LT Week 7 Flashcards
The need for clean energy & The need for environmental regulation
Why innovation in environmental regulation?
Motivation
Ray of Hope? China and the Rise of Solar Energy (Banares-Sanchez et al., 2023)
To evaluate the effectiveness of the policy efforts towards the solar industry in China
Special settings
Ray of Hope? China and the Rise of Solar Energy (Banares-Sanchez et al., 2023)
“Energy transition is the most important halter of climate change, offering a ray of possiblity to curb emissions without cutting energy usage
Rapid decrease in solar panel costs has coincided with rapid take-off of solar energy in China”
Theory
Ray of Hope? China and the Rise of Solar Energy (Banares-Sanchez et al., 2023)
“Exploit variation in implementation of solar policies across metropolitan areas in China. Subsidies to solar manufacturing were managed and allocated by local governments, despite following national guidance
Timing, size and targeting of policy support varied depending on city or region
Account for non-random implementation of policy using synethetic difference-in-differences approach; addresses inherent problem of endogenous adoption of industrial policies”
Empirical design
Ray of Hope? China and the Rise of Solar Energy (Banares-Sanchez et al., 2023)
“Construct city-level panel dataset covering industrial policies and solar industry activity
Use comprehensive dataset of China’s legal information to show the implementation by central and local governments since 1949
Use text analysis to identify all regulations that pertain to solar and classify these by type and target (i.e. installation, production, innovation)
Synthetic DiD estimates for parallelity given the treatment for different cities being different years. Construct synthetic control using cities that never implemented solar industrial policy in the study period. Look in pre-treatment data to select which cities are evolving in parallel with the treatment group. Then can assume that after the subsidy their evolution would’ve been the same without the treatment. Then calculate which time-period to use in taking the averages (i.e. not before there is a solar industry in a city)”
Data
Ray of Hope? China and the Rise of Solar Energy (Banares-Sanchez et al., 2023)
Synthetic DiD estimates for parallelity given the treatment for different cities being different years. Construct synthetic control using cities that never implemented solar industrial policy in the study period. Look in pre-treatment data to select which cities are evolving in parallel with the treatment group. Then can assume that after the subsidy their evolution would’ve been the same without the treatment. Then calculate which time-period to use in taking the averages (i.e. not before there is a solar industry in a city)”
Key findings
Ray of Hope? China and the Rise of Solar Energy (Banares-Sanchez et al., 2023)
“Number of patents filed by solar manufacturers in treated cities doubles after introduction of subsidies and effect is persistent over time
Similarly sized impacts on number of solar manufacturers in treated cities with their total revenue increasing and a huge increase in total solar panel production”
Interpretation / policy implications
Ray of Hope? China and the Rise of Solar Energy (Banares-Sanchez et al., 2023)
“Subsidies to production lead to increases in innovation as measured by patenting activity
Production subsidies and sustained innovative activity increases future productivity due to learning-by-doing and therefore increases future innovation
China’s solar industrial policy has fuelled its global market domination, which has lowered global cost of solar panels and therefore sped up energy transition
If developing countries choose green growth rapid growth, they can also develope a comparative advantage in that sector which are becoming increasingly in-demand”
Motivation
Can Pollution Markets Work in Developing Countries? Experimental Evidence from India (Greenstone et al., 2022)
To understand how a new pollution market in India impacts emissions and compliance costs.
Special settings
Can Pollution Markets Work in Developing Countries? Experimental Evidence from India (Greenstone et al., 2022)
- Air pollution harms people by shorterning lives and reducing human captial they form as children
- Concern that emissions markets in developing markets are difficult to monitor and troubles with enforcement
- Sample covers 317 industrial plants in region of India (Surat) where third are out of compliance with standards at baseline
Theory
Can Pollution Markets Work in Developing Countries? Experimental Evidence from India (Greenstone et al., 2022)
“Establish first market for particulate matter emissions
All sample plants mandated to install abatement equipment and subject to intensity standard on maximum concentration of particulate emissions; status quo regulation incompletely enforced
Randomly assigned treatment group shifted into new emissions market, which traded permits that were allocated for free and at auction to aid price discovery
Treatment plants could only trade permits with other treatment plants afterwards, with control group remaining on status quo regime
Treatment differs through:
1) market-based regulation where compliance obligation is tradable rather than fixed standard;
2) treatment plants subect to standards that limit total pollution load (mass) rather than concentration at one point in time);
3) stringency of regulation may differ across regimes due to differences in load and concentration standards that are set”
Empirical design
Can Pollution Markets Work in Developing Countries? Experimental Evidence from India (Greenstone et al., 2022)
“Estimate treatment effects in plant survey data, finding null effects of the market treatment on abatement capital and variable expenditures at plant-month level using fixed effects, using an RCT to allocate groups
Use variation in plant permit bids to estimate shape of plant-period specific marginal abatement cost functions given that plant’s willingess-to-pay for permits equals their marginal abatement cost
Apply functions to compare costs under market at a range of regulatory stringencies and versus control (status quo command-and-control regimes), which estimate to match the distribution of emissions in control group”
Data
Can Pollution Markets Work in Developing Countries? Experimental Evidence from India (Greenstone et al., 2022)
“Plant surveys: conducted prior to market launch and one year after market started (inputs, outputs, sales, energy consumption)
Pollution measurement: before start of market and high-frequency pollution data from Continuous Emissions Monitoring Systems (CEMS) spanning market operation period
Trading data: market operating data on universe of plant bids and trades”
Key findings
Can Pollution Markets Work in Developing Countries? Experimental Evidence from India (Greenstone et al., 2022)
“1) Market functioned well; nearly all plants held enough permits to cover emissions in all compliance periods. Regulator assured compliance by establishing reputation early on. High levels of trading (up to 20% of market cap on days) and end allocation differed greatly from beginning with little money left on the table through unused/unsold permits at end of compliance period. Large and precise permit holding through trade show transaction costs were small with strong market facilitated enforcement
2) Treatment caused 20-30% decline in particulate emissions, reflects differneces in how emissions are imputed when plants fail to report data. Regulator reduced cap over several compliance periods, showing emissions treatment effect due to improved compliance and endogenously greater stringency of regulation.
3) Market reduces variable abatement (easing off) costs by 11% at treatment level of emissions; shown through comparing abatement costs in market against costs if plants were required to meet market emissions cap under command-and-control regime. Saving costs are higher if emissions held constant at control level. Show plant emissions can be reduced cheaply in the region, and that the health benefits exceed costs by at least 25x”
Interpretation / policy implications
Can Pollution Markets Work in Developing Countries? Experimental Evidence from India (Greenstone et al., 2022)
“If enforcement problems can be addressed, the private costs of abatement may not be high, even in context of high emissions and pollution
Market mechanisms have potential to transform environemtnal quality in India beyond the establishment of emissions market by investing in new monitoring and forms of regulation”
