Three essays on environmental and energy economics

As the economies develop and industrialize, the impact of economic activities on the environment increased, and modern environmental concerns arose. Today most of the countries regulate environmental degradation to some extent. The principal motivation for environmental regulation is the protection of human health. The importance of health and human capital as an engine for economic growth is well-known. Chapter 1 investigates the role of environmental conditions on the link between health and human capital. Factors that reduce the human capital investments distort the economy and impede growth. One key factor that has been under-explored is the interaction of environmental degradation with human capital investments. We know less about how human capital is linked with growth via environmental degradation. This linkage between economic growth and the interaction of environmental degradation with human capital investments matters because if environmental degradation reduces human capital investments, economic growth is slower. This study is among the first to explore the direct impact of pollution on human capital in an economic growth setting. The literature has not addressed how growth-driven environmental degradation has affected human capital--a critical component of economic growth. Chapter 1 presents a two-sector endogenous growth model (AK model) with an environmental externality on human capital. This chapter incorporates the health impacts from the environment on human capital investments and show that the interaction of pollution with human capital investments reduces the optimal growth rate. But when the household ignores the health impacts the resulting growth rate is suboptimal, it is faster than the optimal, and riskier to human health. To achieve efficiency, a Pigouvian tax is proposed. An optimal emissions tax on the firm`s production achieves the socially optimal growth rate. Chapter 2 considers an empirical examination of the proposition on the interaction between environmental degradation and human capital on growth. Using US state-level data, the empirical results support the model of Chapter 1--the interaction between the health impacts of environmental degradation and human capital significantly reduces the growth of real GDP. The results suggest that a 1.03% increase in average annual NOx emissions (1000 metric tons) or a 0.47% increase in average annual SO2 emissions (1000 metric tons) lowers the growth rate by 0.0012 through negative health impacts on human capital. This impact intensifies with a substantial increase in emissions or with pollution accumulation over a long time span. Chapter 3 explores the impact of energy conservation programs on the residential electricity use. Part A of chapter 3 examines the effectiveness of home energy audits conducted by Lower Valley Energy (LVE) in Teton County, Wyoming. These audits assess the energy efficiency of existing structures and propose modifications to reduce electricity consumption. This study examines the factors that influence households to adopt the modifications recommended by the audits and whether these audits lead to significant reductions in electricity use. Using data collected by LVE, household decisions after the audits are recorded along with the corresponding recommended modifications and the offers for co-funding from LVE. A discrete choice model of the household decision after the audit is estimated. The results indicate that the potential improvement in heating efficiency from the proposed modifications increase the probability of implementing an electricity conservation modification in the house. Co-funding offers also significantly raise the odds of accepting the modifications but are relatively less important than anticipated efficiency improvements. Electricity demand models are estimated using data two years before and after each household audit. For households who decide to modify their houses after the audit, monthly average electricity use per square foot decreases 6.6%. While there is an estimated 1.5% reduction in electricity use attributed to the audit by households who decided not to adopt the proposed modifications, this reduction is not statistically significant, casting doubt on the presence of modifications in behavior from the audit information itself. On balance for all households audited, the econometric results suggest that the LVE home energy audit program reduced household electricity use 4.1%. Part B of Chapter 3 presents findings from a large scale household survey. This section provides empirical support that clarifies the mixed results about the connection between household environmental attitudes and real energy consumption behavior. This study combines actual electricity use of 612 households and their opinions, perceptions and attitudes to several environmental issues. The results show that households reflect their stated preferences about environmental issues on their energy use. Environmental attitudes have a direct and observable effect on energy consumption behavior. Environmentally concerned households tend to be more conservative on energy use. These results suggest that the link between household environmental attitudes and patterns of energy consumption is strong.