels decreased in CAIR-mandated facilities before the actual implementation of the program. Additionally, on the one hand, CAIR facilities in the interior of states are associated with slower pollution reduction rates than those on the border. However, this difference in reduction rate does not change dramatically before or after the adoption or implementation of this rule. This suggests that the CAIR program was ineffective in targeting specific facilities most likely to contribute to interstate pollution. We conclude that while CAIR spurred the electrical utility industry to reduce air pollution, some of these reductions occurred before the actual implementation of the program. More substantially, gains in interstate spillover pollution did not occur by targeting specific facilities most likely to spillover but rather through the overall reduction of air pollution in the eastern states.

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The Response of Consumer Spending to Changes in Gasoline Prices

Michael Gelman et al.

NBER Working Paper, December 2016

Abstract:
This paper estimates how overall consumer spending responds to changes in gasoline prices. It uses the differential impact across consumers of the sudden, large drop in gasoline prices in 2014 for identification. This estimation strategy is implemented using comprehensive, daily transaction-level data for a large panel of individuals. The estimated marginal propensity to consume (MPC) is approximately one, a higher estimate than estimates found in less comprehensive or well-measured data. This estimate takes into account the elasticity of demand for gasoline and potential slow adjustment to changes in prices. The high MPC implies that changes in gasoline prices have large aggregate effects.

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Employment Impacts of Upstream Oil and Gas Investment in the United States

Mark Agerton et al.

Energy Economics, forthcoming

Abstract:
We use dynamic panel methods at the state level to understand how the increase in exploration and production of oil and natural gas since the mid 2000s has impacted employment. We find robust statistical support for the hypothesis that changes in drilling do, in fact, have an economically meaningful and positive impact on employment. The strongest impact is contemporaneous, though months later in the year also experience statistically and economically meaningful growth. Once dynamic effects are accounted for, we estimate that an additional rig count results in the creation of 31 jobs immediately and 315 jobs in the long run. Robustness checks suggest that these multipliers could be even bigger. Our results imply that the national impact of upstream investment remains small, perhaps due to the sector’s small size and inter-state migration.

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Distributional Effects of Air Pollution from Electric Vehicle Adoption

Stephen Holland et al.

NBER Working Paper, November 2016

Abstract:
We examine the distributional effects of changes in local air pollution from driving electric vehicles in the United States. We employ an econometric model to estimate power plant emissions and an integrated assessment model to value damages in air pollution from both electric and gasoline vehicles. Using the locations of currently registered electric vehicles, we find that people living in census block groups with median income greater than about $65,000 receive positive environmental benefits from these vehicles while those below this threshold receive negative environmental benefits. Asian and Hispanic residents receive positive environmental benefits, but White and Black residents receive negative environmental benefits. In multivariate analyses, environmental benefits are positively correlated with income and urban measures, conditional on racial composition. In addition, conditional on income and urbanization, separate regressions find environmental benefits to be positively related with Asian and Hispanic block-group population shares, negatively correlated with White share, and uncorrelated with Black share. Environmental benefits tend to be larger in states offering purchase subsidies. However, for these states, an increase in subsidy size is associated with a decrease in created environmental benefits.

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Is Energy Efficiency Capitalized into Home Prices? Evidence from Three U.S. Cities

Margaret Walls et al.

Journal of Environmental Economics and Management, March 2017, Pages 104–124

Abstract:
We test for evidence that energy efficiency features are capitalized into home prices in three U.S. metropolitan areas. Using hedonic regressions and multiple matching procedures, we find that Energy Star certification is associated with higher sales prices in two of the markets: the Research Triangle region of North Carolina and Portland, Oregon. We find that local “green” certifications in Portland and in Austin, Texas, are also associated with higher prices and that the estimated price impacts are larger than those from Energy Star. Matching on observables proves to be important in some cases, reducing the estimated impacts compared with models without matching. We calculate the implied energy savings from the estimated premiums and find that, in the Research Triangle market, the Energy Star premiums approximately equal the savings that program is designed to achieve, but in Portland, the premiums are slightly greater than the program's savings due to low energy costs in the region.

