Economy and Policy

Mun Ho, Wolfgang Britz, Ruth Delzeit, Florian Leblanc, Roson Roberto, Franziska Schuenemann, and Matthias Weitzel. 2020. “Modelling consumption and constructing long-term baselines in final demand.” Journal of Global Economic Analysis, 5. Publisher's VersionAbstract
Modelling and projecting consumption, investment and government demand by detailed commodities in CGE models poses many data and methodological challenges. We review the state of knowledge of modelling consumption of commodities (price and income elasticities and demographics), as well as the historical trends that we should be able to explain. We then discuss the current approaches taken in CGE models to project the trends in demand at various levels of commodity disaggregation. We examine the pros and cons of the various approaches to adjust parameters over time or using functions of time and suggest a research agenda to improve modelling and projection. We compare projections out to 2050 using LES, CES and AIDADS functions in the same CGE model to illustrate the size of the differences. In addition, we briefly discuss the allocation of total investment and government demand to individual commodities.
Ran Hao, Tianguang Lu, Qiuwei Wu, Xinyu Chen, and Qian Ai. 2019. “Distributed piecewise approximation economic dispatch for regional power systems under non-ideal communication.” IEEE Access, 7. Publisher's VersionAbstract
Appropriate distributed economic dispatch (DED) strategies are of great importance to manage wide-area controllable generators in wide-area regional power systems. Compared with existing works related to ED, where dispatch algorithms are carried out by a centralized controller, a practical DED scheme is proposed in this paper to achieve the optimal dispatch by appropriately allocating the load to generation units while guaranteeing consensus among incremental costs. The ED problem is decoupled into several parallel sub-problems by the primal-dual principle to address the computational issue of satisfying power balance between the demand and the supply from the distributed regional power system. The feasibility test and an innovative mechanism for unit commitment are then designed to handle extreme operation situations, such as low load level and surplus generation. In the designed mechanism, the on/off status of units is determined in a fully distributed framework, which is solved using the piecewise approximation method and the discrete consensus algorithm. In the algorithm, the push-sum protocol is proposed to increase the system adaptation on the time-varying communication topology. Moreover, consensus gain functions are designed to ensure the performance of the proposed DED under communication noise. Case studies on a standard IEEE 30-bus system demonstrate the effectiveness of our proposed methodology
Richard Goettle, Mun S. Ho, and Peter Wilcoxen. 2020. “Emissions accounting and carbon tax incidence in CGE models: bottom-up versus top-down.” In Measuring Economic Growth and Productivity: Foundations, KLEMS Production Models, and Extensions, edited by Fraumeni, B, 1st ed. Cambridge, MA: Academic Press. Publisher's VersionAbstract
Multi-sector general equilibrium models are the work-horses used to analyze the impact of carbon prices in climate policy discussions. Such models often have distinct industries to represent coal, liquid fuels, and gas production where the output over time is represented by quantity and price indexes. The industries that buy these fuels, however, do not use a common homogenous quantity (e.g., steam coal vs. metallurgical coal) and have distinct purchasing price indexes. In accounting for energy use or CO2 emissions, modelers choose to attach coefficients either bottom-up to a sector specific input index or top-down to an average output index and this choice has a direct bearing on the incidence of carbon taxation. We discuss how different accounting methods for the differences in prices can have a large effect on the simulated impact of carbon prices. We emphasize the importance for modelers to be explicit about their methods.
An edited volume dedicated to Prof. Dale W. Jorgenson by his students and collaborators.  Final Manuscript in DASH
Jing Cao, Mun S. Ho, Wenhao Hu, and Dale W. Jorgensen. 2020. “Estimating flexible consumption functions for urban and rural households in China.” China Economic Review, 61, Pp. 101453. Publisher's VersionAbstract

There are few comprehensive studies of household consumption in China due to data restrictions. This prevents the calculation of inequality indices based on consumption. Secondly, this makes a comprehensive analysis of policies that affect consumption difficult; economy-wide models used for analysis often have to employ simple consumption forms with unit income elasticities. We estimate a translog demand system distinguished by demographic characteristics, giving price and income elasticities that should be useful for policy analysis. We estimate separate functions for urban and rural households using household expenditure data and detailed commodity prices (1995-2006). This allows future analysis of social welfare and inequality based on consumption to supplement existing studies based on income. To illustrate an application of the model, we project consumption composition based on projected prices, incomes and demographic changes – aging, education improvement and urbanization.

