Gernot Wagner's Blog, page 8

The Rebound Effect and Energy Efficiency Policy

Abstract:

What do we know about the size of the rebound effect? Should we believe claims that energy efficiency improvements lead to an increase in energy use? This paper clarifies what the rebound effect is, and provides a guide for economists and policymakers interested in its magnitude. We describe how some papers in the literature consider the rebound effect from a costless exogenous increase in energy efficiency, while others examine the effects of a particular energy efficiency policy—a distinction that leads to very different welfare and policy implications. We present the most reliable evidence available quantifying the energy efficiency rebound, and discuss areas where estimation is extraordinarily difficult. Along these lines, we offer a new way of thinking about the macroeconomic rebound effect. Overall, the existing research provides little support for the so-called “backfire” hypothesis. Still, much remains to be understood, particularly relating to induced innovation and productivity growth.

Full text of working paper: “Energy policy: The rebound effect is overplayed” (September 8, 2014)

Joint with: Gillingham, Kenneth and David S. Rapson, revise & resubmit at Review of Environmental Economics and Policy.

American Economic Association meetings

“Applying Asset Pricing Theory to Calibrate the Price of Climate Risk: A Declining Optimal Price for Carbon Emissions,” joint with Kent Daniel and Bob Litterman, presented in a session on “Markets for Pollution.”

Harvard Environmental Economics Program Workshop

Presentation on “Deep Climate Uncertainty.”

Beyond IPCC: Future paths for climate research

Presentation of “Expecting a Black Swan and Getting a Dragon: Rational Responses to Ignorance,” joint paper with Richard Zeckhauser.

Energy Economics syllabus

What determines the cost of a ton of coal? Is OPEC an oligopoly? Should we subsidize low-carbon or tax fossil energy? Do Prius owners drive more?

The course has two goals: to provide a set of tools to approach these and many other fundamental questions in energy economics, and to teach us to talk about them in plain English. Come prepared to argue both sides of each issue in class. Regular 1,000-word essays will reinforce class discussions and ask you to pick a side. Think Economist leader: crisp, logical, and always with a point of view.

By the end of the semester, you will be well prepared to apply fundamental economic tools to a host of energy questions, and to do so without fear, favor, or jargon.

Latest syllabus for Fall 2014 course.

Upton Forum

In honor of Beloit College’s 2014 Upton Scholar, Robert N. Stavins.

Rethinking Economics

Workshop on “Rethinking Environmental Economics” at the Rethinking Economics conference, organized by the New School and Columbia Law School with speakers including James K. Galbraight, Paul Krugman, and Michael Sandel.

Developing the Next Generation of Economic Models of Climate Change

I’ m presenting two papers on long-run climate risk at this two-day conference hosted by the Heller-Hurwicz Economics Institute at the University of Minnesota on “Developing the Next Generation of Economic Models of Climate Change“:

Applying Asset Pricing Theory to Calibrate the Price of Climate Risk: A Declining Optimal Price for Carbon Emissions

Kent Daniel, Columbia University; Bob Litterman, Kepos Capital; and Gernot Wagner, Environmental Defense Fund (Discussant: Stan Zin; New York University)

Expecting a Black Swan and Getting a Dragon: Confronting Deep Uncertainty in Climate Change

Gernot Wagner, Environmental Defense Fund and Richard Zeckhauser, Harvard University (Discussant: Katheline Schubert, University of Paris)

See the full conference program and conference website for more information.

"Risky Business" stands out in growing sea of climate reports

By Gernot Wagner

Receding beach on North Carolina's Outer Banks. Source: FEMA/Tim Burkitt

(This blog originally appeared on EDF Voices)

This blog post was co-authored by Jonathan Camuzeaux.

Put Republican Hank Paulson, Independent Mike Bloomberg, and Democrat Tom Steyer together, and out comes one of the more unusual – and unusually impactful – climate reports.

This year alone has seen a couple of IPCC tomes, an entry by the American Association for the Advancement of Science and the most recent U.S. National Climate Assessment.

The latest, Risky Business, stands apart for a number of reasons, and it’s timely with the nation debating proposed, first-ever limits on greenhouse gas emissions from nearly 500 power plants.

Tri-partisan coalition tackles climate change

The report is significant, first, because we have a tri-partisan group spanning George W. Bush’s treasury secretary Paulson, former mayor of New York Bloomberg, and environmentalist investor Steyer – all joining forces to get a message through.

