Research Summaries Environment, Energy, and Unintended Consequences Matthew J. Kotchen Economists are fascinated with based on joint production of a private unintended consequences. A policy good and a public environmental good.1 designed to accomplish a particular The purchase of electricity from renew- objective will sometimes have the oppo- able sources of energy provides an exam- site effect, or create new problems apart ple. While green electricity may cost from the one it originally sought to cor- more than electricity generated from Matthew Kotchen is a professor of rect. Well-intentioned individuals will fossil fuels, it produces the joint prod- economics at Yale University, with a pri- sometimes make choices that are coun- ucts of electricity (a private good) and mary appointment in the Yale School of terproductive to the very causes they lower emissions (a public good). Forestry & Environmental Studies and seek to support. Understanding the full Does this mean green products are secondary appointments in the School impact of policy interventions and indi- always beneficial for the environment? of Management and the Department of vidual choices is critical for the design, The answer turns out to depend on Economics. His research interests lie at the implementation, and improvement of whether there are opportunities to pro- intersection of environmental and public more effective and efficient policies. vide the public good separately. It is pos- economics and policy. Much of my research over the last sible, for example, that one’s purchase of Kotchen is a research associate in the 15 years has focused on unintended con- green electricity crowds out other activi- NBER Programs on Environmental and sequences in the field of environmental ties that reduce emissions. In such cases, Energy Economics and Public Economics. and energy economics and policy. The introducing a green good can counterin- He has held previous and visiting posi- starting point is often a simple question: tuitively increase pollution and reduce tions at Williams College, the University Does a specific policy or choice that economic welfare. of California, Santa Barbara and Berkeley, is driven by concern for environmen- In a subsequent theoretical paper, I Stanford University, and Resources for the tal protection or energy conservation consider joint production that is instead Future. He has also served as an associ- deliver on its promise, and if not, why based on the private provision of a pub- ate dean of academic affairs at Yale, as not? Research attempting to answer this lic “bad.”2 The setup more closely aligns deputy assistant secretary for environ- question has led to contributions to eco- with the way economists typically think ment and energy at the U.S. Department nomic theory on the private provision about particular goods and services gen- of the Treasury, and as a member of the of public goods and to empirical studies erating a negative externality. A novel Environmental Economics Advisory on a range of topics such as renewable feature of the model is the way that Committee of the U.S. Environmental energy, corporate social responsibility, consumers can make donations that are Protection Agency. daylight saving time, building codes, and motivated, in part, to offset the negative Kotchen leads a new NBER initia- electric cars. externality. In this context, I show how tive comprising an annual conference in donations and economic welfare differ Washington, DC, and an annual publi- Private Provision of from the standard model for privately cation, both titled Enironmental and Environmental Public Goods provided public goods. Energy Policy and the Economy. Funded by One general result is that dona- the Alfred P. Sloan Foundation, this is an Many individuals are concerned tions continue to increase, rather effort to stimulate policy-relevant research with the environmental impact of their than decrease, as an economy grows. in the field and to disseminate this research consumption choices, and these con- Moreover, an unintended consequence directly to policymakers. It is modeled after cerns have driven the emergence of mar- of this market arrangement is that the the NBER initiatives Tax Policy and the kets for environmentally friendly goods opportunity to make offsetting dona- Economy and Innovation Policy and the and services. My first theoretical con- tions will typically stimulate demand for Economy. tribution was to model “green goods,” the externality-causing good. For exam- 10 NBER Reporter • No. 3, September 2018 ple, the ability to purchase a carbon offset intervening mechanism, whereby compa- applied energy policies. Implemented as a might help an individual justify the pur- nies might pursue CSR strategies to off- conservation measure in both world wars, chase of a less fuel-efficient car. Indeed, set corporate social irresponsibility (CSI). DST has a long and fascinating history. the theory provides a framework for Jon Jungbien Moon and I disaggre- Indeed, Benjamin Franklin