In this dissertation, I contribute to three strands of the environmental economics literature: (1) regulation of air pollution from stationary sources, (2) interaction between behavioral biases and consumer demand for energy, and (3) long-term distributional outcomes of policies that seek to mitigate climate damages from the housing sector.
The first paper looks at how environmental regulations work in practice -- assessing ex-post the causal consequences of a specific policy, the Large Combustion Plant Directive. The Large Combustion Plant Directive was a key policy instrument to limit air pollution from power stations in the European Union. The Directive set limits on emissions of harmful sulfur dioxide, nitrogen oxide and particle dust from combustion plants with total capacity of at least 50 MWth. A fundamental empirical problem is to create a valid counterfactual, to understand what would have happened in the absence of such a regulation. As is the case with most command and control policies, all plants fell under regulation, but the stringency was vintage-differentiated. More crucially, a group of plants chose to opt-out of emissions performance standards but were instead required to gradually cease operations. I exploit the structure of the directive to construct valid control groups to assess the effectiveness of emission performance standards. Evidence from this empirical study suggests that EU-wide emission performance standards, when sufficiently stringent, are an effective instrument for pollution abatement at the plant stack-level. However, the regulation was not ambitious enough and in fact allowed business-as-usual operations for some of the most carbon-intensive power plants operating in the European Union.
In the second paper, I exploit a large-scale natural experiment in utility billing cycles at the building level to identify the salience effect of costs on energy consumption. By exploiting variation in billing cycles, I find new evidence for consumer inattention to energy costs: consumers that are billed for heating during off-winter months demand more heat energy annually. Results show that households are paying attention to their heating costs in the first three months of the 12-month billing period. As a result, bills immediately before the winter heating season are most effective, allowing ample opportunity to adjust consumption. I show that salience bias in annual heat energy demand is persistent and pervasive -- affecting households in all regions and building/technology type. Enduring differences in consumer inattention to energy costs led to significantly higher heating expenditures for buildings treated with summer billing cycles. Differences in efficiency investments across billing cycles highlight that, at least for multi-apartment buildings, owners of buildings did invest towards closing any perceived energy-efficiency gaps, which were driven by consumer misoptimization by tenants, treated with low salience of energy bills. In the third paper, which is joint work with Andrew Hobbs, we examine the effect of temperature on residential heat demand and the spatial distribution of energy (in)efficient buildings in Germany. To uncover the underlying thermal efficiency of buildings, we estimate the causal response of building-level heat demand to variability in heating degree days. We examine heterogeneity in temperature response using both standard econometrics and causal forests to identify differences in energy-efficiency between buildings and regions. Without making any functional form assumptions, we are able to account for observable and unobservable characteristics that are likely drivers of the realized energy-efficiency outcomes. Results show that the distribution of energy-efficiency is not equitable in the West of Germany, with buildings located in Bavaria and Baden Wuerttemberg attaining the best energy performance standards nationwide. Compared to the West, the East of Germany is home to a significantly higher share of older buildings that were not subject to building codes. Notwithstanding, they perform better than the West counterpart, likely as a result of large investments in retrofitting post-reunification. We highlight that the highest untapped potential for gains in energy-efficiency is located in the North-West of Germany.