Economics serving society

Program Content

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This PSE summer school introduces participants to cutting-edge research on the topic and familiarizes them with the relevant methods to analyze (econometric analysis, dynamic modelling). The objective of the course is to equip the participants with the background and tools that are needed to contribute to this dynamic field in terms of research and policy design and evaluation.

The main questions we cover are the following. How do we measure the impacts of climate change on economic outcomes? What are the relevant economic instruments to combat climate change in a globalized world? How do we transition toward a greener energy system? How do lobbying and citizens’ assemblies influence the actual climate policies? How can trade help regions mitigate the impacts of climate change? How do we use geocoded data in empirical projects?

Structure

  • Toward a Low-Carbon Energy Supply – Frank Wolak
  • The Macroeconomics of Climate Change – Katheline Schubert
  • Lobbying and citizens’ assemblies – Mireille Chiroleu-Assouline, Bénédicte Apouey and Jean-François Laslier
  • Measuring the Impacts of Climate Change on Economic Outcomes – Katrin Millock
  • The effects of trade and the EU ETS on manufacturing firms – Hélène Ollivier
  • Geocoded data for Environmental Economists – François Libois

Workshop: present your paper
Participants will have the opportunity to submit a paper to be presented within this programme. Selected papers will be presented in front of participants and faculty in slots reserved for such presentations.


Toward a Low-Carbon Energy Supply – Frank Wolak

Overview
The current transition to a low-carbon energy supply envisions increasing electrification of all energy services, most notably transportation and space heating. The increasing penetration of intermittent wind and solar resources implies that a larger share of total energy consumption will come from low carbon sources. Larger shares of intermittent wind and solar energy creates substantial challenges for electricity market operators in maintaining real-time supply and demand balance. An increasing number of markets have had to curtail firm demand through rolling blackouts during extreme system conditions. Events in California in August of 2020 and Texas in February 2021 are recent examples from the US, but similar circumstances have recently occurred in several western European countries.

The goal of these lectures is to take students closer to the frontier of economic research on the least cost transition to a low-carbon electricity supply industry. Because virtually all electricity supply industries in industrialized countries use offer-based wholesale markets to set wholesale prices and quantities, the first lecture will present research on designing and measuring the performance of wholesale electricity markets. The second lecture focuses on the challenges policymakers face on in reducing the carbon content of the electricity sector and the performance of policies designed to address these challenges. These challenges include carbon pricing, the high degree contemporaneous correlation in renewable energy supply, and the long-term financial viability of fast response generation resources. The third lecture will present research on the demand side of the low carbon energy transition. This will include the role and performance of dynamic retail pricing, distributed generation, and transmission and distribution network planning and pricing.

Structure

  • Wholesale electricity market design and performance measurement
  • Carbon pricing and renewable porfolios standards and other policies to reduce the carbon content of the electricity sector
  • Demand-side features that support the low-carbon energy transition—Dynamic retail pricing, distribution network pricing, and transmission planning and pricing

Selected key references:
Borenstein, Severin, James B. Bushnell, and Frank A. Wolak. “Measuring market inefficiencies in California’s restructured wholesale electricity market.” American Economic Review 92, no. 5 (2002): 1376-1405.

Wolak, Frank A. “Measuring unilateral market power in wholesale electricity markets: the California market, 1998-2000.” American Economic Review 93, no. 2 (2003): 425-430.

Wolak, Frank A. “An empirical analysis of the impact of hedge contracts on bidding behavior in a competitive electricity market.” International Economic Journal 14, no. 2 (2000): 1-39.

Bushnell, James B., Erin T. Mansur, and Celeste Saravia. “Vertical arrangements, market structure, and competition: An analysis of restructured US electricity markets.” American Economic Review 98, no. 1 (2008): 237-66.

Borenstein, Severin, James Bushnell, Frank A. Wolak, and Matthew Zaragoza-Watkins. “Expecting the unexpected: Emissions uncertainty and environmental market design.” American Economic Review 109, no. 11 (2019): 3953-77.

Bushnell, James B. “(Overly) Great Expectations: Carbon Pricing and Revenue Uncertainty in California.” National Tax Journal 70, no. 4 (2017): 837-854.

Graf, Christoph, Federico Quaglia, and Frank A. Wolak. “Simplified Market Mechanisms for Non-Convex Markets: Evidence from Italian Electricity Market.” (2021).

