The Conservationist s Dilemma: Carbon Offsets and Energy Demand

Transcription

1 The Conservationist s Dilemma: Carbon Offsets and Energy Demand M. Harding & D. Rapson UC Irvine & UC Davis October 14, 2017 M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

2 Carbon Offsets Bringing market forces into GHG mitigation Setting the right level of emissions abatement Allocating emissions abatement to the lowest-cost sources M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

3 Carbon Offsets Bringing market forces into GHG mitigation Setting the right level of emissions abatement Allocating emissions abatement to the lowest-cost sources Important feature in climate policy $34 billion in tradable CO2 permits in 2015 (World Bank) Offsets allow capped firms to pay for reductions from outside of capped sectors E.g. In California, offsets may be used to meet up to 6% of a firm s compliance obligations under the new cap-and-trade regime M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

4 Carbon Offsets: Concerns Additionality M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

5 Carbon Offsets: Concerns Theft M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

6 Carbon Offsets: Concerns Fraud M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

7 Consumer Behavior Voluntary Offsets Residences responsible for 1.2B metric tons of CO2 every year 20% of total US emissions Individuals are offered many ways to offset their carbon footprint Airline passengers routinely asked if they wish to offset their carbon footprint resulting from air travel Nearly $5 billion in voluntary offset purchases made by 2015 (Ecosystem Marketplace) M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

8 Empirical Setting PG&E ClimateSmart Program In June 2007, Pacific Gas & Electric (PG&E) launched the ClimateSmart (CS) program Customers choosing to opt into this program pay an extra $ /kWh for electricity Price set to correspond to $9.71 per ton of CO2-equivalent emissions Launched initially as a demonstration project which expired on December 31, 2009; renewed in 2011 M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

9 What We Find Carbon offsets associated with increase in residential energy use First paper to analyze a large scale carbon offset program Households increase energy use after adoption Marketing may frame the underlying program in different ways with different results Limitation: Research setting prevents us from identifying a precise psychological mechanism M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

10 Data Sample restrictions and details Restrict attention to residential electric customers We omit low income households (ineligible for CS) Sample 9,445 customers who enrolled between June 2007 and November ,895 control households Pseudo -balanced panel All HHs in sample have 50 months of billing data 71% have 55 months 769,763 household-month observations Exclude outliers Limitation: We don t know the billing cycle dates for each household M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

11 Adoption Timing M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

12 Identifying Impact What we re not doing: Attempting to mimic random assignment of offsets What we are doing: Estimating the treatment effect on treated households Joint effect on electricity use of self-selection into the offset program and the offset themselves M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

13 Main Empirical Specifications Difference-in-Differences ( Long Run ) Let Iit cs be an indicator variable equal to one if household i is enrolled in ClimateSmart in period t, and zero otherwise: log(k it ) = βi cs it + α t + γ i + ɛ it (1) where log(k it ) is the log of monthly electricity consumption (kwh) for household i in month t, α t and γ i are month-by-year and household fixed effects First Difference ( Short Run ) Let dlog(kwh) it = log(kwh) i,t log(kwh) i,t 1 : dlog(kwh) it = βi cs it + α t + ɛ it, (2) M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

14 Main Results Estimated behavioral effects are consistent and robust across numerous alternate specifications: Short-run impact: 1-4% increase in electricity use Long-run impact: Statistically indistinguishable from zero These are best conveyed visually M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

15 Event Study We analyze the dynamic effects of program adoption (Jacobson et al. 1992; Hoynes and Schanzenbach, 2009, 2011). To be precise, we estimate the following equation: log(kwh) it = m k= m δ k D k it + α t + γ i + ɛ it (3) where Dit k are a set of indicator variables set equal to one if, in calendar month t, household i is k months away from its ClimateSmart adoption month. M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

16 Event Study Event Month Mean 90% Confidence M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

17 Heterogeneity Effects after adoption vary across household attributes Young occupants: 5-8% increase Smaller homes (sq.ft): 2-3% increase High income: 3-6% increase M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

18 Robustness: Placebo Event Month Mean 90% Confidence M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

19 Potential Mechanisms Altruism (e.g. Kotchen 2009) Contribution to offset program can increase the public good Massive free-riding, may be overcome by warm glow Further, if price is low and interpreted as a signal of the social cost of private consumption, private consumption can increase Guilt (e.g. Kotchen and Moore 2008, Jacobsen et al 2010) Environmentalists experience green guilt, which acts as a constraint that promotes conservation Adoption of offset (or in their case, green energy) removes this constraint If price of offset low enough, private consumption can increase Moral License (e.g. Monin and Miller 2001, Mazar and Zhong 2010, Cain et al 2011) Moral license occurs when past moral behavior makes people more likely to do potentially immoral things without worrying about feeling or appearing immoral. M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

20 Conclusion What we learned Adopters and non-adopters have very different characteristics Some adopters exhibit unintended behaviors 1-3% increase in post-adoption usage...but it s transitory Consistent with various psychological mechanisms M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

21 Conclusion What we learned Adopters and non-adopters have very different characteristics Some adopters exhibit unintended behaviors 1-3% increase in post-adoption usage...but it s transitory Consistent with various psychological mechanisms Policy implications Behavioral adjustments may undermine intended effects of policies Extent of concern (in present setting) directly related to reliability of offset markets M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