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Bombs and Babies: US Navy Bombing Activity and Infant Health in Vieques, Puerto Rico

Gustavo Bobonis, Mark Stabile & Leonardo Tovar

NBER Working Paper, December 2016

Abstract:
We study the relationship between in utero exposure to military exercises and children’s early-life health outcomes in a no-war zone. This allows us to document non-economic impacts of military activity on neonatal health outcomes. We combine monthly data on tonnage of ordnance in the context of naval exercises in Vieques, Puerto Rico, with the universe of births in Puerto Rico between 1990 and 2000; studying this setting is useful because these exercises have no negative consequences for local economic activity. We find that a one standard deviation increase in exposure to bombing activity leads to a three per thousand point (70 percent) increase in extremely premature births; a three to seven per thousand point – 34 to 77 percent – increase in the incidence of congenital anomalies; and a five per thousand point increase in low APGAR scores (38 percent). The evidence is generally consistent with the channel of environmental pollution. Given the well-documented relationship between neonatal health and later life outcomes, there is reason to believe that our substantial short-term effects may have longer-term consequences for this population.

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Environmental consequences of oil production from oil sands

Lorenzo Rosa et al.

Earth's Future, forthcoming

Abstract:
Crude oil from oil sands will constitute a substantial share of future global oil demand. Oil sands deposits account for a third of globally proven oil reserves, underlie large natural forested areas, and have extraction methods requiring large volumes of freshwater. Yet little work has been done to quantify some of the main environmental impacts of oil sands operations. Here we examine forest loss and water use for the world's major oil sands deposits. We calculate actual and potential rates of water use and forest loss both in Canadian deposits, where oil sands extraction is already taking place, and in other major deposits worldwide. We estimated that their exploitation, given projected production trends, could result in 1.31 km3 yr−1 of freshwater demand and 8700 km2 of forest loss. The expected escalation in oil sands extraction thus portends extensive environmental impacts.

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Fault activation by hydraulic fracturing in western Canada

Xuewei Bao & David Eaton

Science, 16 December 2016, Pages 1406-1409

Abstract:
Hydraulic fracturing has been inferred to trigger the majority of injection-induced earthquakes in western Canada, in contrast to the Midwestern United States, where massive saltwater disposal is the dominant triggering mechanism. A template-based earthquake catalog from a seismically active Canadian shale play, combined with comprehensive injection data during a 4-month interval, shows that earthquakes are tightly clustered in space and time near hydraulic fracturing sites. The largest event [moment magnitude (MW) 3.9] occurred several weeks after injection along a fault that appears to extend from the injection zone into crystalline basement. Patterns of seismicity indicate that stress changes during operations can activate fault slip to an offset distance of >1 km, whereas pressurization by hydraulic fracturing into a fault yields episodic seismicity that can persist for months.

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Something in the Air? Air Quality and Children's Educational Outcomes

Dave Marcotte

Economics of Education Review, February 2017, Pages 141–151

Abstract:
Poor air quality has been shown to harm the health and development of children. Research on these relationships has focused almost exclusively on the effects of human-made pollutants, and has not fully distinguished between contemporaneous and long-run effects. This paper contributes on both of these fronts. Merging data on ambient levels of human-made pollutants and plant pollen with detailed panel data of children beginning kindergarten in 2010, I study the relationship between poor air quality on achievement in early grades. I also provide tentative estimates of the effects of air quality in the first years of life on school-readiness. I find that students score between 1 to 2 percent lower on math and reading scores on days with high levels of pollen or fine airborne particulate matter, and that asthmatic students score about 10 percent lower on days with high levels of ozone. I find suggestive evidence that poor air quality during early childhood negatively affects school readiness.

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Overcoming Salience Bias: How Real-Time Feedback Fosters Resource Conservation

Verena Tiefenbeck et al.

Management Science, forthcoming

Abstract:
Inattention and imperfect information bias behavior toward the salient and immediately visible. This distortion creates costs for individuals, the organizations in which they work, and society at large. We show that an effective way to overcome this bias is by making the implications of one’s behavior salient in real time, while individuals can directly adapt. In a large-scale field experiment, we gave participants real-time feedback on the resource consumption of a daily, energy-intensive activity (showering). We find that real-time feedback reduced resource consumption for the target behavior by 22%. At the household level, this led to much larger conservation gains in absolute terms than conventional policy interventions that provide aggregate feedback on resource use. High baseline users displayed a larger conservation effect, in line with the notion that real-time feedback helps eliminate “slack” in resource use. The approach is cost effective, is technically applicable to the vast majority of households, and generated savings of 1.2 kWh per day and household, which exceeds the average energy use for lighting. The intervention also shows how digitalization in our everyday lives makes information available that can help individuals overcome salience bias and act more in line with their preferences.


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