Abstract: I study how electricity price volatility affects capital allocation in electricity-intensive manufacturing. I first use exogenous variation in electricity prices to find that these prices affect capital investment for these manufacturers. I then use data from one industry, the paper industry, to estimate a dynamic model that allows capital and electricity to be complementary in production. When I simulate paper manufacturer investment under less volatile electricity prices, I find small decreases in both static capital misallocation and manufacturer profits. Profits fall because plants facing low electricity prices produce a smaller share of output. This effect outweighs the benefits of improved static capital allocation and lower realized adjustment costs. Thus, while static misallocation caused by dynamic inputs can be policy-relevant, reducing it may not increase industry welfare.
Renewable Energy on American Indian Land (with Bryan Leonard, Dominic Parker, and Justin Winikoff)
Abstract: Can renewable energy development reduce poverty on American Indian reservations? What are the opportunities and obstacles for tribes wanting to develop wind and solar? We study these questions empirically and offer four findings. First, the colonial process of reservation creation – which often cut tribes off from natural resources valued by European settlers –left reservation lands disproportionately endowed with wind and solar that is technologically suitable for utility-scale development. Moreover, these endowments tend to be largest on the poorest set of reservations. Second, despite favorable endowments, renewable projects on reservations are rare, implying tribal members have yet to benefit from federal and state subsidies. After controlling for energy potential and other factors, reservation land areas are 65% less likely to host wind farms and 153% less likely to host solar farms when compared to adjacent lands. Third, if the present disparity in renewable uptake persists through 2050, tribes may forego over $23 billion (in present value terms) of landowner lease payments and tax earnings that could be accrued under aggressive net-zero forecasts of energy transitions. Fourth, within reservation areas, wind farming has thus far occurred primarily on private fee-simple lands rather than federal trust lands, suggesting trusteeship is an impediment to renewable energy expansion.
Market Structure and Technology Adoption in Renewable Energy (with Gaurav Doshi)
Abstract: We study the effect of market structure on technology adoption in the U.S. solar and wind power industries. We compare adoption across two market types: restructured markets, which are designed to promote competition, and traditional markets, which are dominated by regulated monopolists. Solar projects in restructured markets are 21 percent less likely to adopt frontier technology, while the effect for wind projects is negative but statistically insignificant. We provide evidence this negative relationship between competition and adoption is explained by differences in financing costs across the two market types.
Causes and Consequences of Policy Uncertainty: Evidence from McGirt vs. Oklahoma (with Dominic Parker)
Abstract: Economists agree that policy uncertainty should distort private investment but several questions remain. What causes empirically relevant uncertainty? And, if uncertainty distorts investment, does it do so by delaying, accelerating, or reducing it? We study these questions in the context of the July 2020 U.S. Supreme Court ruling in McGirt vs. Oklahoma. In a difficult-to- predict 5-4 decision, the court ruled the eastern half of Oklahoma is “Indian Country” rather than state land. Commentators, including Chief Justice Roberts, have since argued the ruling creates significant policy uncertainty over regulatory, taxing, and criminal law enforcement, and we find that media mentions of “uncertainty” with “Indian reservation” spiked with the ruling. But has the ruling truly impaired investment? To shed light on this question, we econometrically estimate its effects on Zillow home sales and prices, and on oil, gas, and renewable energy investments. We find no evidence that the ruling reduced home sale prices. There is, however, some evidence that it induced a race to extract oil in eastern Oklahoma.
Backup Power: Public Implications of Private Substitutes for Electric Grid Reliability (with Paul Brehm and Ross Milton)
Abstract: Private substitutes for electric grid reliability are increasingly prevalent. We study their adoption and implications for policymaking and household welfare. We first show that higher-income households are much more likely to adopt these substitutes and that households purchase them in response to a perceived decrease in electric grid reliability. We develop a theoretical model of public provision of grid reliability in the presence of private substitutes. The model shows that the existence of substitutes can hurt some households, despite increasing aggregate welfare, because they result in lower grid reliability. Middle income households are the most likely to be hurt.