The price of biodiesel RINs and economic fundamentals. 2020. (with Scott H. Irwin and James H. Stock). American Journal of Agricultural Economics. Discussion (Bruce A. Babcock) Response
AbstractThe D4 RIN is the tradable compliance certificate for the biomass-based diesel (BBD) mandate in the renewable fuel standard (RFS). Understanding the price dynamics of the D4 RIN is important for understanding the RFS because its price sets a ceiling on the ethanol RIN (D6) and because some observers have suggested that RIN price fluctuations are too large to be explained by economic theory. We use option pricing theory to develop a model of the D4 RIN in terms of its economic fundamentals: the spread between the price of biodiesel and petroleum diesel and the status of the biodiesel blenders’ tax credit. The resulting D4 fundamental price closely tracks actual D4 prices. We conclude that RIN price volatility arises because of the design of the RFS and intrinsic features of the U.S. fuel supply system.
The roles of energy markets and environmental regulation in reducing coal-fired plant profits and electricity sector emissions. 2019. (with Joshua Linn). RAND Journal of Economics 50(4), 733–767.
AbstractBetween 2005 and 2015, US electricity sector emissions of nitrogen oxides and sulfur dioxide, which harm human health and the environment, declined by two thirds, and many coal-fired power plants became unprofitable and retired. Intense public controversy has focused on these changes, but the literature has not identified their underlying causes. Using a new electricity sector model of the US eastern interconnection that accurately reproduces unit operation, emissions, and retirement, we find that electricity consumption and natural gas prices account for nearly all the coal plant profitability declines and resulting retirements. Environmental regulations had little effect on these outcomes.
Consignment auctions of free emissions allowances. 2017. (with Dallas Burtraw). Energy Policy 107, 337-344.
AbstractWhile the initial distribution of emissions allowances is usually thought to be independent of the emissions outcome, free allocation can affect the efficiency and fairness of allowance trading. Inefficiency may result from thin allowance markets, poor price discovery, and regulatory or organizational complexities that hinder the recognition of opportunity costs. Concerns about fairness may result from intransparency in the process of transferring substantial allowance value. We explore the role of consignment auctions in mitigating these concerns. These revenue-neutral auctions return the financial value of allowances to their original holders while revealing prices and directing allowances to their highest-valued use. They also can be used to support a minimum price when allowances are freely distributed, which may facilitate program linkage. Consignment auctions have minimal administrative costs and do not necessarily involve government. Experience indicates that they can play an important role, especially in new markets.
The Supreme Court’s stay of the Clean Power Plan: Economic assessment and implications for the future. 2016. (with Joshua Linn and Dallas Burtraw). Environmental Law Reporter 46(10), 10859-10872.
AbstractThe Clean Power Plan (CPP) is expected to play an important role in reducing U.S. greenhouse gas emissions. In February 2016, responding to appeals from some of the affected industries and states, the U.S. Supreme Court issued a stay suspending implementation of the CPP until after the judicial review process. Industry groups stated the CPP will pose large and "irreparable" costs to the coal sector during the period of judicial review. However, modeling suggests that because of prevailing market, technological, and policy trends, the CPP will result in near-zero costs beyond current trends until 2025, in part because of the plan's built-in flexibility. These factors and lessons from option theory suggest the stay is economically unjustifiable based on claims of irreparable economic harm to the coal sector. If implementation of the rule proceeds, current trends imply the stay will have little effect on industry's ability to follow the current compliance schedule.
Using weather forecasts to help manage meningitis in the West African Sahel. 2015. (with Rajul Pandya, Abraham Hodgson, and others). Bulletin of the American Meteorological Society 96(1), 103-115.