Market Forces

Over the past 30 years, numerous scientific reports have highlighted the health impacts of climate change, starting with the first Intergovernmental Panel on Climate Change Report in 1990. The report included a short summary on heat stress, vector and water borne diseases and air pollution health effects like asthma and heart attacks.

Yet health impacts are not fully accounted for in cost of carbon estimates – presenting a missed opportunity. Public health researchers and economists should continue to work together to more fully capture the health value of policies that cut climate pollution.

Climate and health

The most recent National Climate Assessment, published in 2018, provides an extensive review of climate change effects on human health in U.S. regions. Public health impacts include:

• changes in mortality and hospitalizations due to extreme weather events including heat waves, floods, and droughts.
• changes in vector-, food-, and waterborne infectious diseases.
• changes in chemical exposures via air, food and water.
• stresses to mental health.

The World Health Organization (WHO) quantifies global health impacts of climate change, utilizing the burden of disease methodology to estimate mortality and disability-adjusted life years. Based on heat-related mortality, diarrheal disease, malnutrition and malaria, the most recent WHO assessment projected 250,000 additional deaths per year in 2030 – despite only quantifying a subset of health impacts from climate change.

The Lancet has also commissioned several series of articles and reports detailing the human health implications of climate change. After the Paris Agreement, the outlet initiated the Lancet Countdown, tracking the status of health effects from climate change through reporting on numerous indicators across impacts, exposures and vulnerabilities, as well as adaptation and mitigation actions. For example, the most recent Lancet report estimated a 53.7% increase in heat-related mortality over the last 20 years and an estimated 15% increase in climate suitability for transmission of dengue.

Health benefits largely absent

Benefit-cost analysis – typically managed by economists – is a cornerstone of U.S. regulatory analysis. The U.S. Government is required to use a monetized estimate of the net impacts of global climate change, referred to as the social cost of carbon (SCC), in regulatory rulemakings of greenhouse gas emissions. The current models used to estimate the SCC incorporate impacts to agriculture productivity, energy use, property damage and, within the health sector, an estimation of changes in cold and heat-related mortality.

Yet, while the research community continues to provide more detailed characterizations of climate change’s health effects, health researchers have been less involved in applying these findings to estimate the SCC. As a result, health is still not fully represented in the SCC.

Quantification of health benefits, like lives saved and hospitalizations avoided, can provide critical justification for and evidence of success of environmental policies. For example, the regulatory impact analysis of the Clean Power Plan included an estimation of health and other benefits from reduced greenhouse gas emissions using the SCC estimate, as well as expected health co-benefits via reduced air pollution.

Improving health benefits estimates

A 2017 National Academies of Science Engineering and Medicine report recommended two critical research needs for advancing the science behind the SCC estimate:

1. Updating health damage modules to incorporate recent health literature.
2. Improving delineation of the different effects of climate change across regions of the world – e.g., trying to determine the different health impacts expected in different areas.

Since the release of this report, several groups have been working to address these recommendations. For example, the Climate Impact Lab has developed an improved temperature-related mortality estimate that incorporates adaptation and delineates distributional effects across areas of the globe.

A recent analysis utilized WHO, Climate Impact Lab, and Lancet Countdown temperature-mortality functions to produce estimated mortality costs associated with climate change – suggesting a seven-fold increase in estimated monetary damages from previous estimates. In other words, adding in more specific health damage estimates increased the estimated cost of carbon pollution by seven times—from $37 to $258 per metric ton of carbon dioxide emitted.

Although climate change is a global phenomenon, the impacts are unequal and disproportionately burden underserved, low-income and marginalized communities. For example, the U.S. Environmental Protection Agency found that socially vulnerable populations are likely to experience the most severe harms from climate change. Evaluating distributional health effects of climate change at a finer geographical scale could help policymakers address inequities.

It’s critical for policymakers to have accurate information to weigh the benefits and costs of cutting carbon. With health researchers involved, benefit-cost analyses can more accurately capture the threat that climate change poses to people’s health – and the benefits that come with acting on climate.

This blog was originally posted on EDF’s Growing Returns.

Iowa currently finds itself in a “Goldilocks climate,” with just the right measure and timing of humidity, rainfall and heat that help make the state a national leader in corn and soybean production. However, new research shows that climate change threatens to upset this balance.

Small shifts in rainfall and temperature can have considerable impacts on crops and farmer livelihoods. To better understand how these shifts could impact farmers, Environmental Defense Fund partnered with K·Coe Isom, an agricultural accounting and business advisory firm, to produce an in-depth report that quantifies the potential localized economic impacts from these shifts that Iowa corn and soy farmers could face as soon as the next 10 to 20 years.

