An inconvenient cost: The effects of climate change on municipal bonds
Journal of Financial Economics, forthcoming
Counties more likely to be affected by climate change pay more in underwriting fees and initial yields to issue long-term municipal bonds compared to counties unlikely to be affected by climate change. This difference disappears when comparing short-term municipal bonds, implying the market prices climate change risks for long-term securities only. Higher issuance costs for climate risk counties are driven by bonds with lower credit ratings. Investor attention is a driving factor, as the difference in issuance costs on bonds issued by climate and nonclimate affected counties increases after the release of the 2006 Stern Review on climate change.
The Urban Crime and Heat Gradient in High and Low Poverty Areas
Kilian Heilmann & Matthew Kahn
NBER Working Paper, June 2019
We use spatially disaggregated daily crime data for the City of Los Angeles to measure the impact of heat and pollution on crime and to study how this relationship varies across the city. On average, overall crime increases by 2.2% and violent crime by 5.7% on days with maximum daily temperatures above 85 degrees Fahrenheit (29.4° C) compared to days below that threshold. The heat-crime relationship is more pronounced in low-income neighborhoods. This suggests that heat shocks can increase spatial urban quality of life differences through their effect on crime. We use other administrative data and find some evidence that policing intensity declines on extremely hot days. These findings highlight that the quality of urban governance during times of extreme stress may be an important policy lever in helping all socio-economic groups adapt to climate change.
A Global Analysis of Temperature, Terrorist Attacks, and Fatalities
Curtis Craig, Randy Overbeek & Elizabeth Niedbala
Studies in Conflict & Terrorism, forthcoming
Higher temperatures have been associated with aggression in humans, but the heat–aggression relationship has not been clearly established for terrorist attacks. We found significant and positive relationships when regressing the number of terrorist attacks and associated deaths on temperature in 159 countries from 1970 to 2015. When temperature increases, the number of terrorist attacks and deaths due to terrorist attacks tend to increase. Our results are consistent with a large body of research on the effect of climate on conflict and are of practical concern given increasing average global temperatures.
Cognitive complexity increases climate change belief
Long Chen & Kerrie Unsworth
Journal of Environmental Psychology, forthcoming
The present research bridged the relationship between cognitive complexity and belief in anthropogenic climate change and tested the differential effectiveness of two argument types. In the first two studies (with 817 and 226 participants, respectively) we found that participants with lower levels of cognitive complexity were less likely to believe in anthropogenic climate change than those with higher levels. In Study 3 we used an experimental design with 304 participants to examine the reactions to different types of arguments across people with differing cognitive complexity. We compared the two most common types of arguments in discussions of climate change: 1) Presenting facts about climate change on their own (one-sided); 2) Presenting opposing arguments (i.e., misinformation) together with the correct climate change facts (two-sided). Participants with lower cognitive complexity were more likely to believe in climate change when exposed to facts of climate change on their own compared to the two-sided, refutational combination of misinformation and facts; but those with higher cognitive complexity were more likely to believe in climate change when exposed to the refutational combination rather than facts alone. Media and scientists need to consider the cognitive complexity of their audience when dealing with climate change.
Hurricane Katrina Floods New Jersey: The Role of Information in the Market Response to Flood Risk
Nicholas Muller & Caroline Hopkins
NBER Working Paper, June 2019
This study uses hedonic property models to explore how coastal real estate markets subject to heterogeneous information treatments respond to flood risk. We identify reactions to flood risk, distinctly from price effects due to flood damage, by examining non-local flooding events. Utilizing a difference-in-difference methodology, we test whether the coastal real estate market in New Jersey responds to several well-publicized hurricanes and tropical storms that did not strike the Atlantic seaboard. We find that homes in high flood risk zones situated in towns that participate in public flood awareness activities incur a 7 to 16 percent decrease in price after the non-local shock.
