Essays on Industrial Organization, Energy, and the Environment

Abstract

This dissertation focuses on the welfare implications of different government policies aimed to diminish the consumption of energy produced from fossil fuels in the United States. The first of these policies, taxation on gasoline consumption, diminishes consumption by increasing the cost per mile traveled. However, this policy measure has not been favored by policy-makers, and instead, the Corporate Average Fuel Economy standards, CAFEs, were put in place since the seventies. This policy consists of a pre-established threshold of fuel-efficiency, measured in miles per gallon, that car manufacturers selling cars in the United States are subject to each year. For each manufacturer, the CAFE is calculated, which weights the fuel-efficiency of each car model by the number of units sold of that car model. If the CAFE for a given manufacturer lies below the pre-established standard for that year, the manufacturer is subject to a fine. I exploit the manufacturers' past behavior in setting prices for their car models to estimate structural demand and supply parameters that characterize the car industry facing these policies. With those parameters, I can estimate the welfare impacts of tightening the CAFE standard to the new threshold set by the Obama administration and compare those impacts to the ones from raising gasoline taxes to obtain the same gasoline reduction in consumption. The findings are that in the short run, taxation is a less costly policy than tightening the CAFE standard. The second and third essays study the consequences of adopting renewable sources for electricity production. These technologies bring reductions in emissions of pollutants to the atmosphere, but not at no cost. They are expensive and their introduction to already existing electricity systems requires modifications to the usual scheduling of power plants because of the intermittent nature of the renewable sources, such as solar. We compute the equilibrium effects of this policy finding that if the environmental benefits are not taken into account, these policies are welfare decreasing with the amount of renewable sources. Some lower levels of penetration are more cost efficient if we take into account dynamic considerations in the scheduling of the plants.