Three Essays On Economic Modeling And Environmental Policy Evaluation

This dissertation is composed of three chapters economic modeling and environmental policy evaluation. The first chapter explores the conflicts between preserving natural resources and economic activities. This paper establishes a model to estimate the threshold for the landowners to preserve the natural resource or do economic activities by taking the potential option value (from uncertainty and the irreversibility) into account when they need to decide between these two choices. By employing the real options theory with the numerical method, we could evaluate how the choices will be made towards this dilemma from the perspective of landowners. As an application, the result could provide a reliable and precise policy indication for the government to perform a more rational compensation policy toward natural resource protection than before. The second chapter investigates the impact of monetary policy on climate change. Climate change has been recognized as the most significant externality of today’s global economy. Current research has been predominantly focused on fiscal policy, which will be subject to the political environment. This paper establishes a dynamic general equilibrium model of a closed economy to find the optimal monetary policy under climate change to reduce carbon emissions and encourage the application of renewable energy. We evaluate how renewable energy firms, fossil fuel energy firms, and general goods production firms will respond to different monetary policies from the central bank. As an application, our results could provide a reliable policy tool for decision-makers to meet specific climate goals and encourage a transition to renewable energy. The third chapter provides a way to do the sustainability analysis of the Great Lakes region. The economic impact of climate change on key economic sectors has been studied for a long time. This study established an integrated energy- environmental-economic dynamic recursive computable general equilibrium model. Using this spatial computable general equilibrium (CGE) model, we show how to analyze environmental sustainability and individual well-being resulting from changes in the Great Lakes area’s complex economic and environmental systems. Our general equilibrium framework models interactions between human (economic, behavioral, social) and the environment and represent the interactions between local, regional, national, and global systems across space. This paper provides a tool to understand these linkages between economic agents and different sectors for the policymakers. So, they could use our work to assess the risk that may impact agriculture, energy, and manufacturing sectors under climate change and devise a related policy to maximize the welfare of its population and economy sustainably.

This dissertation is composed of three essays on regional economic analysis of environmental and natural resource policy. My intent in this collection of essays is to demonstrate how advances in data availability and modeling capabilities can facilitate evidence based economic research of policy at the subnational level in the United States. In the first essay, I assess the costliness of water allocation restrictions for irrigators and the broader regional economy. I base the analysis on a calibrated multi-sectoral, multi-regional computable general equilibrium model, and use the model to evaluate economic mechanisms which could improve water and factor utilization in the production of agricultural goods. To achieve this purpose, I use county level economic data and spatial data on groundwater withdrawals for the Central Sands of Wisconsin. Restrictions produce heterogeneous impacts on employment and welfare across counties, depending both on the level of agricultural activity and the policy instruments used to ration water use. Command and control regulation is expensive relative to market based mechanisms, though overall costs are small. Long run losses in aggregate GDP range up to approximately 0.1%, or $10 million across simulations which achieve reduced water withdrawals comparable to levels observed in 1985. The second essay explores the efficacy of the Clean Air Act in regulating ambient air pollution throughout the United States. Ambient air pollution is tracked through a network of in situ monitors. A state's monitors determine compliance with federal National Ambient Air Quality Standards (NAAQS). Although the locations are typically treated as exogenous by researchers, we argue that there may be incentives for the local regulator to avoid siting monitors near pollution hotspots. We develop an analytical model to study the local regulator's incentives in this federalist arrangement and employ satellite-derived pollution estimates to characterize pollution at non-monitored locations to test for model predictions. We find that, on average, local regulators in counties beneath the federal pollution standard avoid pollution relative to counties above the threshold. This result is especially pronounced for monitors specifically designated to target areas of high pollution concentrations. The results suggest that monitoring data in attainment counties may systematically understate pollution, and the resulting regulatory targeting may be less efficient than previously believed. The final chapter illustrates an open source build routine called blueNOTE (National Open source Tools for general Equilibrium analysis) for producing sub-national economic accounts used in economic equilibrium models in the United States. In this chapter, we describe the build routine and a canonical calibrated static multi-regional, multi-sectoral computable general equilibrium (CGE) model which complements the constructed set of data. We focus on the development of state level economic data and show how to extend the core build stream to incorporate additional energy satellite data for formulating an energy based CGE model. The energy based CGE model is used to calculate carbon leakage rates given different regional configurations of state level action in restricting emission levels. In this calculation, we explore result sensitivity from including gravity based state level bilateral trade flows relative to a model calibrated with a pooled national market.

Modeling Environmental Policy demonstrates the link between physical models of the environment and policy analysis in support of policy making. Each chapter addresses an environmental policy issue using a quantitative modeling approach. The volume addresses three general areas of environmental policy - non-point source pollution in the agricultural sector, pollution generated in the extractive industries, and transboundary pollutants from burning fossil fuels. The book concludes by discussing the modeling efforts and the use of mathematical models in general.

This book was published in 2003.The "International Library of Environmental Economics and Policy" explores the influence of economics on the development of environmental and natural resource policy. In a series of 25 volumes, the most significant journal essays in key areas of contemporary environmental and resource policy are collected. Scholars who are recognized for their expertise and contribution to the literature in the various research areas serve as volume editors and write essays that provides the context for the collection. Volumes in the series reflect three broad strands of economic research including: natural and environmental resources; policy instruments and institutions; and methodology. The editors, in their introduction to each volume, provide a state-of-the-art overview of the topic and explain the influence and relevance of the collected papers on the development of policy. This reference series provides access to the economic literature that has shaped contemporary perspectives on land use analysis and policy.

ZhongXiang Zhang (East-West Center, Honolulu) uses a global model based on marginal abatement cost curves for 12 world regions to estimate the contributions of the three flexibility mechanisms under the Kyoto Protocol, i. e. emissions trading, joint implementation, and the clean development mechanism. He shows how the reduction in compliance costs of industrialized regions depends on the extent to which the flexibility mechanisms will be available. Not surprisingly, the fewer the restrictions on the use of flexibility mechanisms will be, the greater the gains from their use. These gains are unevenly distributed, however, with industrialized regions that have the highest autarkic marginal abatement costs tending to benefit the most. Restrictions on the use of flexibility mechanisms not only reduce the potential of the industrialized regions' efficiency gains, but are also not beneficial to developing countries since they restrict the total financial flows to developing countries under the clean development mechanism. Christoph Bohringer (ZEW, Mannheim), Glenn W. Harrison (University of South Carolina, Columbia), and Thomas F. Rutherford (University of Colorado, Boulder) evaluate the welfare implications of alternative ways in which the EU could distribute its aggregate emission reduction commitment under the Kyoto Protocol across member states. Using a large-scale CGE model, they compare a uniform proportional cutback in emissions and the actual EU burden sharing agreement with an equitable allocation scheme derived from an endogenous burden sharing calculation. The latter equalizes the relative welfare cost across member states.