In this thesis, I explore issues related to energy and environmental markets. In the first chapter, I examine the benefits of complementary bidding mechanisms used in electricity auctions. I develop a model of complex bidding and estimate its structural parameters in the context of the Spanish electricity market. I then perform a counterfactual analysis in which the original mechanism is compared to one in which complex bids are not allowed. I find that, while firms do exercise market power through complex bids, the positive coordination benefits of complex bidding dominate. In the second chapter, I explore the impacts of cap-and-trade in the Spanish electricity market, quantifying the rate at which firms internalized the costs of the emissions as well as the rate at which they passed it through. I find evidence that supports a full internalization rate at the firm-level, which results in a partial pass-through due to both demand and supply factors. Finally, in chapter 3, in joint work with Meredith Fowlie and Stephen Ryan, we explore the long run dynamic implications of subjecting an imperfectly competitive industry to market-based pollution regulation. Using two decades of panel data on the US Portland cement industry, we estimate a fully dynamic model of firms' strategic entry, exit, production, and investment decisions. We then use the model to simulate counterfactual outcomes under three general classes of allocation regimes: auctioning, grandfathering, and contingent updating. We find that the imposition of a carbon trading program would lead to large social losses at low to medium carbon prices.

This dissertation studies the strategic behavior of major participants in electricity markets. The first chapter, Who benefits from ratepayer funded auctions of transmission congestion contracts? Evidence from New York, examines the participation of electricity retailers (firms that buy wholesale energy), electricity generators (firms that produce and sell wholesale energy) and financial traders (firms with no physical interests) in auctions for transmission congestion contracts. Transmission congestion contracts are derivative products that electricity retailers and generators can use to change their future wholesale electricity price exposure to a different location. U.S. Congress is concerned by large financial trader profits in auctions for these derivatives because the payouts are funded by ratepayers, not willing counterparties. I study firm-level positions in the New York Wholesale Electricity Market to investigate the causes of this concern. I find that some financial traders earn systematic profits when they buy illiquid products, potentially improving liquidity and price signals on these and related products. Given that electricity retailers buy so few of these products, the potential benefits resulting from trader actions are discussed. The second chapter, Tax induced emissions? Estimating short-run emission impacts from carbon taxation under different market structures, studies the strategic responses by electricity generators in the Western Australian wholesale electricity market following the introduction of a carbon tax. I find that the introduction of a carbon tax increased short-run carbon emissions in this imperfectly competitive market. The unique feature of the Western Australian setting is that the same carbon tax was introduced and later repealed, but the market structure differed at each event. At the repeal event, the dominant firm had less incentive to exercise unilateral market power. Then, the opposite result is observed -- emissions were lower with the tax. I show how the short-run impact of pollution taxation in imperfect markets depends on production technologies, market structure and the size of the tax. In the final chapter, Promoting energy efficiency in emerging economies through consumer education: Results from a field experiment in Mexico, I study (with co-authors Ognen Stojanovski, Mark Thurber, Frank Wolak and Juan Enrique Huerta Wong) how households responded to an informational treatment on electricity pricing that was offered to randomly-selected households in Mexico in Puebla. The 20-minute, in-person treatment was designed to educate households on how their electricity use translates to money spent on their electricity bill, and was free of normative content. On average, households receiving the treatment reduced electricity use, especially those that faced the highest marginal prices in the nonlinear electricity tariff. The estimated impacts were durable, with no observed rebound for at least a year. In addition, the magnitude of electricity use reductions was largest for those with less educational attainment. Our intervention was tailored for an emerging economy setting, was cost-effective in regions with low labor costs, and was met with high acceptance rates. These results emphasize the importance of removing information barriers in transitioning economies that are restructuring their energy sectors.

This dissertation explores topics in energy and environmental economics, and in particular regulations intended to address market failures in the purchase and utilization of energy-consuming durable goods. The market failures in question include environmental externalities as well as information frictions in durable goods purchase. The durable goods studied range from household appliances to homes themselves. Although market-based approaches to these challenges are becoming more common, subsidies and standards are still much more widely practiced public policy tools. Given the pervasiveness of the regulatory approach over the market-based approach, evaluating the success of these energy-consuming durable goods subsidies and standards allows policy makers to use society's scarce resources where they are most effective.

Energy: Markets and Regulation is a valuable survey of current thinking on energy economics, focusing on the regulation of energy markets. It covers nearly every aspect of the energy sector, including both international and domestic U.S. markets in oil and coal and the particular U.S. conditions in natural gas and nuclear power. It deals with resource estimation and energy supply and demand, and environmental control. Economic and institutional analysis of current problems includes an exploration of their historical background.The thirteen original contributions are dedicated to MIT economist and energy analyst M. A. Adelman. Adelman is the dean of academic economists concerned with energy markets and the effects of government regulation. All who work and teach in this area have been influenced by his ideas and insightful analysis, and many of the chapters in the book draw on and expand his earlier work.The preface by Charles P. Kindleberger and foreword by the editors outline the subject and introduce the essays. Their authors and topics are Paul R. Carpenter, Henry D. Jacoby, and Arthur W. Wright on the evolution of U.S. natural gas markets; G. Campbell Watkins on the interaction of U.S. and Canadian oil policies; Richard L. Gordon on world coal development; Martin B. Zimmerman on the problem of nuclear power in the United States; Paul W. MacAvoy on the EPA's record in controlling industrial air pollution; Robert W. Crandall and Theodore E. Keeler on public policies concerning the private auto; Philip K. Verleger, Jr. on the evolution of oil as a commodity; Jeffrey K. MacKie-Mason and Robert S. Pindyck on the theory and experience of cartels in the international minerals markets; Paul Leo Eckbo on worldwide petroleum taxation; Zenon S. Zannetos on oil tanker markets; Gordon M. Kaufman on oil and gas supply assessment; Paul G. Bradley on mineral and petroleum exploration; and Ernst R. Berndt and David 0. Wood on the influence of energy price shocks on U.S. productivity growth.Richard L. Gordon is Professor of Mineral Economics, The Pennsylvania State University; Henry D. Jacoby is Professor of Management, MIT; and Martin B. Zimmerman is Associate Professor of Economics, University of Michigan.