Public support for global warming policies: Solution framing matters
Jessica Nolan & Samantha Tobia
Climatic Change, June 2019, Pages 493–509
One of the biggest challenges to sustainability is lack of public support for policies needed to reduce greenhouse gas emissions. Across three studies, we explored how solution framing impacts public support for financially costly policies designed to reduce greenhouse gas emissions. Study 1 analyzed data from a statewide public opinion poll (N = 771), while studies 2 (N = 100) and 3 (N = 163) were laboratory-based experiments. Specifically, we found that polling questions that asked about a financially costly climate change policy received more support when the goal of the policy was to create efficient technologies than when the goal was to curtail behavior. In addition, we replicate previous research showing that there is a partisan gap for beliefs about global warming and extend this research to show that the partisan gap is not found when looking at support for solutions. The implications of these results for promoting needed climate change policies is discussed.
Pigou Creates Losers: On the Implausibility of Achieving Pareto Improvements from Efficiency-Enhancing Policies
NBER Working Paper, May 2019
Economic theory predicts that efficiency-enhancing policy changes can be made to benefit everyone through the use of lump-sum transfers that compensate anyone initially harmed by the change. Precise targeting of compensating transfers, however, may not be possible when agents are heterogeneous and the planner faces constraints on the design of transfers. In this paper, I derive a necessary condition for an efficiency-enhancing policy to create a Pareto improvement that can be tested directly with data. The condition relates the size of efficiency gains to the degree of predictability between initial burdens and variables used to determine a transfer scheme. The main empirical application is to a gasoline tax to correct carbon emissions, with related results for other sin taxes also presented. Results indicate that it is infeasible to create a Pareto improvement from the taxation of these goods, and moreover that plausible policies are likely to leave a large fraction of households as net losers. The paper argues that the existence of these losers is relevant to policy design and may help explain the political challenges faced by many efficient policies. The paper concludes with several extensions related to this political economy motivation.
Does Absolution Promote Sin? A Conservationist’s Dilemma
Matthew Harding & David Rapson
Environmental and Resource Economics, July 2019, Pages 923–955
This paper shows that households signing up for a green program exhibit an intriguing behavioral rebound effect: a promise to fully offset customers’ carbon emissions resulting from electricity usage increases their energy use post-adoption by 1–3%. The response is robust across empirical specifications, and is consistent with an economic model of rational energy consumption. Our results provide a cautionary tale for designing green product strategies in which the adoption of a product may lead to unexpected consequences.
Climate change communicators’ carbon footprints affect their audience’s policy support
Shahzeen Attari, David Krantz & Elke Weber
Climatic Change, June 2019, Pages 529–545
Global warming is caused mainly by CO2 emission from burning fossil fuels and is beginning to have large negative impacts on human well-being and ecosystems (IPCC 2014; IPCC 2018). Policies that mitigate CO2 emissions will require public support. Here, we examine how support for several possible decarbonization policies varies as a function of the personal carbon footprint of a researcher who advocates the policy. We find that people are more likely to support policies if the advocate for these policies has a low carbon footprint. Replicating our prior work, we find that the communicators’ carbon footprint massively affect their credibility and intentions of their audience to conserve energy (Attari, Krantz and Weber 2016). Our new finding is that their carbon footprint also affects audience support for public policies advocated by the communicator. In a second study, we show that the negative effects of a large carbon footprint on credibility are greatly reduced if the communicator reforms their behavior by reducing their personal carbon footprints. The implications of these results are stark: effective communication of climate science and advocacy of both individual behavior change and public policy interventions are greatly helped when advocates lead the way by reducing their own carbon footprint.
Setting and smashing extreme temperature records over the coming century
Scott Power & François Delage
Nature Climate Change, July 2019, Pages 529–534
Changes in the intensity or frequency of extreme climate events can profoundly increase the disruption caused by climate change. The more extreme these events, the greater the potential to push ecosystems and communities beyond their ability to cope. The rate at which existing high temperature records have been broken has increased in response to rising global greenhouse gas emissions (GGHGEs), and the rate at which historical records are surpassed is projected to increase further over the coming century. Here we examine future events that will be so extreme that they will not have been experienced previously. Record setting in 22 climate models indicates that, by the end of the twenty-first century, under business-as-usual increases in GGHGEs (representative concentration pathway (RCP) 8.5), high monthly mean temperature records will be set in approximately 58% of the world every year, and in 67% of least developed countries and 68% of small island developing states. These figures all drop to 14% under a scenario with much lower GHG concentrations (RCP2.6). In any given year, the likelihood of ‘smashing’ at least one monthly record by more than 1.0 °C is much less likely under RCP2.6 than it is under RCP8.5 (1.1 versus 8.9%).
