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Essays in Environmental and Energy Economics

  • Author(s): Blonz, Joshua
  • Advisor(s): Borenstein, Severin
  • Auffhammer, Maximilian
  • et al.
Abstract

This dissertation combines research on three topics in applied Energy and Environmental Economics related to the electricity industry. In the first paper, I study the economic welfare impact of an electricity pricing program that increases the price of electricity for small commercial and industrial customers when the cost of generation is high. The second paper explores an energy efficiency retrofit program that provides free upgrades to low-income households in California. Both of these policy interventions were a result of orders from the California Public Utilities Commission, the energy regulator in California. The final paper examines the cost of air quality regulations on employment in the coal mining sector in Appalachia. These three papers study different important aspects of the electricity sector, from upstream regulation of generation to end use pricing and consumption efficiency.

In the first chapter, I study how in electricity markets, the price paid by retail customers during periods of peak demand is far below the cost of supply. This leads to overconsumption during peak periods, requiring the construction of excess generation capacity compared to first-best prices that adjust at short time intervals to reflect changing marginal cost. In this paper, I investigate a second-best policy designed to address this distortion, and compare its effectiveness to the first-best. The policy allows the electricity provider to raise retail price by a set amount (usually 3 to 5 times) during the afternoon hours of a limited number of summer days (usually 9 to 15). Using a quasi-experimental research design and high-frequency electricity consumption data, I test the extent to which small commercial and industrial establishments respond to this temporary increase in retail electricity prices. I find that establishments reduce their peak usage by 13.4% during peak hours. Using a model of capacity investment decisions, these reductions yield $154 million in welfare benefits, driven largely by reduced expenditures on power plant construction. I find the current policy provides of the first-best benefits but that, with improvements in targeting just the days with the highest demand, a modified peak pricing program could achieve 80% welfare gains relative to the first-best pricing policy.

In the second chapter, I study energy efficiency retrofits programs, which are increasingly being used to both save on energy bills and as a carbon mitigation strategy. This paper evaluates the California Energy Savings Assistance program, which provides no-cost upgrades to low-income households across the state. I use quasi-experimental variation in program uptake to measure energy savings for a large portion of the treated population in the San Diego Gas & Electric service territory between 2007 and 2012. The results suggest that the overall program is ineffective at delivering energy savings and is not cost-effective. One challenge in implementing efficiency retrofit programs is that each upgrade must be customized to the housing unit on which it is installed. As a consequence, there is a wide range in efficiency upgrade potential across the population of candidate households. To better understand this heterogeneity in measure installation and its potential to drive program outcomes, I use discontinuities in program rules to identify key measure specific savings. This analysis shows that larger upgrades such as refrigerator replacements do provide cost-effective savings when considering the full set of social benefits. Households that do not receive larger upgrades generally see little or no savings. These results suggest that heterogeneity in upgrade potential can drive overall program outcomes when only a small portion of the treated population is eligible for cost-effective efficiency upgrades.

In the third chapter, I study the costs of Title IV of the Clean Air Act. This regulation put a cap on sulfur emissions from electric power plants, which reduced the demand for high-sulfur coal. Using a quasi-experimental research design, I estimate how coal mine employment and production in high-sulfur coal-producing counties were impacted by the regulation by comparing them to neighboring counties that produced low-sulfur coal. I find that coal production dropped by 20% and coal sector employment dropped by 14%. I find no evidence of spillovers to employment or wages in the non-coal sectors of the high-sulfur coal counties. The results suggest that the coal sector employment costs of Title IV of the Clean Air Act are highly concentrated in the coal industry, and that the decline does not detectably impact the overall regional economy.

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