produced an understanding markets for environmental gated one of the widely used indices for early economic analysis of DST, showing offsets, with those that promote carbon CSR into separate measures of CSR and how much tallow and candles could be neutrality in response to climate change CSI across seven dimensions, including saved if clocks were changed to encour- being an increasingly salient example. corporate governance, community rela- age early rising during long summer days, tions, human rights, and the environ- when people could take greater advantage Offsetting Goods and Bads ment.4 Analyzing data on more than of natural daylight. The same argument is 3,000 publicly traded companies over still used today to justify DST as energy Does giving consumers a way to pay 14 years, we found that CSI is a signifi- policy in the United States, yet surpris- for their “sins of emissions” help justify an cant predictor of CSR, both overall and ingly little analysis on the subject has increase in polluting activities? Along with within specific dimensions. For exam- occurred since Franklin’s day. collaborators Grant Jacobsen and Mike ple, when a company is responsible for Taking advantage of a natural experi- Vandenbergh, I set out ment that occurred in to investigate whether Indiana, Laura Grant such behavior occurs.3 The Eect of Daylight Saving Time on Electricity Use and I estimated the We obtained electric- effect of DST on elec- 5 ity billing data for resi- Percentage change in monthly residential electricity consumption due to daylight savings time tricity consumption. dential households in 4 In 2006, the state Tennessee before and Period of daylight saving time switched to DST while after a utility company 3 simultaneously shift- introduced a volun- 2 ing some of its coun- tary green-electricity ties to a different time program. A key feature 1 zone. The combination of the program was of these two policies that households could 0 provided treatment choose to participate and control groups at different levels in -1 that allowed us to support of new wind compare differences in -2 and solar generation Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. residential electricity intended to offset the consumption before emissions associated Light-blue bars represent 95% confidence intervals and after the pol- with their own electric- Observations for April and November are excluded due to partial exposure to DST during those months icy change. We found ity consumption. Source: M. Kotchen and L. Grant, NBER Working Paper No. 14429 that — contrary to the We found that Figure 1 policy’s intent — DST households participat- increased electricity ing above the minimum threshold had an environmental accident, it compen- consumption [Figure 1]. While Franklin’s no change in electricity consumption, but sates by undertaking pro-environmen- conjecture about the demand for lighting those participating only at the minimum tal actions. When it comes to corpo- holds up, modern-day demand for heat- level — representing a “buy-in” mental- rate governance, however, the findings ing and cooling differs across hours of the ity — increased their electricity consump- are more nuanced: After an event that day, and the shift to DST increased both. tion by 2.5 percent. We thus identified reflects poorly on corporate governance, Building codes are another ubiqui- some of the first evidence on the behav- companies tend to compensate in nearly tous form of energy policy. The regula- ioral response to undertaking a pro-envi- all dimensions of CSR except for reform- tion of building practices first focused on ronmental action. ing governance itself. energy for purposes of national security I then became interested in knowing in the wake of the Arab oil embargo in whether a similar phenomenon was taking Saving Energy and Reducing the 1970s. Today, building energy codes place within corporations. The existing Pollution — Or Not across the United States and other coun- literature on corporate social responsibil- tries are motivated by concerns about ity (CSR) tends to focus on the relation- Many people are surprised to hear energy efficiency and climate change. ship between CSR and financial perfor- that daylight saving time (DST) is one Until recently, however, engineering sim- mance. I was curious about a potential of the more longstanding and universally ulations provided the only evidence on NBER Reporter • No. 3, September 2018 11 their effectiveness. This and their environmen- led Jacobsen and me to Variation in Emissions Produced to Charge an Electric Car tal impacts depend on search for an opportu- a comparison of emis- Pounds of CO emissions produced by an electricity-generating power plant nity to provide an eval- needed to power a plug-in electric vehicle for 35 miles sions at tailpipes versus 35 uation that accounted 1–4 5–8 9–12 1–4 5–8 9–12 power plants. for actual construc- 30 am pm Joshua Graff- tion practices and the 25 Zivin, Erin Mansur, behavior of household and I developed a residents.