This dissertation consists of three works which use econometric techniques to estimate how shifting liability regimes and green energy transitions impact firm behavior, making contributions to public economics.
In the first chapter, I develop a novel empirical strategy that causally estimates the relationship between firm precautions and the level of liability each firm faces. Across all sectors of the U.S. economy, regulators use liability regulations to encourage firms to take actions that reduce the costs associated with low probability, high severity events such as power line-ignited wildfires and production defects. Despite the widespread use of these regulations, there is limited evidence of their effectiveness across many sectors of the economy. This study identifies a new channel through which liability regulation influences firm behavior and provides causal evidence of firm responses to the entire distribution of potential liability by studying a regulation in California’s electric utility sector. Using exogenous variation in the replacement cost of structures that lie downwind of power lines, I find that firms increase their precaution by 130% in response to a $680million increase in liability. In the short run, the estimates from this study imply that the implemented liability regulation had welfare costs between $17 million and $7 billion.
The second chapter, joint with Olivier Deschenes, uses recently developed econometric techniques to estimate how Renewable Portfolio Standards incentivize investments in solar and wind generation across the U.S.. Despite a 30-year long history, Renewable Portfolio Standards (RPS) remain controversial and debates continue to surround their efficacy in leading the low-carbon transition in the electricity sector. Contributing to the ongoing debates is the lack of definitive causal evidence on their impact on investments in renewable capacity and generation. This paper provides the most detailed analysis to dateof the impact of RPSs on renewable electricity capacity investments and on generation. We use state-level data from 1990-2019 and recent econometric methods designed to address dynamic and heterogeneous treatment effects in a staggered adoption panel data design. We find that, on average, RPS policies increase wind generation capacity by
600-700 MW, a 21% increase, but have no significant effect on investments in solar capacity. Additionally, we demonstrate that RPSs have slow dynamic effects: most of the capacity additions occur 5 years after RPS implementation. Estimates for wind and solar electricity generation mimic those for capacity investments. We also find similar results using a modified empirical model that allows states to meet their RPS requirements with pre-existing renewable generation and renewable generation from nearby states.
In the third chapter, also joint with Olivier Deschenes, we quantify how investments in wind generation reshape regional economies across the U.S. and which workers are impacted the most. Most western countries have made commitments or enacted policies aiming to transform their economies to become carbon-neutral by 2050. Many of the leading policies to reduce carbon emissions are also promoted as engines of job creation and local economic development. While low-carbon transition policies continue to be debated and proposed, few have been implemented, and none have operated for a long enough period of time to permit an empirical evaluation of their impact. This paper uses the natural experiment provided by the rapid deployment of wind electricity projects in the United States over the period 2000-2019 to shed light on whether the low-carbon transition can deliver long-lasting and high-quality jobs. We compile detailed data on the location and operation date of 55,000 wind turbines, combined with county-level data on employment, earnings, GDP, and per capita income to estimate the impact of wind projects on regional economies. Our research design uses two-way fixed effects regression and empirical strategies robust to concerns about heterogeneous treatment effects. The empirical analysis points to a small, but durable positive effect of wind electricity investments on regional economies. Overall, the results suggest that the projected additional150 GW of wind electricity production capacity from the Inflation Reduction Act willcreate close to 164,000 jobs.