Joseph Shapiro

Cool new AER paper uses data from Clean Air Act offset markets to assess the efficiency of air pollution regulation. The analysis finds that marginal benefits of abatement exceed mean offset prices more than ten-fold, across most regions and pollutants.

Thanks!

Excited to see our paper in print! 'Is Air Pollution Regulation Too Lenient? Evidence from US Offset Markets.' www.aeaweb.org/articles?id=...

Stunning chart from a great paper by @joseph-s-shapiro.bsky.social: the IRA’s “leasing loophole” - which let foreign-made EVs qualify for tax credits - sent US leasing numbers soaring.

EU exporters were likely among the main winners - and will be among the first to feel the hit as the IRA unravels.

🚨 Call for papers:

Environment week at LSE will be Sept 22-25th.

Submissions are due soon (July 14)!

www.lse-environment-week.com/environment-...

Why it matters: 🌎⚖️

Designing optimal policies for externalities (smoking, innovation, pollution…) requires marginal costs and benefits, which are hard to estimate.

Offset markets help measure marginal policy costs, so can help design optimal policy.

7/7

Robust findings: 🛠️📑

Other ways of aggregating offset price data give similar conclusions: marginal benefits of air pollution control ≫ marginal costs in most US regions

6/

Striking result: 🚨

Average benefit of NOₓ control > $40,000/ton Average cost <= $4,000/ton

That’s 10× gap. VOCs yield similar findings.

Some markets are more lenient than others:

5/

Then we compare: 📈📉

We compare control costs estimated from pollution offsets against model-based health benefits (AP2, AP3, InMAP, EASIUR) to estimate the net gains from reducing pollution.

One input from AP3 model: marginal benefits of cutting NOₓ by location 🗺️ 👇

4/

How offsets work:⚖️

New factories in polluted cities must “offset” emissions by paying existing plants in same region to reduce pollutant.

On margin, firms should equate offset prices to marginal cost of pollution control 💵

ERC = emissions reduction credit = offset

3/

Approach: 🔍

We use prices from air pollution offset markets to estimate marginal costs of pollution control.

Each pollutant × region has own market.

100s of separate markets, distinct from cap-and-trade 🗺️📊

Example offset:

2/

Is US air pollution regulation too lenient? 🏭💸

We find marginal benefits of pollution control exceed marginal costs by >10×.

New evidence from dozens of US pollution offset markets.

📄forthcoming at AER, w/ Reed Walker: joseph-s-shapiro.com/research/IsA...

1/🧵

Striking result: 🚨

Average benefit of NOₓ control > $40,000/ton

Average cost <= $4,000/ton

That’s 10× gap. VOCs yield similar findings.

Some markets are more lenient than others:

5/

Then we compare: 📈📉

We compare control costs estimated from pollution offsets against model-based health benefits (AP2, AP3, InMAP, EASIUR) to estimate the net gains from reducing pollution.

One input from AP3 model: marginal benefits of cutting NOₓ by location 🗺️ 👇

4/

How offsets work:⚖️

New factories in polluted cities must “offset” emissions by paying existing plants in same region to reduce pollutant.

On margin, firms should equate offset prices to marginal cost of pollution control 💵

ERC = emissions reduction credit = offset

3/

Approach: 🔍

We use prices from air pollution offset markets to estimate marginal costs of pollution control.

Each pollutant × region has own market. 100s of separate markets, distinct from cap-and-trade 🗺️📊

Example offset:

2/

Is Air Pollution Regulation Too Lenient? Evidence from US Offset Markets (Forthcoming Article) - We develop a framework to estimate the marginal cost of air pollution regulation to assess the efficiency of air quality regulations. We utilize a provision of the Clean Air Ac...

Forthcoming in the AER: "Is Air Pollution Regulation Too Lenient? Evidence from US Offset Markets" by Joseph S. Shapiro and Reed Walker. www.aeaweb.org/articles?id=...

Just published in @jpube.bsky.social:

"Cleaner water and higher housing prices: Evidence from China"

By Run Ge, Jialin Huang, & Xinzheng Shi

www.sciencedirect.com/science/arti...

#econsky

🌎 PhD students: apply to 2025 Berkeley/Sloan Summer School in Environmental/Energy Economics!

🔗 Info + application: www.auffhammer.com/summer-school

📅 Deadline: May 14 | Program: Aug 18–22 at Berkeley

w @auffhammer.bsky.social @severinborenstein.bsky.social, TCarleton, MFowlie, KJack...

🌍 Free 1hr webinar today: Globalization & The Environment

📅 Apr 2, 6pm PT US | Apr 3, noon Australia

🔗https://esacentral.org.au/event/58402/globalization-and-the-environment-online-only

- How globalization affects the enviro
- How enviro policy reshapes trade

Host: Economic Society of Australia

Looking forward to this, especially the lunchtime panel I get to do with @kylemeng.com and @chadbown.bsky.social!

Energy Markets, Decarbonization, and Trade, Spring 2025

🚨Incredible lineup at @nber.org conference this Thurs/Fri 3/20-21: **Energy Markets, Decarbonization, and Trade**

📑Agenda www.nber.org/conferences/...

🎥 Webstream www.youtube.com/nbervideos

Organized w Natalia Ramondo, supported by @sloanfoundation.bsky.social

Great! Hope you/students find it useful. Slides are online in case they are helpful joseph-s-shapiro.com/research/SEE...

I think of spatial autocorrelation as a general issue, not specific to environment. Re:publication outlets, this is always a relevant question but we are squeezed for space and I find it challenging to give general advice on this kind of question without knowing the specific context.

Thanks Ariel! Re:unobservables/uncertainty, what did you have in mind? We talk about some spatial research designs and place-based environmental policies. As to spatial inference, we try to focus on spatial issues particular to the environment or environmental issues specific to spatial settings...

spatial-environmental literature looks more at intra-national issues.

Long answer to a good question!

5. Another comparison the paper makes is that 'Trade and the Environment' has been its own area for awhile (with its own books, JEL code, sections of graduate syllabi, conferences and sessions, etc.). Most of that work looks at international but not intra-national issues, and the emerging...

spatial/regional/urban/trade and in environmental/energy/resources, 'to what extent do you think this is its own subfield?' Many answers were different forms of, 'it is beginning to be a subfield, with conferences, conference sessions, a growing number of people writing many papers in it, etc.' ...

3. Our discussant on this chapter at a recent conference, Scott Taylor, pointed out that one challenge in writing this chapter is Spatial Environmental Economics doesn't really exist as its own subfield; our sense is that critical mass is starting to form. 4. We asked several folks in both ...

spatial environmental topics, and there are important exceptions. 2. Critical mass is needed to move beyond individual scholars and papers to being a field (/subfield), our sense: this is gradually forming and this chapter describes a snapshot of that process.