Papers

We propose a new policy instrument that leverages adverse selection when Pigouvian policies are infeasible or undesirable. Our policy gives firms the option to pay a tax on their voluntarily disclosed emissions, or an output tax based on the average emissions among undisclosed firms. We derive sufficient statistics formulas to calculate the welfare gains relative to an output tax, and an algorithm to implement the policy with minimal information. In an application to methane emissions from oil and gas fields, our policy generates significant welfare gains. Finally, we extend our analysis to the design of international carbon policy.

How should the grid evolve to accommodate growing demand and the increasingly competitive economics of renewable energy? Who should be responsible for making these decisions? This paper draws on lessons from electricity sector restructuring to examine how institutional frameworks influence investment decisions, contract negotiations, and power production. When regulated utilities are allowed to earn returns on capital investments that exceed their costs, they often overspend compared to scenarios where they bear the financial risk themselves. Additionally, they exert less effort in securing competitive contracts when they do not directly benefit from the savings. These inefficiencies are particularly pronounced when regulators face challenges in determining optimal actions. Evidence from the adoption of wholesale electricity markets highlights that traditional regulatory frameworks are poorly suited to capture the inter-regional efficiencies of renewable energy generation. Strategies to address these issues include implementing yardstick competition for local distribution utilities and expanding the use of competitive bidding for infrastructure projects.

While electricity market restructuring appears to have lowered generation costs, it does not seem to have benefitted consumers. Where did the savings go? This paper evaluates whether the downstream transmission and distribution (T&D) utilities who remained rate-regulated capitalized the savings into earnings by increasing their capital stocks. Returns on these additional assets raise delivery charges for customers with restructured utilities. I use a matched-difference-in-differences design based on proximate, similarly sized utilities with an annual panel of U.S. utilities' capital stocks from 1993-2009. Nine years after divestiture the average restructured utility held an additional $0.45B (9.5%) of T&D capital.

This paper documents a shift in energy consumption toward residential usage during the COVID-19 pandemic in the United States. Focusing on electricity, I find a 7.9% increase in residential consumption, and a 6.9% and 8.0% reduction in commercial and industrial usage, respectively, from a monthly panel of electric utilities. Natural gas consumption also shifted toward residential use, so that aggregate electricity and gas expenditure only fell by 1% on net during a period in which GDP fell by 5%. Hourly smart meter data from Texas reveal how daily routines changed during the pandemic, with residential electricity usage during weekdays closely resembling those of weekends. In total, residential energy expenditures were an estimated $13B higher during Q2-Q4 2020, with the largest increases occurring in areas with a greater propensity to work from home. I find that transportation fuel consumption declined about 16%, so that total energy consumption in the U.S. economy fell by 8%.

This paper evaluates changes in electricity generation costs caused by the introduction of market mechanisms to determine production in the United States. I use the staggered transition to markets from 1999-2012 to estimate the causal impact of liberalization using a differences-in-differences design on a comprehensive hourly panel of electricity demand, generators' costs, capacities, and output. I find that markets reduce production costs by 5% by reallocating production: Gains from trade across service areas increase by 55% based on a 25% increase in traded electricity, and costs from using uneconomical units fall 16%.

This paper uses monthly zip code-level data on electricity disconnections in Illinois to document the socioeconomic correlates of extreme economic distress among 5 million customers. In 2018-2019, customers in Black and Hispanic zip codes were about 4 times more likely to be disconnected for non-payment, 2-3 times more likely to be on deferred payment plans, and 70% more likely to participate in utility-based low-income assistance programs, controlling for zip code distributions of income and other demographic characteristics. During the COVID-19 pandemic, there has been a nine-fold expansion in low-income assistance to pay utility bills, but disconnections were double and deferred payment plans triple their historical averages in October 2020. Disconnection notices were served to 2.5% of commercial and industrial accounts, and 3.4% of residential accounts each month in late 2020. About 20% of all accounts were charged late fees. The odds for each of these measures were multiples higher in minority zip codes.

The COVID-19 pandemic resulted in stay-at-home policies and other social distancing behaviors in the United States in spring of 2020. This paper examines the impact that these actions had on emissions and expected health effects through reduced personal vehicle travel and electricity consumption. Using daily cell phone mobility data for each U.S. county, we find that vehicle travel dropped about 40% by mid-April across the nation. States that imposed stay-at-home policies before March 28 decreased travel slightly more than other states, but travel in all states decreased significantly. Using data on hourly electricity consumption by electricity region (e.g., balancing authority), we find that electricity consumption fell about six percent on average by mid-April with substantial heterogeneity. Given these decreases in travel and electricity use, we estimate the county-level expected improvements in air quality, and therefore expected declines in mortality. Overall, we estimate that, for a month of social distancing, the expected premature deaths due to air pollution from personal vehicle travel and electricity consumption declined by approximately 360 deaths, or about 25% of the baseline 1500 deaths. In addition, we estimate that CO2 emissions from these sources fell by 46 million metric tons (a reduction of approximately 19%) over the same time frame.

The average effect of deregulatory policies on fuel prices at coal-fired power plants is strongly influenced by plants that were initially paying the highest prices for fuel. Primary sources document that these plants were locked into long-term, high-cost fuel contracts, and only secured market rates post-deregulation. While these plants' fuel costs were unusual, their response to deregulation was not: both coal- and gas-fired plants reduce fuel prices one-for-one with the amount they were initially paying above their neighbors' costs. Our understanding of deregulation is not improved by excluding those who benefit most.

A health insurer's Medical Loss Ratio (MLR) is the share of premiums spent on medical claims, or the inverse markup over average claims cost. The Affordable Care Act introduced minimum MLR provisions for all health insurance sold in fully-insured commercial markets, thereby capping insurer profit margins, but not levels. While intended to reduce premiums, we show this rule creates incentives to increase costs. Using variation created by the rule's introduction as a natural experiment, we find medical claims rose nearly one-for-one with distance below the regulatory threshold: 7% in the individual market, and 2% in the group market. Premiums were unaffected.