Economics of the disintegration of the Greenland ice sheet
Proceedings of the National Academy of Sciences, 18 June 2019, Pages 12261-12269
Concerns about the impact on large-scale earth systems have taken center stage in the scientific and economic analysis of climate change. The present study analyzes the economic impact of a potential disintegration of the Greenland ice sheet (GIS). The study introduces an approach that combines long-run economic growth models, climate models, and reduced-form GIS models. The study demonstrates that social cost–benefit analysis and damage-limiting strategies can be usefully extended to illuminate issues with major long-term consequences, as well as concerns such as potential tipping points, irreversibility, and hysteresis. A key finding is that, under a wide range of assumptions, the risk of GIS disintegration makes a small contribution to the optimal stringency of current policy or to the overall social cost of climate change. It finds that the cost of GIS disintegration adds less than 5% to the social cost of carbon (SCC) under alternative discount rates and estimates of the GIS dynamics.
Assessing landscape potential for human sustainability and 'attractiveness' across Asian Russia in a warmer 21st century
Elena Parfenova, Nadezhda Tchebakova & Amber Soja
Environmental Research Letters, June 2019
In the past, human migrations have been associated with climate change. As our civilizations developed, humans depended less on the environment, in particular on climate, because technological and economic development in the span of human history allowed us to adapt to and overcome environmental discomfort. Asian Russia (east of the Urals to the Pacific) is known to be sparsely populated. The population is concentrated along the forest-steppe in the south, with its comfortable climate and thriving agriculture on fertile soils. We use current and predicted climate scenarios to evaluate the climate comfort of various landscapes to determine the potential for human settlers throughout the 21st century. Climate change scenarios are taken from 20 CMIP5 general circulation models. Two CO2 Representative Concentration Pathway scenarios, RCP 2.6 representing mild climate change and RCP 8.5 representing more extreme changes, are applied to the large subcontinental territory of Asian Russia. The ensemble January and July temperature anomaly means and annual precipitation are calculated with respect to the baseline 1961–1990 climate. Three climate indices, which are important for human livelihood and well-being, are calculated based on January and July temperatures and annual precipitation: Ecological Landscape Potential, winter severity, and permafrost coverage. Climates predicted by the 2080s over Asian Russia would be much warmer and milder. Ensemble means do not show extreme aridity. The permafrost zone is predicted to significantly shift to the northeast. Ecological Landscape Potential would increase 1–2 categories from 'low' to 'relatively high' which would result in a higher capacity for population density across Asian Russia. Socio-economic processes and policy choices will compel the development that will lead to attracting people to migrate throughout the century. Therefore, understanding ecological landscape potential is crucial information for developing viable strategies for long-term economic and social development in preparation for climate migration and strategic adaptation planning.
Stock returns, weather, and air conditioning
Jie Hou, Wendong Shi & Jingwei Sun
PLoS ONE, July 2019
This study investigates the relationship between stock returns and local weather through a new channel — the influence of the air-cooling system installed in the New York Stock Exchange (NYSE). To our knowledge, we are the first to employ the use of air conditioning to examine whether and how weather, especially excessively high temperature, and other factors affect stock returns. Using data for 1885–1914, we show that lower Dow Jones Average (DJA) returns were significantly associated with hotness before the NYSE trading rooms were equipped with the cooling system in 1903, whereas this correlation is largely weakened afterward. We also find that before the introduction of the air-cooling system, the negative effect of high temperatures on stock returns was stronger when the precipitation was lower. We obtain consistent results when controlling for the calendar anomalies such as the May-to-October effect, the Monday effect, and the effect of macroeconomic conditions.