That list of names alone should make one sit up and listen.

Last time a similar coalition came together was in the dog days of 2009, when Senators Lindsay Graham, Joe Lieberman, and John Kerry were drafting the to-date last viable (and ultimately unsuccessful) Senate climate bill.

Global warming is hitting home

Next, Risky Business is important because it shows how climate change is hitting home. No real surprise there for anyone paying attention to globally rising temperatures, but the full report goes into much more granular details than most, focusing on impacts at county, state and regional levels.

Risky Business employs the latest econometric techniques to come up with numbers that should surprise even the most hardened climate hawks and wake up those still untouched by reality. Crop yield losses, for example, could go as high as 50 to 70 percent (!) in some Midwestern and Southern states, absent agricultural adaptation.

The report is also replete with references to heat strokes, sky-rocketing electricity demand for air conditioning, and major losses from damages to properties up and down our ever-receding coast lines.

Not precisely uplifting material, yet this report does a better job than most in laying it all out.

Financial markets can teach us a climate lesson

Finally, and perhaps most significantly, Risky Business gets the framing exactly right: Climate change is replete with deep-seated risks and uncertainties.

In spite of all that we know about the science, there’s lots more that we don’t. And none of that means that climate change isn’t bad. As the report makes clear, what we don’t know could potentially be much worse.

Climate change, in the end, is all about risk management.

Few are better equipped to face up to that reality than the trio spearheading the effort; Paulson, Bloomberg and Steyer have made their careers (and fortunes) in the financial sector. In fact, as United States Treasury secretary between 2006 and 2009, Paulson was perhaps closest of anyone to the latest, global example of what happens when risks get ignored.

We cannot – must not – ignore risk when it comes to something as global as global warming. After all, for climate, much like for financial markets, it’s not over ‘til the fat tail zings.

“Risky Business” stands out in growing sea of climate reports

This blog post was co-authored by Jonathan Camuzeaux and published on EDF Voices.

Put Republican Hank Paulson, Independent Mike Bloomberg, and Democrat Tom Steyer together, and out comes one of the more unusual – and unusually impactful – climate reports.

This year alone has seen a couple of IPCCtomes, an entry by the American Association for the Advancement of Science and the most recent U.S. National Climate Assessment.

The latest, Risky Business, stands apart for a number of reasons, and it’s timely with the nation debating proposed, first-ever limits on greenhouse gas emissions from nearly 500 power plants.
Tri-partisan coalition tackles climate change
The report is significant, first, because we have a tri-partisan group spanning George W. Bush’s treasury secretary Paulson, former mayor of New York Bloomberg, and environmentalist investor Steyer – all joining forces to get a message through.

That list of names alone should make one sit up and listen.

Last time a similar coalition came together was in the dog days of 2009, when Senators Lindsay Graham, Joe Lieberman, and John Kerry were drafting the to-date last viable (and ultimately unsuccessful) Senate climate bill.
Global warming is hitting home
Next, Risky Business is important because it shows how climate change is hitting home. No real surprise there for anyone paying attention to globally rising temperatures, but the full report goes into much more granular details than most, focusing on impacts at county, state and regional levels.

Risky Business employs the latest econometric techniques to come up with numbers that should surprise even the most hardened climate hawks and wake up those still untouched by reality. Crop yield losses, for example, could go as high as 50 to 70 percent (!) in some Midwestern and Southern states, absent agricultural adaptation.

The report is also replete with references to heat strokes, sky-rocketing electricity demand for air conditioning, and major losses from damages to properties up and down our ever-receding coast lines.

Not precisely uplifting material, yet this report does a better job than most in laying it all out.
Financial markets can teach us a climate lesson
Finally, and perhaps most significantly, Risky Business gets the framing exactly right: Climate change is replete with deep-seated risks and uncertainties.

In spite of all that we know about the science, there’s lots more that we don’t. And none of that means that climate change isn’t bad. As the report makes clear, what we don’t know could potentially be much worse.

Climate change, in the end, is all about risk management.

Few are better equipped to face up to that reality than the trio spearheading the effort; Paulson, Bloomberg and Steyer have made their careers (and fortunes) in the financial sector. In fact, as United States Treasury secretary between 2006 and 2009, Paulson was perhaps closest of anyone to the latest, global example of what happens when risks get ignored.

We cannot – must not – ignore risk when it comes to something as global as global warming. After all, for climate, much like for financial markets, it’s not over ‘til the fat tail zings.