With America's dependence on fossil fuels painfully apparent due to world events and the resultant sharply rising gas prices, the search for renewable energy sources has never been more important. Still, the quest for sustainable energy is far from new. Since passage of the National Energy Act of 1978, states and the federal government have encouraged technological advances designed to make the United States self-sufficient when it comes to energy production. Government incentives and global-minded policymakers encourage development of alternative energy sources. While addressing the national issues of global climate change and energy security, the idea of sustainable energy must also find a way to appeal to an increasingly competitive market. Through nine case studies, this volume explores the roles which politics, market forces and leadership play as barriers or facilitators in the development of sustainable energy sources. Beginning with an overview of energy-related programs and legislation including the National Energy Act of 1978 and the Energy Policy acts of 1992 and 2005, the book discusses the various financial programs and policy mechanisms used by the states. Each of the nine essays examines sustainable energy development within a particular state or region. The importance of the political climate, the impact of free markets and the value of effective leadership with regard to this particular technological development remains a common thread. Topics such as the perceived effectiveness of state and federal governmental efforts and prevalent attitudes regarding renewable energy are also discussed. Each essay includes an in-depth bibliography with many website resources to encourage further research. Statistical tables are also provided. Instructors considering this book for use in a course may request an examination copy here.

Covering a wide and fascinating selection of topics incorporating the whole spectrum of energy economics, this book examines the belief that markets are the key to the effective allocation of resources, a notion which arguably applies as much to energy as it does to any other commodity. In particular it focuses on several pertinent issues including: competition and regulation in gas and electricity; comparative efficiency analysis in electricity regulation; UK coal in competitive markets; vertical integration in the oil industry; cluster developments in the UK continental shelf; modelling underlying energy demand trends; and emissions targets, environmental Kuznets curves and incentive mechanisms.

Producing and consuming energy involves costly environmental externalities, which are addressed through a wide range of public policy interventions. This dissertation examines three economic questions that are important to environmental regulation in energy. The first chapter measures the effect of bankruptcy protection on industry structure and environmental outcomes in oil and gas extraction. The second chapter measures additionality in an appliance replacement rebate program. Finally, the third chapter focuses on the environmental impacts of subsidizing electricity production from forest-derived biomass fuels. The first chapter measures the incentive effect of limited liability. When liability is limited by bankruptcy, theory says that firms will take excessive environmental and public health risks. In the long run, this ``judgment-proof problem'' may increase the share of small producers, even when there are economies of scale. I use quasi-experimental variation in liability exposure to measure the effects of bankruptcy protection on industry structure and environmental outcomes in oil and gas extraction. Using firm-level data on the universe of Texas oil and gas producers, I examine the introduction of an insurance mandate that reduced firms' ability to avoid liability through bankruptcy. The policy was introduced via a quasi-randomized rollout, which allows me to cleanly identify its effects on industry structure. The insurance requirement pushed about 6% of producers out of the market immediately. The exiting firms were primarily small and were more likely to have poor environmental records. Among firms that remained in business, the bond requirement reduced oil production among the smallest 80% of firms by about 4% on average, which is consistent with increased internalization of environmental costs. Production by the largest 20% of firms, which account for the majority of total production, was unaffected. Finally, environmental outcomes, including those related to groundwater contamination, also improved sharply. These results suggest that incomplete internalization of environmental and safety costs due to bankruptcy protection is an important determinant of industry structure and safety effort in hazardous industries, with significant welfare consequences. The second chapter focuses on the importance of a regulator's inability to distinguish between households responding to a subsidy, and households doing what they would also have done in the absence of policy. Economists have long argued that many recipients of energy-efficiency subsidies may be ``non-additional, '' getting paid to do what they would have done anyway. Demonstrating this empirically has been difficult, however, because of endogeneity concerns and other challenges. In this paper we use a regression discontinuity analysis to examine participation in a large-scale residential energy-efficiency program. Comparing behavior just on either side of several eligibility thresholds, we find that program participation increases with larger subsidy amounts, but that most households would have participated even with much lower subsidy amounts. The large fraction of inframarginal participants means that the larger subsidy amounts are almost certainly not cost-effective. Moreover, the results imply that about half of all participants would have adopted the energy-efficient technology even with no subsidy whatsoever. Finally, the third chapter addresses consequences of renewable energy subsidies in other markets. Electricity generated from logging residues provides a large and growing share of US renewable electricity generation. Much of the low-value wood used by biomass power plants might otherwise be left in the field. This increased harvest can negatively affect forest health. I investigate the supply of woody biomass fuel in Maine using a 15-year panel of prices and quantities for whole tree wood chips. I find that doubling the price of woody biomass increases harvest by about 64%. I also find that coal prices are a major determinant of woody biomass harvest. This suggests that environmental policies that raise the price of coal will affect forest health.