Bohn, Roger E., Michael C. Caramanis, and Fred C. Schweppe. “Optimal pricing in electrical networks over space and time.” The Rand Journal of Economics (1984): 360-376.

Wolak, Frank A. “Measuring the competitiveness benefits of a transmission investment policy: The case of the Alberta electricity market.” Energy policy 85 (2015): 426-444.

Astier, Nicolas, Ram Rajagopal, and Frank A. Wolak. What Kinds of Distributed Generation Technologies Defer Network Expansions? Evidence from France. No. w28822. National Bureau of Economic Research, 2021.


Measuring the Impacts of Climate Change on Economic Outcomes – Katrin Millock

Overview
This module is devoted to the measurement of the economic impacts of climate change. Participants will learn how to use weather data to measure climate change impacts, and separate the effects of long-term trends in climate from effects of sudden onset events such as natural disasters. We will also address adaptation and how to measure its effect on net damages using econometric methods and examples from the agricultural sector. The course intends to give participants a thorough understanding of the econometric methods used to assess climate change damages, their assumptions and the outstanding challenges.

Structure
1. How do we measure climate change impacts using weather data? A review of empirical methods to estimate the influence of climate change on the economy
2. Measuring the effects of climate change on income and growth
3. Accounting for adaptation

Selected key references

- Boustan, L. P., M. Kahn, P. Rhode and M. Yanguas (2020). “The effect of natural disasters on economic activity in U.S. counties: A century of data”. Journal of Urban Economics 118 (C).
- Burke, M., S. Hsiang and E. Miguel (2015). “Global non-linear effect of temperature on economic production”. Nature, DOI: 101038/nature/15725.
- Hsiang, S. and A. Jina (2014). “The causal effects of environmental catastrophe on economic growth: Evidence from 6,700 tropical cyclones”. NBER Working Paper 20352.
- Kocornik-Mina, A., T. McDermott, G. Michaels and F. Rauch (2020). “Flooded cities”. American Economic Journal: Applied Economics 12(2), 35-66.
- Kolstad, C. and F. Moore (2020). “Estimating the economic impacts of climate change using weather observations.” Review of Environmental Economics and Policy 14(1), 1-24.
- Somanathan, E., R. Somanathan, A. Sudarshan, M. Tewari (2021). “The impact of temperature on productivity and labor supply: Evidence from Indian Manufacturing”. Journal of Political Economy 129(6), 1797-1827.


The Macroeconomics of Climate Change — Katheline Schubert

Overview
We will discuss climate change in the perspective of macroeconomic modeling and quantitative evaluation. We present the building blocks of top-down Integrated Assessment Models (IAMs) and discuss the central questions the modeler has to address (discounting, damages, uncertainty, non-linearities, tipping points etc.).

Structure

  • Climate change: the natural-science background
  • Global economy-climate models

Selected key references
-  Hassler, J., Krussel, P. and Smith, A.A. (2016). “Environmental macroeconomics: the case of climate change.” Chapter 24 in Handbook of Macroeconomics, vol. 2B, Elsevier.
-  Hsiang, S. and Kopp, R.E. (2018). “An Economist’s Guide to Climate Change Science.” Journal of Economic Perspectives, 32(4), 3–32.
-  Heal, G. (2017). “The economics of the climate.” Journal of Economic Literature, 55(3), 1046–1063.
-  Nordhaus, W.D. (2018). “Projections and Uncertainties about Climate Change in an Era of Minimal Climate Policies.” American Economic Journal: Economic Policy, 10(3), 333–360.


The Political Economy of Climate Change – Mireille Chiroleu-Assouline, Bénédicte Apouey and Jean-François Laslier

Overview
The objective of this course is to analyse the political economy constraints related to the adoption and implementation of climate change mitigation policies. It will focus on the competition between companies and green NGOs to influence individuals and public decision-makers by providing them with information, whether science-based or biased, and by using activist pressure or lobbying. It will also consider the Citizen ’s Convention for Climate held in France in 2019-2020 as a case study of participative democracy at work on the question of climate change. By presenting this event in details (its origins, complex architecture, members, conclusions, and effective output), it will try to infer possibilities and impossibilities for the democratic management of climate transition.

