PSE Professor and Sustainable Long-Distance Mobility Chair holder
Regulation and Environment
Seminar
Location 48 Boulevard Jourdan, 75014 Paris, France
Location R1-09
Presence On site
The Regulation and Environment Seminar is a seminar series dedicated to presenting and discussing research in Industrial Organization and Environmental Economics.
This seminar is organized by the Paris School of Economics in collaboration with the University Paris 1 Panthéon-Sorbonne.
This seminar is co-funded by a French government subsidy managed by the Agence Nationale de la Recherche under the framework of the Investissements d’avenir programme reference ANR-17-EURE-0001.
Organizers
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PSE Assistant Professor
Operational Contact
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Ingénieure d’études INRAE
Multiple event dates
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Local government action is crucial for mitigating and adapting to the effects of the ongoing climate crisis. This paper analyses the impact of extreme climate events on subnational public spending and revenue allocation in Spain from 2010 to 2021. To this end, I combine municipal-level budgets with measures of drought severity and heat waves and rely on the plausibly exogenous nature of these shocks for identification. I find small positive effects of high temperatures on public service provision expenditure, with some evidence of adaptation. Similarly, an event study approach shows that there are increases in water provision expenditure in the years after a severe drought.
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Low Emission Zones and Environmental Justice with Bjoern Bos, Moritz Drupp
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Low emission zones (LEZ) represent a key national environmental policy instrument used to explicitly address air pollution in cities throughout Europe. LEZs have successfully reduced air pollution and associated health damages in regulated areas. But how are air quality benefits distributed in society? To address this question, we examine the Environmental Justice implications of LEZs in Germany. We combine gridded data on resident characteristics, including income and a proxy for ethnicity, with high-resolution estimates of fine particle (PM2.5) concentrations. We estimate heterogeneous treatment effects with a difference-in-differences approach and confirm previous findings that LEZs have reduced PM2.5 exposures. We show that these pollution reductions are distributed unequally because air quality improvements within targeted areas are heterogeneous and because residents of targeted zones are not representative of the overall population. We find that LEZ-induced air quality benefits are distributed pro-poor within LEZs, meaning that they are larger in areas with lower income. We show that this finding is sensitive to how benefits from cleaner air scale with income when assessed from a nationwide perspective. In addition, while pollution reductions accrue dis-proportionally to Germans within LEZs, they accrue dis-proportionally to non-Germans nationwide due to a spatial clustering of non-Germans in larger cities. Overall, our results suggest that LEZs, as implemented in Germany, yield nuanced Environmental Justice implications. -
Natural gas has replaced coal as the dominant fuel for U.S. electricity generation. However, U.S. states that regulate electric utilities have retired coal more slowly than others. We build a structural model of rate-of-return regulation during an energy transition where utilities face tradeoffs between lowering costs and maintaining coal capacity. We find that the current regulatory structure retires only 45% as much coal capacity as a cost minimizer. A regulated utility facing a carbon tax does not lower carbon emissions immediately but retires coal similarly to the social planner. Alternative regulations with faster transitions clash with affordability and reliability goals.
