Effects of Weather and Climate
Friday, Jan. 5, 2024 8:00 AM - 10:00 AM (CST)
- Chair: Shana McDermott, Trinity University
Coal Plant Retirements and Internal Migration
AbstractUS electricity generation has experienced a dramatic shift during the past 20 years. Between 2005 and 2019, generation from coal declined by 52%, while natural gas generation increased by 116%. One of the main drivers for the decline of coal was falling natural gas prices. Therefore, many coal-fired power plants were retired. This transition has brought about significant improvements in US air quality, mainly to regions that have historically had a high number of coal plants.
We investigate the ramifications of pollution reduction from coal plant retirements with respect to internal migration in the US. We leverage a rich dataset from the Internal Revenue Service on yearly county-to-county migration numbers and migrators' income. These data allow us to provide an in-depth analysis of pollution-induced migratory flows. As current federal policies aim to decarbonize electricity generation, a thorough understanding of how such primary and permanent reductions in local pollutants affect the movement of people is important. Migration has a whole cascade of consequences for, e.g., housing and job markets, a county’s tax base, and environmental justice. We can investigate these macroeconomic indicators by including income data in our analysis.
To estimate the causal effects of air quality improvements, we apply an instrumental variable approach. We leverage emissions from coal plants located far away from a county, and we model the pollution dispersion from these plants. Therefore, we focus on plant retirements that affect a county in no other way than through its pollution level. We are the first to investigate the migratory effects of pollution in a US context.
Hotter Planet, Hotter Factories
AbstractUnderstanding the nature and extent of the economic impacts of rising temperatures is critical to climate adaptation and mitigation. Although there is a growing body of literature on the economic impacts of climate change, there is a noticeable evidence gap in quantifying the impacts on firm productivity. This study contributes to the literature by estimating the effects of changes in Wet-Bulb temperatures on firm-level productivity. Using area-level gridded climate-matched data and more than 190,000 firms representing 154 countries and spanning from 2006 to 2021, the study presents a fresh set of evidence on the effects of rising temperatures on firm level productivity. A unit increase in Wet-Bulb temperatures from the long-run average for firms located in the “Extreme Danger” or higher Heat Index zones decreases productivity by about 30%. These results suggest that climate change contributes to the worsening of global income inequality since most low-income economies are in the hotter “Extreme Danger” zone. There is also significant variation in the effects across firm size and industry classification. The findings of the paper inform the ongoing global efforts to take climate actions, including sourcing funds for investments in adaptation and mitigation and their fair allocations.
Homeward Bound: How Migrants Seek Out Familiar Climates
AbstractThis paper introduces the concept of "climate matching" as a driver of migration. Using historical censuses and administrative data, we document several novel findings. First, we show that climate strongly predicts the spatial distribution of international and domestic migrants in the US, both historically (1850-1940) and more recently (2011-2019), whereby movers select destinations with climates similar to those in their origin. Second, we analyze historical flows of German, Norwegian, and domestic migrants in the US and find that climate sorting also holds within countries. Third, we exploit variation in the long-run change in average US climate from 1900 to 2019 and find evidence of climate matching over time, with migration increasing between locations whose climate converged. Our results hold across time, geography, and migrant groups, and are not driven by the persistence of ethnic networks or other confounders. We provide evidence for two complementary mechanisms: climate-specific human capital and climate as amenity. We then back out the marginal value of climate by: $i)$ exploiting the 1862 Homestead Act, a public policy that changed relative land prices; and, $ii)$ estimating the effect of climate mismatch on life expectancy. We conclude by projecting how climate change can reshape the geography of US internal migration throughout the 21st century.
The Effects of Extreme Wildfire and Smoke Events on Household Financial Outcomes
AbstractWe evaluate the impact of extreme US wildfires and related smoke and air pollution events on household mobility, housing and financial outcomes. The analysis relies on information on the fire burn footprint and related structure damage from the US National Incident Command System, high-resolution smoke plume information from remote satellite sensing data, and measurements of changes in air quality from ground-level pollution monitors. We focus on extreme wildfires over the 2016-2020 period and use the variation in fire, smoke and pollution incidence within and beyond treatment areas to assess event outcomes. Our findings show significantly heightened credit distress among households that experienced the most destructive wildfires. Further, extreme wildfire events resulted in sizable house price declines and net out-migration from fire zones. More distant wildfire-related smoke and air pollution resulted in higher levels of credit card and mortgage defaults. The paper provides new estimates of broad adverse household financial effects associated both with direct wildfire and related indirect smoke and pollution events.
The Effects of Floodplain Regulation on Housing Markets
AbstractWe investigate the effects of housing regulations designed to correct a wedge between privately- and socially-optimal construction in areas at risk of flooding in Florida. Using a spatial regression discontinuity around regulatory boundaries and an event study around the policy's introduction, we document that floodplain regulation reduces new construction in high-risk areas and increases the share of newly-built houses that are elevated. Embedding these effects in a model of residential choices with elastic housing supply, we find that the policy reduces expected flood damages by 60%. One-quarter of this reduction is driven by relocation of new construction to lower-risk areas, and three-quarters is driven by elevation of houses remaining in risky areas. However, this second-best policy achieves at best about one-tenth of possible welfare gains because of poor targeting. It overcorrects in many areas, inducing more consumers to elevate and relocate than is socially-optimal, while still allowing inefficiently-high construction in the riskiest places. By contrast, a flexible corrective tax on flood risk would achieve substantial welfare gains of more than $2,700 per newly-developed house.
- Q5 - Environmental Economics