22 Thank You Dave Rapson M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

23 Appendix M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

24 A stylized model Framework Suppose a household i consumes electricity x i and other goods y i. Take y i to be the numeraire, and assume for simplicity that utility is quasi-linear. Further assume that aggregate consumption of electricity is associated with a utility penalty. Concretely, let utility be given by u(x i ) + y i δc i (x i, x i ) (4) where u > 0, u < 0, c > 0, c > 0, and δ > 0 is a parameter determining how averse the household is to it s own and others consumption of electricity. M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

25 A stylized model Framework Suppose a household i consumes electricity x i and other goods y i. Take y i to be the numeraire, and assume for simplicity that utility is quasi-linear. Further assume that aggregate consumption of electricity is associated with a utility penalty. Concretely, let utility be given by u(x i ) + y i δc i (x i, x i ) (4) where u > 0, u < 0, c > 0, c > 0, and δ > 0 is a parameter determining how averse the household is to it s own and others consumption of electricity. For simplicity also assume that u (0) = so the household will always optimally set x i > 0. The household s problem is to maximize utility subject to the budget constraint px i + y i m i, where p denotes the price of electricity. Most results don t depend on what x i is (can be zero). M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

26 A stylized model Consider now the introduction of an optional carbon-offset program with perfect abatement that eliminates the negative effect of x i, at an incremental per-unit price of π. If the household decides to adopt the program, the modified problem will be to maximize subject to (p + π)x i + y i m i u(x i ) + y i δc i (0, x i ) (5) M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

27 A stylized model (Recall, if adopt: Max u(x i ) + y i δc i (0, x i ) s.t. (p + π)x i + y i m i ) Proposition 1: 1 If δ increases, the household is more likely to adopt. 2 If π increases, the household is less likely to adopt. M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

28 A stylized model (Recall, if adopt: Max u(x i ) + y i δc i (0, x i ) s.t. (p + π)x i + y i m i ) Proposition 1: 1 If δ increases, the household is more likely to adopt. 2 If π increases, the household is less likely to adopt. Proposition 2: 1 For sufficiently small π, if a household decides to adopt, consumption of electricity increases post-adoption. 2 If two households decide to adopt, the household with large δ will experience a larger increase in post-adoption consumption. M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

29 PG&E ClimateSmart Program (2) By the end of 2009, PG&E customers contributed $4.9M through CS charges, $2.2M of which were from residential customers In our sample, the mean contribution was $1.35/mth Maximum contribution was only $ ,000 enrolled customers Top five cities: San Francisco (11.6%), San Jose (6.5%), Oakland (6.1%), Berkeley (3.3%) and Fresno (2.4%) Retention has been strong, with fewer than 0.2% active de-enrollments per month M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

30 PG&E ClimateSmart Program (3) Emissions reductions PG&E solicited offers for emissions reduction projects By EOY 2009, contracts for 1.2M metric tons of GHG reductions signed $11.5M to be paid over time as GHG emissions are verified between $8.96 per ton of CO2 equivalent To date, approximately 140,000 metric tons have been delivered Reduction in tree harvesting in N. California forests, methane capture from dairy and landfill Equivalent to taking 225,000 cars off the road in CA each year M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

31 Marketing Timing M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

32 Summary Statistics Z'$C- I[!"#$%&'!"#$%&"'()*+,&"'()*+-!"#$%&"'()*+,&"'()*+- ()#'*$+',-./ :529: 6566 ()#'*$+',-;<%%1 96:5739 =85823 :753> )+' 4254>4 4:56:3 9> >9= 658:> 6582= 65>42 65>> >=6 6548= >:: 6566?0<%H*'C 65>79 653=8 65>:: 65>= >27 65>98 65>:: 65>: AA-I<J' 85=77 854=8 95> > :22 65:4= 659= :7 659=8 658:2 653= O*''C-P<#<C >=7 65>=4 6533?0$*<NQ >=3 65>= ?0$*<N$R%' 654> >:= > 65>:7 65>= /<%H%<T' ?$E!<C >>8 65> =54>7 >=5>78 835>63 845=6: 6566 A'$N<C > 65>>2 65>> > 6583: 6566 IUTN-8466G = > =2 6532= 653=: : 656=7 653>2 658= =6 >5>4: 35: M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

33 Offsets as Altruism Kotchen (2009) Public goods game Private consumption leads to reduction in public good (environmental health) Contribution to offset program can increase the public good Massive free-riding, may be overcome by warm glow Further, if price is low and interpreted as a signal of the social cost of private consumption, private consumption can increase M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

34 Guilt Kotchen and Moore (2008), Jacobsen et al (2010) Environmentalists experience green guilt, which acts as a constraint that promotes conservation Adoption of offset (or in their case, green energy) removes this constraint If price of offset low enough, private consumption can increase Inconclusive empirical evidence for rebound effect M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

35 Moral Licensing... occurs when past moral behavior makes people more likely to do potentially immoral things without worrying about feeling or appearing immoral. (Monin and Miller, 2001) Consumer choices reflect social and moral values which is particularly relevant to environmental products and choices M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

36 Moral Licensing Mazar and Zhong (2010) Experiment at U. Toronto assigned people to two stores, conventional and green Individuals who purchased in green store lied more often in a subsequent task Individuals were then given the opportunity to steal money from an envelope. Those who purchased at the green store stole more money than the others. M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18

37 Moral Licensing Cain, Loewenstein and Moore (2011) Conflicts of interest lead experts to give biased and corrupt advice Mandatory disclosure increases the bias in advice Experts feel licensed to exaggerate advice M. Harding & D. Rapson (UC Irvine & UC Davis) Conservationist s Dilemma October 14, / 18