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Costs of Climate Adaptation: Evidence From French Agriculture
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Adaptation costs are one of the main missing elements from the existing literature on the effects of climate change. Policy to address climate change depends on how costly it is for people to adapt, but a lack of cost-related data means that such estimates are rare. In this paper, we use uniquely rich data on agriculture in France to provide novel, direct estimates of the marginal cost of adapting to changing temperatures. The dataset is a farm-level panel with measures of outputs, inputs, and prices from 1994–2018. We merge the farm data with measures of realized and forecasted weather. Controlling for realized weather, we use forecasts as information shocks to estimate costs of ex ante adaptation. For the year that heat shocks arrive, we find that for the average farm in France the cost of adaptation is low. In contrast, the benefits of adaptation are large. This difference is driven by the behavior that farms engage in when responding to forecasts. They mainly use the forecasts to change the timing of planting and harvesting decisions, as well as their crop mix, rather than to change costly inputs. The large, observed difference between the benefits and costs of adaptation contradicts a widely used sufficient statistic approach to estimating climate damages. We further show that while costs of adaptation are low initially, future periods are marked by increases in costs and decreases in profit, potentially capturing the dynamic nature of farms’ adaptation strategies. Finally, we show that forms of adaptation currently implemented by farmers are less likely to remain relevant in a warmer world. -
An Evaluation of Protected Area Policies in the European Union
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The European Union designates 26% of its landmass as a protected area, limiting economic development to favor biodiversity. We use the staggered introduction of protected areas between 1985 and 2020 to study the selection of land for protection and the causal effect of protection on vegetation cover and nightlights. Protection did not affect these outcomes in any meaningful way across four decades, countries, protection cohorts, population density, or land, soil, and climate characteristics. We conclude that European conservation efforts lack ambition because policymakers protect land not threatened by development or choose weak protection levels on lands that face development pressure -
Thirsting for Solutions: the Impact of Water Scarcity on Migration
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Rural Ethiopia faces persistent challenges in accessing drinking water, exacerbated by the escalating impacts of climate change. Water is essential for life, health, and human dignity, and without sufficient water to meet basic needs, migration could emerge as an adaptation strategy. Establishing a causal relationship is challenging due to the nonrandom nature of water insecurity. To overcome this, I have compiled the most comprehensive data set available, to my knowledge, on the location and functional status of known water points in Sub-Saharan Africa. I use this data to train an algorithm predicting wells’ functionality and potential drying. I link these predictions with migration outcomes from the Ethiopian Socio-Economic Surveys (ESS) spanning 2012 to 2016. Preliminary results suggest that migration tends to increase in response to reduced access to drinking water.
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The evidence on whether people adapt to climate extreme events by moving out of vulnerable areas is currently mixed. In this article, we analyse residential mobility following floods using comprehensive French data. Our identification strategy consists in comparing individuals living in areas exposed to flood risk which were actually subject to a flood, with individuals also residing in flood risk areas but which were not subject to flood. Our results suggest that residential mobility increases by 1 percentage point in the two years following a flood. Compared to the baseline inter-municipality mobility rate in our sample, it equates to a 30% increase in the probability of moving out of the municipality of residence following a flood. The effects are strongly heterogeneous. Mobility rates following a flood are observed to be lower for the bottom and the top quintiles of equivalised disposable income than for the middle quintiles. The effects are found to be more pronounced for private renters than for home-owners and others. An analysis of aggregate flows at the municipality level reveals no effect of flooding on residential mobility on average, confirming the importance of using granular individual data. However, the data do suggest changes in the composition of population outflows. We observe a lower share of homeowners in the population outflows from municipalities that have flooded.
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How large are methane emissions from the upstream oil and gas industry and why are they there? Evidence from Colorado, with Thomas Covert, Michael Greenstone, Olga Rostapshova
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Methane emissions contribute to climate change. Because methane is a valuable output of the oil and gas production industry, reducing fugitive emissions can deliver private and social benefits. Partnering with the Colorado air quality regulator, we measured methane emissions from 9% of oil and gas production facilities in the Denver-Julesburg basin over two years. These facilities’ emissions comprise only 0.02% of their production. We experimentally varied facilities’ abatement costs, by providing information about ex-ante leak risk, and regulatory scrutiny, by increasing the chance of inspections. Reducing the costs of finding emissions appears more effective than increasing regulatory scrutiny. -
This paper demonstrates a large but little-known negative externality of the aviation industry. Using a new instrument for air pollution from aircraft cruising, we show that pollution is higher beneath overhead flight routes in ways uncorrelated with local pollution. We combine this cross-sectional variation with the launch of new flight routes to establish several findings. First, aircraft cruising persistently elevates local PM2.5 by 1-3 μg/m3. Second, PM2.5 has adverse impacts on infant health via lower birth weights, including in 44 developing countries where data are scarce. Third, we leverage the fact that propeller planes still use leaded fuel to show that 1 ng/m3 ambient lead reduces fertility rates by 0.19%. We find that PM2.5 pollution from aviation contributed to 3,685 annual deaths, or $37 billion per year, and pushed a large fraction of US counties into nonattainment under the Clean Air Act.