Jing Cao, Mun S. Ho, Wenhao Hu, and Dale Jorgenson. 2020. “Effective labor supply and growth outlook in China.” China Economic Review, 61, Pp. 101398. Publisher's VersionAbstract
The falling projections of working-age population in China has led to predictions of much slower economic growth. We consider three mechanisms that could contribute to higher effective labor supply growth – further improvement in educational attainment due to cohort replacement and rising college enrollment, improvement in aggregate labor quality due to urbanization, and higher labor force participation due to later retirement. We find that these factors result in a projected growth rate of effective labor input of 0.40% for 2015-2030 compared to -0.60% for working age population. As a result, the projected growth rate of GDP will be 5.80% for 2015-2030 compared to 5.23% if these factors are ignored.
James K. Hammitt, Fangli Geng, Xiaoqi Guo, and Chris P. Nielsen. 2019. “Valuing mortality risk in China: Comparing stated-preference estimates from 2005 and 2016.” Journal of Risk & Uncertainty, 58, 2-3, Pp. 167–186. Publisher's VersionAbstract
We estimate the marginal rate of substitution of income for reduction in current annual mortality risk (the “value per statistical life” or VSL) using stated-preference surveys administered to independent samples of the general population of Chengdu, China in 2005 and 2016. We evaluate the quality of estimates by the theoretical criteria that willingness to pay (WTP) for risk reduction should be strictly positive and nearly proportional to the magnitude of the risk reduction (evaluated by comparing answers between respondents) and test the effect of excluding respondents whose answers violate these criteria. For subsamples of respondents that satisfy the criteria, point estimates of the sensitivity of WTP to risk reduction are consistent with theory and yield estimates of VSL that are two to three times larger than estimated using the full samples. Between 2005 and 2016, estimated VSL increased sharply, from about 22,000 USD in 2005 to 550,000 USD in 2016. Income also increased substantially over this period. Attributing the change in VSL solely to the change in real income implies an income elasticity of about 3.0. Our results suggest that estimates of VSL from stated-preference studies in which WTP is not close to proportionate to the stated risk reduction may be biased downward by a factor of two or more, and that VSL is likely to grow rapidly in a population with strong economic growth, which implies that environmental-health, safety, and other policies should become increasingly protective.
Jing Cao, Mun S. Ho, Dale W. Jorgenson, and Chris P. Nielsen. 2019. “China’s emissions trading system and an ETS-carbon tax hybrid.” Energy Economics, 81, Pp. 741-753. Publisher's VersionAbstract
China is introducing a national carbon emission trading system (ETS), with details yet to be finalized. The ETS is expected to cover only the major emitters but it is often argued that a more comprehensive system will achieve the emission goals at lower cost. We first examine an ETS that covers both electricity and cement sectors and consider an ambitious cap starting in 2017 that will meet the official objective to reduce the carbon-GDP intensity by 60-65% by 2030 compared to 2005 levels. The two ETS-covered industries are compensated with an output-based subsidy to represent the intention to give free permits to the covered enterprises. We then consider a hybrid system where the non-ETS sectors pay a carbon tax and share in the CO2 reduction burden. Our simulations indicate that hybrid systems will achieve the same CO2 goals with lower permit prices and GDP losses. We also show how auctioning of the permits improves the efficiency of the ETS and the hybrid systems. Finally, we find that these CO2 control policies are progressive in that higher incomes households bear a bigger burden.
Jing Cao, Mun S. Ho, Yating Li, Richard G. Newell, and William A. Pizer. 2019. “Chinese residential electricity consumption estimation and forecast using micro-data.” Resource and Energy Economics, 56, Pp. 6-27. Publisher's VersionAbstract
Based on econometric estimation using data from the Chinese Urban Household Survey, we develop a preferred forecast range of 85–143 percent growth in residential per capita electricity demand over 2009–2025. Our analysis suggests that per capita income growth drives a 43% increase, with the remainder due to an unexplained time trend. Roughly one-third of the income-driven demand comes from increases in the stock of specific major appliances, particularly AC units. The other two-thirds comes from non-specific sources of income-driven growth and is based on an estimated income elasticity that falls from 0.28 to 0.11 as income rises. While the stock of refrigerators is not projected to increase, we find that they contribute nearly 20 percent of household electricity demand. Alternative plausible time trend assumptions are responsible for the wide range of 85–143 percent. Meanwhile we estimate a price elasticity of demand of −0.7. These estimates point to carbon pricing and appliance efficiency policies that could substantially reduce demand.
Barbara Finamore

Will China Save the Planet? Book talk and discussion with Barbara Finamore

February 20, 2019

The Harvard Law School Library, along with the Harvard-China Project, East Asian Legal Studies, and the HLS Environmental Law Society, recently co-hosted Barbara Finamore, senior attorney and Asia senior strategic director at the Natural Resources Defense Council (NRDC), for a book talk and discussion on her latest release,...

Read more about Will China Save the Planet? Book talk and discussion with Barbara Finamore
2019 Mar 07

China and Asia in a Changing Climate: Natural Science for the Non-Scientist

12:15pm to 1:45pm


CGIS South S020, Belfer Case Study Room, 1730 Cambridge St., Cambridge, MA


  • Professor John Holdren, Teresa and John Heinz Professor of Environmental Policy, Harvard Kennedy School (HKS) and Department of Earth and Planetary Sciences, Harvard University; Co-Director of Science, Technology, and Public Policy Program, HKS; former Science Advisor to President Barack Obama and former Director of the White House Office of Science and Technology Policy
  • Professor Peter Huybers, Department of Earth and Planetary Sciences, Harvard University, and Harvard John A. Paulson School of Engineering and Applied Sciences
  • Professor Elsie SunderlandGordon McKay Professor of Environmental Chemistry, Harvard John A. Paulson School of Engineering and Applied Sciences and Harvard T.H. Chan School of Public Health
  • Professor Steve Wofsy, Abbott Lawrence Rotch Professor of Atmospheric and Environmental Science, Department of Earth and Planetary Sciences, Harvard University, and Harvard John A. Paulson School of Engineering and Applied Sciences

Chair: Professor Mike McElroy, Gilbert Butler Professor of Environmental Studies, Department of Earth and Planetary Sciences, Harvard University, and Harvard John A. Paulson School of Engineering and Applied Sciences; Chair, Harvard-China Project on Energy, Economy and Environment... Read more about China and Asia in a Changing Climate: Natural Science for the Non-Scientist