Macroeconomic Analysis of Policies
The earliest economics research of the Harvard-China Project (HCP), beginning in the 1990s, was a projection of Chinese economic growth and carbon emissions using an aggregate growth model. It was published in the first book produced by the HCP (Ho, Jorgenson, and Perkins, 1998). Jorgenson, Ho and Richard Garbaccio then developed a multi-sector economic growth model of China that was used to study the co-benefits of carbon policies and the sources of change in aggregate carbon intensity (Garbaccio, Ho, and Jorgenson, 1999a, 1999b). This model was developed in cooperation with the LI Shantong and others at the Development Research Center of China State Council. The model has been continuously extended and updated to analyze various environmental policies.
Karen Fisher-Vanden (now at Penn State University) developed a “foresighted” version of the model to study market reforms (Fisher-Vanden 2003a, 2003b; Fisher-Vanden and Ho, 2007). Another version was used to study how technology development lead to changes in energy prices and economic growth (Fisher-Vanden and Ho, 2010). The model uses input-output accounts and accounted for total factor productivity (TFP) growth. TFP growth at the industry level was studied with colleagues at Beihang University in Cao et al. (2009).
A version of the model with a simple model of local health impacts of SO2 and Total Suspended Particulates (TSP) was used to examine the reduction in local health damages due to a policy to reduce carbon emissions. Ho, Jorgenson, and Di (2002) studied “green tax” policies designed to reduce local air pollution damages and examined their impact on economic growth, mortality, and carbon emissions.
Integrating the the Harvard-China Project's Economic Model with its Environmental Engineering and Environmental Health Research
Clearing the Air: The Health and Economic Damages of Air Pollution in China (2007, MIT Press)
The integrated interdisciplinary study reported in Clearing the Air developed collaborations between environmental health scientists from the Harvard School of Public Health, environmental engineers from Tsinghua University and the Harvard School of Engineering and Applied Sciences, and the Harvard-based economics team. Among the economics elements are a chapter by ZHOU Ying and James Hammitt of the Harvard School of Public Health reporting one of the first survey-based “contingent valuation” studies used to derive cost estimates of health damages of air pollution in China. A key chapter by Ho and Jorgenson (2007) develops the accounts for valuing health damages and economic effects of policies, capitalizing on the linked chapters of research on emissions, pollution dispersion, health effects, and valuation.
A review of China environmental policy based on the work in this book is given in the Review of Environmental Economics and Policy (Cao, Ho, and Jorgenson, 2009), and is also summarized in an article in Harvard Magazine (Ho and Jorgenson, 2008).
This model was used in the macroeconomic component of the "Joint Economic Study (JES)" by the Chinese and US environmental agencies under the U.S.-China Strategic Economic Dialogue (SED) in 2007. The JES assessed the costs and benefits of SO2 reduction and energy efficiency improvement under the 11th Five Year Plan (2006-2010). Jorgenson, Ho and Cao contributed, along with Richard Garbaccio of U.S. EPA and YANG Hongwei of the Energy Research Institute of the National Development and Reform Commission of China.
Integrating the Harvard-China Project's Economic-Environment-Health Framework with its Atmospheric Model and Emission Inventories
Clearer Skies Over China: Reconciling Air Quality, Climate, and Economic Goals (2013, MIT Press).
In the late 2000s, advances in the resolution of emission inventories allowed the Project’s economists, atmospheric scientists, engineers, and health scientists at both Harvard and Tsinghua University to begin linking the economics-engineering-health framework of Clearing the Air with the HCP’s atmospheric transport and chemistry modeling capabilities. The resulting integrated study is reported in the book Clearer Skies Over China. The chapter by Cao, Ho and Jorgenson (2013) incorporated the integrated framework to assess economic and environmental costs and benefits of both air pollution policies and prospective carbon taxes. The results were also featured in an op-ed in the New York Times by Chris Nielsen and Mun Ho.
Other Policy Analyses
Cao and Ho contributed a projection of economic activity to China and the New Climate Economy, a 2015 report by the Tsinghua University Institute of Energy, Environment and Economy to the Global Commission on the Economy and Climate.
A major carbon policy initiative in China is the CO2 emission trading system (ETS), in which pilot programs were started in the early 2010s and extended to a national ETS for the electricity sector in 2022. Cao, Ho, Jorgenson, and Nielsen (2019) considers how an ETS-carbon tax hybrid policy may be an effective extension to the ETS.
Another paper using the integrated framework is Yang, Zhao, Cao and Nielsen (2021) on the co-benefits of carbon and pollution control.
There are many models used to analyze environmental policies which often produce a wide range of results. To understand the workings of the various models better, the Environmental Defense Fund-Beijing led a model comparison exercise that Cao and Ho took part in with the HCP energy-economic model. This is reported in Cao et al. (2021).
Modeling Electricity Sector Policies
Macroeconomic Analyses of the United States
Microeconomic Research on Household and Firm Behavior
The energy-economic-environmental model used in the policy analysis uses sub-models of production and household consumption. The parameterization of these models is a key task, and a parallel track of research is devoted to estimating the substitution (price) elasticities, income elasticities, and productivity growth of these functions.
Both urban and rural surveys are used to estimate household consumption functions to show how expenditure patterns change with rising incomes, changing family structures and prices. The first two focused on energy use by households, Cao, Ho and Liang (2016) and Cao, Ho, Li, Newell and Pizer (2019). HU Wenhao, now a professor at Tianjin University, worked at the HCP in 2016-2017 on household consumption functions, presented in Hu, Ho and Cao (2019) and Cao, Ho, Hu and Jorgenson (2020a, 2020b). Cao, Ho and Hu (2020) then showed how changes in these consumption parameters affect analysis of carbon policies, appearing in a book to celebrate the contributions of Dale Jorgenson to economics research.
Understanding enterprise energy use and production behavior is an important part of energy analysis. MA Rong, a professor at Beijing Agricultural University who worked at HCP in 2017, used firm level data to estimate substitution elasticities and responses to Carbon Emission Trading pilots (Cao, Ho and Ma, 2020; Cao, Ho, Ma and Teng, 2020).
Other Energy and Environmental Economics Research
The Electric Power Sector. This is a major source of pollution and CO2 and is thus a major focus of HCP work. The economics team has written about various aspects of the power system beginning with a description of the history of reforms by Ho, Wang and Yu (2017), a collaboration with Resources for the Future. LI Jianglong, a professor at Xian Jiaotong University who worked at HCP during 2018-2020, investigated challenges to integrating renewables, one of which is the lower operating hours of coal plants leading to lower thermal efficiencies (Li and Ho, 2022). Li, Ho, Xie and Stern (2022) discusses the need, and challenges, to make the power system more flexible.
More about the Economy and Policy research of the Harvard-China Project