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External Costs of Climate Adaptation: Groundwater Depletion and Drinking Water, joint with Jeff Hadachek, Nick Hagerty, and Katrina Jessoe
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Adaptation to environmental change can carry negative externalities. We document one such case: farmers in California respond to heat and drought by extracting more groundwater, harming access to drinking water for nearby residents. Using yearly variation we show that surface water scarcity and heat increase agricultural well construction, groundwater depletion, and domestic well failures, and that well construction accounts for a large share of the latter effects. In our setting, adaptation also exacerbates inequality. Effects on domestic well failures are concentrated in low-income and Latino communities. Climate damage estimates may be incomplete without accounting for the external costs of adaptation. -
Real estate wealth inequality and exposure to natural disasters
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This paper quantifies the distribution of natural disaster risks among single- and multi-property owners. Using dwelling-level data from France, I assess the heterogeneity in exposure to flooding and subsidence across owner-occupied, rental, second, and vacant homes, linking these properties to the disposable income and real estate wealth of their owners. I find that multi-property owners own approximately 75% of the housing stock exposed to flooding, challenging the common perception that flood victims are “left with nothing.” Conversely, subsidence primarily affects single-property owners. Additionally, using dwelling-level price data, I find that absentee landlords do not factor flood risk into property prices, contributing to 13% to 25% of total property overvaluation relative to flood risk. I draw implications for policy. Place-based interventions, such as resilient infrastructure projects, may fail to target the most exposed households if ownership and occupancy patterns are overlooked. Furthermore, untargeted subsidized natural disaster insurance could substantially benefit multi-property
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Off-grid solar promises a low-cost and carbon-free path to electrifi- cation. But will poor households choose off-grid power? We run a multi-year pricing experiment in rural India to estimate demand over all electricity sources, including off-grid solar, diesel genera- tors and the grid. We find that off-grid solar is an important stop-gap, but households value grid electrification 6.6 times more. The grid, however, barely increases global surplus, because grid carbon dam- ages nearly offset households’ gains. We apply our model to data from Africa and find a similarly strong preference for the grid among households there, underscoring the external validity of our results.
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Can Apps Save the Planet? Enhancing Urban Mobility and the Environment through Tech Adoption
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This paper investigates the impact of integrating bike-sharing into Lyft’s ride-hailing app in New York City, which eliminated informational and booking frictions when switching between ride-hailing and cycling. Using a rich dataset from bike-share systems in New York City and Philadelphia, we employ a triple-difference estimator to compare ridership trends across both cities, before and after the integration, for subscribers (monthly or annual pass holders) and non-subscribers (day-pass or single-ride users). Our results show a 12% overall increase in bike-share ridership in New York City, driven entirely by non-subscribers—who represent the marginal users of the system—as their usage surged by 122%. This increase is concentrated during rush hours, supporting the hypothesis that bike-share becomes more attractive when roads are congested, and the marginal private and social costs of ride-hailing trips are higher. Finally, we collected car ride-hailing data and find suggestive evidence that around 2% of Lyft ride-hailing trips were substituted by non-subscriber riders. These findings provide valuable insights for policymakers on expanding mobility choices, promoting cycling, and reducing transportation costs. By facilitating a shift toward bike-share, such integrations have the potential to significantly alleviate congestion, improve air quality, and lower carbon emissions. -
Mind the Peak: The Role of Real Time Pricing and Peak Demand Charges in Residential Electricity Flexibility – Marten Ovaere and Mark Vergouwen
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The transition to a zero-carbon energy system requires major investment in electricity grid infrastructure. To mitigate these costs, traditional static electricity prices are being replaced by dynamic prices, such as real-time pricing and peak demand charges, that better reflect marginal costs of production and distribution. However, these tariffs introduce potentially conflicting incentives: Peak demand charges encourage a smoother consumption profile by penalizing concentrated demand, while real-time pricing may inadvertently increase peaks on local grids by encouraging consumption during periods of low generation cost. This paper evaluates these dual incentives using high-frequency consumption data from a large-scale natural experiment in Flanders. We find that consumers switching to real-time pricing reduce consumption peaks during winter months but increase them in summer. Our difference-in-differences estimates show that the introduced peak demand charge mitigates peaks by reducing household peak demand by 1–3% on average. The reductions are more pronounced among households with residential energy storage, heat pumps, or electric vehicles—up to 8–10% for electric vehicle owners, who shift approximately 1 kWh per day from daytime to nighttime consumption. Aggregated analyses indicate that a statistically significant share of individual household effects carries through to the distribution grid.
