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Economics of Energy and Transportation

Paper Session

Sunday, Jan. 4, 2026 10:15 AM - 12:15 PM (EST)

Philadelphia Convention Center, 303-B
Hosted By: Association of Environmental and Resource Economists
  • Chair: Nahim Bin Zahur, Queen's University

Power Decarbonization in a Global Energy Market: The Climate Effect of U.S. LNG Exports

Constanza Abuin
,
Harvard University

Abstract

Investment in clean power depends on the price of internationally traded fossil fuels. To what extent can
major fossil fuel exporters like the U.S. influence global electricity decarbonization through their trade
policy? To answer this question, I develop and estimate a dynamic, multi-country model of power asset
investment, where the carbon intensity of electricity generation is affected by the entry and exit of plants
using alternative fuels and the local price of fossil inputs is determined in a global trade equilibrium.
Using this model, I assess the climate impact of granting federal approval to all proposed U.S. liquified
natural gas (LNG) export terminal projects, which would double U.S. export capacity by 2030. Results
indicate a net decrease in global emissions through 2070, primarily due to higher local gas prices in the
U.S., leading to lower domestic gas generation and accelerated renewable adoption. In the rest of the
world, short-term emissions fall as reliance on coal drops, yet delayed renewable uptake drives long-term
emissions up. Combining the LNG expansion with carbon policies in importing countries substantially
boosts carbon savings. Conversely, reverting LNG capacity to baseline by 2050 shows little impact,
underscoring the risk of carbon lock-in in settings with long-lived infrastructure.

Solar Expansion Following Coal Phase-outs

Xinming Du
,
National University of Singapore
Ruozi Song
,
World Bank

Abstract

This paper examines how coal phase-outs indirectly spur renewable energy growth by reshaping market demand expectations and reallocating capital. We study China’s retirement of 123 gigawatts of coal capacity between 2001 and 2020 under capacity thresholds. Using a fuzzy regression discontinuity design, we find each coal unit retirement generates 2.1 new solar plants and 51.3 megawatts of capacity in the same prefecture-year, with effects quadrupling at the province level. Firm-to-firm investment flows show coal closures increase solar investment, particularly from private investors. Firm-level evidence further indicates that each coal unit closure raises solar firms’ productivity by 6.2%, suggesting broader industrial upgrading.

Modeling the Impact of Critical Mineral Price Volatility on Vehicle Demand

Joshua Linn
,
University of Maryland-College Park
Beia Spiller
,
Resources for the Future
Zachary Whitlock
,
Resources for the Future

Abstract

Critical minerals - such as lithium, nickel and cobalt- are a key input to electric vehicle batteries and have faced significant price variation over the years. Cobalt’s prices have fluctuated wildly since 2018, peaking three times the 2018 price in 2022, and then falling again to an all-time low in 2025. Mineral price futures are thus unclear, and could be affected by a number of different policies, both domestic and internationally. This raises the question of how fluctuations or spikes in mineral prices will affect the market for electric vehicles (EVs). Due to market power in vehicle manufacturing, the extent to which EV prices will increase along with mineral prices is unclear, particularly given policies, such as federal emissions standards, that require a percentage of EVs to be sold. To that end, we leverage engineering models and mineral price projections to estimate how mineral prices will affect battery costs into the future, and include these cost changes in a structural econometric model of the vehicle market. Our structural model allows for market power in vehicle supply, models heterogenous demand preferences in an optimization approach, and allows us to test how cost changes will affect outcomes given a variety of federal and state EV policy scenarios. Our research will not only shed light on the connection between mineral prices and vehicle demand, it will also provide insights into how this will affect emissions, manufacturing, profits, distributional outcomes, prices and demand for vehicles across fuel types, welfare, and more. Understanding the extent to which mineral prices can affect vehicle market outcomes, and how underlying EV policies interact with these, can shed light on the benefits of stronger EV policies and potential outcomes from policies that change supply costs.

Reconciling Environmental Goals and Progressivity: The Income Cap Design for U.S. Electric Vehicle Subsidies

Eva Wang
,
University of Michigan

Abstract

This paper examines the U.S. federal EV subsidy’s income cap, introduced under the 2022 Inflation Reduction Act, focusing on its environmental and redistributive effects. Using variation in exposure to the income-cap across ZIP-codes, I first estimate that a 22-percentage-point drop in subsidy eligibility reduces EV registrations by 21 percent, implying a price elasticity of 2.9 for the marginal group. I then develop an optimal-tax framework for income-capped subsidies and derive cap-conditional sufficient statistics for the jointly optimal per-unit subsidy and income cap. The optimal subsidy rate is larger when higher marginal external benefits coincide with greater price responsiveness, and when subsidy take-up is inversely related to income; the cap itself determines which households enter these moments. Calibrating a homothetic CES demand block, I construct an equity–environment frontier: as inequality aversion rises, the optimal cap moves down and the optimal subsidy falls; total environmental benefits decline, yet net fiscal efficiency can increase because inframarginal transfers are concentrated among high-income, high-adoption bins. The framework generalizes to other income-capped clean-energy programs and yields implementable rules for jointly choosing generosity and eligibility.

Do Weight-Neutral Safety Ratings Curb the Vehicle Arms Race? Evidence from Safety Award Criteria Updates

Thao Duong
,
Texas A&M University
Jonathan Scott
,
University of Texas at Dallas

Abstract

Safety ratings are evaluated assuming equal weights between vehicles. This paper examines the tradeoffs between more accurate depictions of risk and the feedback generated when weight is accounted for. Underlying crash test outcomes are leveraged to isolate a demand response to safety ratings and to mitigate selection when identifying their impacts in traffic accidents. By incorporating effects of weight into a counterfactual rating, we demonstrate a permanent wedge would occur between current and new vehicle sizes -- with a strategic response of 7 pounds per 100 pounds in a representative vehicle weight -- highlighting clear benefits of neglecting weight in safety ratings.

Discussant(s)
Allan Hsiao
,
Stanford University
Justin Kirkpatrick
,
Michigan State University
Nafisa Lohawala
,
Resources for the Future
Hyuk-soo Kwon
,
University of Chicago
Nahim Bin Zahur
,
Queen's University
JEL Classifications
  • Q4 - Energy
  • R4 - Transportation Economics