Committed emissions from existing energy infrastructure jeopardize 1.5 °C climate target
Dan Tong et al.
Net anthropogenic carbon dioxide (CO2) emissions must approach zero by mid-century (2050) to stabilize global mean temperature at the levels targeted by international efforts. Yet continued expansion of fossil-fuel energy infrastructure implies already ‘committed’ future CO2 emissions. Here we use detailed datasets of current fossil-fuel-burning energy infrastructure in 2018 to estimate regional and sectoral patterns of ‘committed’ CO2 emissions, the sensitivity of such emissions to assumed operating lifetimes and schedules, and the economic value of associated infrastructure. We estimate that, if operated as historically, existing infrastructure will emit about 658 gigatonnes (Gt) of CO2 (ranging from 226 to 1,479 Gt CO2 depending on assumed lifetimes and utilization rates). More than half of these emissions are projected to come from the electricity sector, and infrastructure in China, the USA and the EU28 countries represent approximately 41 per cent, 9 per cent and 7 per cent of the total, respectively. If built, proposed power plants (planned, permitted or under construction) would emit approximately an additional 188 (range 37–427) Gt CO2. Committed emissions from existing and proposed energy infrastructure (about 846 Gt CO2) thus represent more than the entire remaining carbon budget if mean warming is to be limited to 1.5 °C with a probability of 50–66 per cent (420–580 Gt CO2), and perhaps two-thirds of the remaining carbon budget if mean warming is to be limited to below 2 °C (1,170–1,500 Gt CO2). The remaining carbon budget estimates are varied and nuanced, depending on the climate target and the availability of large-scale negative emissions. Nevertheless, our emission estimates suggest that little or no additional CO2-emitting infrastructure can be commissioned, and that infrastructure retirements that are earlier than historical ones (or retrofits with carbon capture and storage technology) may be necessary, in order to meet the Paris Agreement climate goals. On the basis of the asset value per ton of committed emissions, we estimate that the most cost-effective premature infrastructure retirements will be in the electricity and industry sectors, if non-emitting alternative technologies are available and affordable.
Acceleration of ice loss across the Himalayas over the past 40 years
J.M. Maurer et al.
Science Advances, June 2019
Himalayan glaciers supply meltwater to densely populated catchments in South Asia, and regional observations of glacier change over multiple decades are needed to understand climate drivers and assess resulting impacts on glacier-fed rivers. Here, we quantify changes in ice thickness during the intervals 1975–2000 and 2000–2016 across the Himalayas, using a set of digital elevation models derived from cold war–era spy satellite film and modern stereo satellite imagery. We observe consistent ice loss along the entire 2000-km transect for both intervals and find a doubling of the average loss rate during 2000–2016 [−0.43 ± 0.14 m w.e. year−1 (meters of water equivalent per year)] compared to 1975–2000 (−0.22 ± 0.13 m w.e. year−1). The similar magnitude and acceleration of ice loss across the Himalayas suggests a regionally coherent climate forcing, consistent with atmospheric warming and associated energy fluxes as the dominant drivers of glacier change.
Quantifying the rebound effects of residential solar panel adoption
Yueming Lucy Qiu, Matthew Kahn & Bo Xing
Journal of Environmental Economics and Management, forthcoming
Customers who adopt solar panels can reduce their energy bills and lower the effective average electricity prices they pay. When the price falls, a solar consumer might consume more electricity than before – a solar rebound effect. We provide the first empirical evidence of residential solar rebound effects in the U.S. We use household level hourly and daily electricity meter data as well as hourly solar panel electricity generation data from 277 solar homes and about 4000 non-solar homes from 2013 to 2017 in Phoenix Arizona. Using matching methods and a fixed effects panel regression approach, we find that when solar electricity generation increases by 1 kWh, solar homes increase their total electricity consumption by 0.18 kWh. This indicates that solar rebound effects are estimated at 18%. Building upon our theoretical framework, the increase in consumer surplus from solar panel adoption is estimated at $972/yr.