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This paper studies how governments intervene in agricultural markets to reshape the economic consequences of climate extremes. We construct a global dataset of agricultural policies and extreme-heat exposure by country and crop since 1980. Extreme-heat shocks to domestic production lead to policies that assist consumers by lowering domestic food prices. This effect is persistent, primarily implemented via border policies, and stronger during election years. Shocks to foreign production induce the opposite response: policies that assist producers by raising prices. These findings can be rationalized by a model in which governments use agricultural policy to redistribute among domestic interest groups. Our estimates imply that policy responses stabilize prices in shocked markets, reducing losses to domestic consumers by 21% while increasing those to domestic producers and foreign consumers by 172% and 32%. Policy responses have regressive consequences, disproportionately harming poor and climate-damaged countries, and increase projected losses from future climate change
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Biodiversity is declining globally, but the economic consequences of this decline are largely unknown. Two challenges have stymied understanding: First, biodiversity and economic development are endogenously determined such that estimating the effects of biodiversity declines on economic outcomes is contaminated by the impact of economic development on biodiversity. Exogeneous variation in biodiversity is needed to parse the reverse causality, yet a source of exogenous variation in biodiversity is rare. Second, the economic benefit of biodiversity for economic production beyond the value of individuals or species is conceptually vague and empirically data-demanding. This paper suggests a framework to quantify the relationship between biodiversity and ecosystem services, taking both the value of individuals and the complementarities of individuals between different species into account. It then takes the theoretical insights to the data to quantify the impact of biodiversity for agricultural and forest production. Specifically, we use variations in the returns of migratory birds from their South American wintering areas to predict bird diversity in North America independent of agricultural development, a primary driver of North American bird declines. Our results show that a 10% decline in bird diversity reduces agricultural revenues by about 1% and increases damaging forest pest outbreaks by 0 to 5%. They further show that the elasticity of substitution across similar species is high and that their contribution to production declines with the development of technical substitutes for biodiversity, such as genetically modified pest resistance in crops.
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Household water savings from home visits: information, technology and price effects
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This paper studies the water consumption choices of households in response to policy interventions by a water utility. We specifically study the effects of home visits and billing changes, and estimate the water-saving effects from information, technology and prices. Home visits consist of information provision (information) and the installation of water-saving devices (technology). Billing changes migrate households from flat fees to variable fees (price). Using a staggered difference-in-differences approach we disentangle the three effects. We find a significant effect from home visits (technology and information) on water savings of about 15-20%. Interestingly, this effect is persistent. Billing changes (price) lead to a temporary reduction in water consumption of about 2%. This effect fades away over the course of a year. Throughout we find that households with higher baseline water usage respond with more water savings to both interventions, even in percentage terms. -
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Paris School of Economics
Paris School of Economics
Address: 48 boulevard jourdan 75014 Paris