Three New Economics Papers Related to Mitigating Climate Change

Below the fold, I discuss three of my new applied NBER economics papers focused on climate change mitigation.

I would like to preview my three new NBER papers. One is on Walmart’s energy consumption. One is about public bus purchases and scrappage and the third is about learning about California voter’s preferences for carbon mitigation based on voting on AB32 and High Speed Rail.


1. Walmart was kind enough to share its store level monthly electricity consumption for each of its over 200 stores in California for a 6 year period.  Nils Kok and I used these data to test a variety of hypotheses.  Relative to a large sample of control stores, Walmart’s stores exhibit a remarkable degree of consistent performance as measured by kwh per square foot of interior space.  We also document that Walmart achieves this same level of performance irregardless if the company bought the real estate space from someone else or built the initial store itself.  We argue that our results are in line with Nick Bloom’s work on the role that financial capital and management human capital play in helping larger firms to be more energy efficient.  While residential electricity consumers and small commercial electricity consumers may face Herbert Simon style cost of actions such that they satisfice rather than optimize their electricity consumption, Walmart is large enough such that there is a lot of $ on the table it it doesn’t optimize. This for profit firm is aware of this and hires the experts and the materials to balance its goals of selling goods while minimizing costs at its stores.   We hope that this paper helps to trigger a new literature on the environmental benefits of large scale capitalism.   Relative to smaller stores, Walmart achieves energy efficiency economies of scale and does not face financing constraints for paying for upfront expensive but efficient appliances at their stores. Walmart will also hire the best experts for advising them (a fixed cost) that can spread across their huge amount of total square footage across their stores. The net effect is an energy efficient business!  Is small beautiful?


2.   My bus paper with Shan Li and Jerry Nickelsburg tackles a new issue that nobody has thought about.  While a zillion IO and energy economists have studied the private vehicle market. Nobody has studied the public metro bus market.  While 1/2 of vehicles on the U.S roads are foreign made, NONE of our buses are imported.  WHY?  and So What?    Our paper highlights that unlike the private vehicle fleet that the U.S metro bus fleet does not respond to gas prices. When gas prices go up, the fuel economy of the stock buses does not improve and the fuel economy of the flow of new buses purchased does not improve.  Why?  We argue that the U.S Buy America Mandate and the relatively small scale of this industry shields domestic suppliers from foreign competition and retards their incentive to innovate and design more fuel efficient buses.  Our study investigates a market in which a non-profit (transit agencies) use other people’s money (U.S tax payer transfers) to purchase expensive ($300,00) buses from small for profit domestic firms who face strong protection from international competition. This is a multi-billion dollar industry with very funky institutional details. We believe that we have made a contribution to IO and energy economics here.


3.  My new voting paper with Matt Holian builds on some early work that John Matsusaka and I did when we were graduate students at the University of Chicago.   That paper has been well cited;


Kahn, Matthew E & Matsusaka, John G, 1997. “Demand for Environmental Goods: Evidence from Voting Patterns on California Initiatives,”Journal of Law and Economics, University of Chicago Press, vol. 40(1), pages 137-73, April.


Matt and I write down a model of how heterogeneous households sort within a metropolitan area that builds on my past work with Ed Glaeser and Jordan Rappaport.   All else equal, environmentalists are  more likely to live downtown because the center cities allow them to have a low carbon footprint and environmentalists gain utility from engaging in voluntary restraint.  Once people have chosen their optimal location, they then vote on low carbon regulation.  Center City residents face a lower Becker price in voting in favor of low carbon regulation because they have already configured their lifestyle to be easily able to adapt to carbon pricing and they also support the overall goal of lower carbon emissions.  We use both PPIC micro data and actual California voting data on Prop 23 and the High Speed Rail vote to document the fact that educated people, liberals and center city residents support low carbon policies. These results highlight the challenge that the Joe Romms of the world face because so many Americans live in the suburbs and recognize the short run extra costs they will face from supporting strong carbon mitigation. In this sense our paper contributes to the political economy literature on carbon politics.


Author: Matthew E. Kahn

Professor of Economics at UCLA.

One thought on “Three New Economics Papers Related to Mitigating Climate Change”

  1. On buses. Surprisingly, there is precisely one serious international producer of electric buses, BYD of China (backed inter alia by Warren Buffett). They have run successful trials in several large American and European cities including New York, proving that the vehicle is ready for deployment. BYD has sold 700 buses to one Israeli operator. But it is still fighting for a decent US order against tiny and heavily protected native-born Proterra. Google "Long Beach Proterra versus BYD".

    Matthew is sadly right about the importance of big business to the green transition. Not just for the reasons he cites. Big firms like WalMart and Ikea can also lobby effectively to overcome regulatory barriers, some created or proposed by rival firms. The recent stalemate in Arizona over net metering - effectively a victory for the solar camp over the incumbent monopoly utility trying to strangle it by a high access fee - was helped by support from the large solar leasing firm SolarCity. With each marginal gigawatt of solar and wind installed, the less likely it becomes that the federal PTC tax break will be rescinded.

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