Structure

  • Awareness campaigns and information warfare
  • Citizens’ Assemblies: Evidence from the French Citizen’s Convention for Climate
  • Lobbying by interest groups and environmental regulation

Selected key references
- Chiroleu-Assouline, M., Lyon, T. P. (2020). Merchants of Doubt: Corporate Political Action when NGO Credibility is Uncertain. Journal of Economics, Management and Strategy, 29(2), 439-461.
- Delmas, M., Lim, J., & Nairn-Birch, N. (2016). Corporate environmental performance and lobbying. Academy of Management Discoveries, 2(2), 175-197.
- Kennard, A. (2020). The Enemy of My Enemy: When Firms Support Climate Change Regulation. International Organization, 74(2), 187-221.
- Meng, K. and Rode, A. (2019). The social cost of lobbying over climate policy. Nature Climate Change 9, p. 472-476.
- Yu, Z. (2005). Environmental protection: A theory of direct and indirect competition for political influence. The Review of Economic Studies, 72(1), 269-286.


The Effects of Trade and the EU ETS on Manufacturing Firms – Hélène Ollivier

Overview
This course will cover the latest research on trade and the environment, as well as on the effects of the EU ETS on manufacturing firms. We will focus on ex post analysis of trade and policy impacts on firm-level economic and environmental outcomes. We will study how manufacturing firms respond to trade opportunities or competition from abroad, with an emphasis on their decisions that have consequences in terms of CO2 emissions or other pollutants. We will also study the effects of the EU ETS on heterogeneous firms, taking into consideration the facts that the environmental regulation does not cover all manufacturing facilities within the EU countries and that very few countries outside of the EU implemented a similar carbon regulation.

Structure

  • Trade and firm-level emissions
  • The impacts of the EU ETS on manufacturing firms

Selected key references
-  Cherniwchan J., B. Copeland and S. Taylor (2017). “Trade and the Environment: New Methods, Measurements, and Results”, Annual Review of Economics, vol. 9, 59-85.
-  Barrows, G. and H. Ollivier (2021), “Foreign demand, developing country exports, and CO2 emissions: Firm-level evidence from India”, Journal of Development Economics, in press.
-  Barrows, G. and H. Ollivier (2018), “Cleaner Firms or Cleaner Products? How Product Mix Shapes Emission Intensity from Manufacturing”, Journal of Environmental Economics and Management, vol. 88, 134-158.
-  Shapiro, J. and R. Walker (2018). “Why is Pollution from US Manufacturing Declining? The Roles of Environmental Regulation, Productivity, and Trade”, American Economic Review, vol. 108(12), 3814-54.
-  Martin, R., M. Muûls, and U.J. Wagner (2015). “The impact of the European Union Emissions Trading Scheme on regulated firms: What is the evidence after ten years?”, REEP, vol. 10(1), 1-21.


Geocoded data for Environmental Economists - François Libois

Overview
This course will focus on the basic and intermediate requirements that researchers in Environmental Economics have to master when using geocoded data in their work. Data sources include remote sensing information as well as data originating from paper maps of geocoded records.

We will essentially focus on measurement issues and see how choices made in the early steps of the research projects impact the whole research process. The course is very much constructed as a “tricks and tools” to reduce the entry cost in geocoded data and introduce students to Geographical Information System software, namely QGIS, in interaction with statistical software (STATA) and programming language (PYTHON). The course includes many examples from recently published papers, especially on drivers of deforestation, recent trends in agriculture, and tracking of pollution. Participants will get some exercise material to practice around the lectures.

Structure

  • Why Geocoded data?
  • Issues related to the choice of projection systems
  • Measurement issues: pro and cons of (some) remote sensing data, aggregation issues
  • Combining geocoded data with socio-economic data

Selected key references
-  Masaoki Kudamatsu, 2018, GIS for Credible Identification Strategies in Economics Research CESifo Economic Studies, 64(2), pp. 327-338
-  Dave Donaldson & Adam Storeygard, 2016. “The View from Above: Applications of Satellite Data in Economics,” Journal of Economic Perspectives, American Economic Association, vol. 30(4), pages 171-198, Fall.
-  Melissa Dell, 2009, GIS analysis for applied economists- Unpublished manuscript, MIT Department of Economics


Contents - Climate Change