Millions of dollars at stake in Iowa alone

Researchers found that farmers could see statewide gross farm revenues reduced by as much as $4.9 billion over the course of a decade — a loss of 3.6% of Iowa farm revenue from sales of corn, silage and soy.

Because with climate change agricultural prices are likely to rise, relative to without climate change, the impact to gross farm revenues from yield impacts will be offset to some degree by higher prices. Additional research is needed to understand how much agricultural regions like Iowa stand to offset yield losses through climate change-induced price increases.

With this caveat on unknown price increases, nearly every county in Iowa could experience decreases in gross farm revenues with losses of more than $50 million in almost half of the state’s counties in that same timeframe, and losses of more than $100 million in some western counties that are projected to experience higher yield reductions than the rest of the state.

Reductions in revenue would likely imply reductions in capital investment and off-farm spending. As a result, Iowa’s annual economic output could be reduced by between $367 million and $733 million, causing a statewide loss of 1,270 to 2,530 jobs, and reduce annual state revenue collections by $4 million to $8.3 million.

“A less desirable choice for the next generation”

The analysis drills down further by modeling how these crop yield impacts might affect a real representative family corn and soybean operation in central Iowa. The researchers obtained financial data for the farm, including harvest, sales and capital expenditure data, and modeled the impact of projected yield reductions on farm revenue over a five-year period (2014-2019).

When the anticipated crop yield declines from climate change were retroactively applied to the past five years, researchers found that the family farm would have lost between $50,000 and $90,000 in revenue per year, equaling a total potential loss of $360,000 over the five-year period.

As the farm owner observed, this reduction in revenue would have also made “returning to the farm a less desirable choice for the next generation,” and would have been “especially hard on those families newest to farming.”

Near-term solutions to avert economic loss

Much can be done to address climate change and minimize the financial impacts on farmers, and this report identifies a few ways federal, state and local governments can help mitigate emissions and help farmers further adapt to climate change.

Public funding and private sector programs can incentivize management practices that limit greenhouse gas emissions, improve soil health and build resilience in agriculture. For example, the federal crop insurance program could incorporate incentives for farmers that adopt practices that reduce crop yield risk.

Additionally, public funding could support the development of climate-resilient seed varieties, improvements to nutrient management and other climate adaptation strategies. Investing additional funding in Iowa’s public university systems to assist with the creation of practical, publicly available research could also help farmers put these strategies into practice.

Iowa’s farmers have adapted to changing farming conditions in the past, but climate change poses a more significant shift that requires a proactive response. Policymakers can help ensure farmers have the resources they need to withstand the growing risks posed by climate change and to protect the livelihoods and revenues that make Iowa a global agricultural leader.

For more information, download the full report.

Electricity system operators balance supply and demand precisely at every moment of every day through market design grounded in economic principles. As the share of variable renewable resources like wind and solar electricity on our electricity system increases, system operators, policy makers and energy market regulators are facing new questions on how to design the rules governing our electricity market to support decarbonization of our energy system.

Christopher Holt, PhD student in agricultural and resource economics at the University of Maryland, recently published an EDF Economics Discussion Paper, in which he reviews these new questions in wholesale electricity market design and identifies a number of areas where economic research can help inform decision-makers to facilitate decarbonization.

Chris wrote this paper during a summer pre-doc fellowship at EDF and Kristina Mohlin, who hosted Chris during the fellowship, recently chatted with him about his paper and his experience as a pre-doc fellow at EDF.

Kristina: What was your starting point for this pre-doc fellowship?

Chris: State and local leaders have been setting ambitious decarbonization targets. More recently, President Biden has pledged to make US electricity production free of carbon by 2035. My starting point was to try and understand how electricity market practitioners are working to change and refine the sophisticated set of rules governing wholesale markets, so that these targets can be met.

During my time at EDF, I spoke with industry representatives, policy makers, external economists, and other stakeholders at policy meetings, conferences, through video chats, and over countless cups of coffee. I also learned a lot by chatting with the highly talented folks internal to EDF. These conversations alerted me to many gaps in the applied economics literature, which I then described in the paper.

Kristina: One defining characteristic of electricity markets is that consumers do not respond to wholesale price fluctuations in real time. How can markets be designed to enable and encourage price-responsive demand?

Chris: California’s Demand Response Auction Mechanism (DRAM) is a promising example of how market design can reward innovation that encourages response to prices at the individual user level. This mechanism, still in its pilot form, allows companies to bring together demand across a group of electricity consumers, e.g. by coordinating power drawn from their appliances. The aggregator can then curtail demand when electricity is scarce at a minimal loss to consumers, who may be compensated for their agreement to participate. Wholesale market prices are kept low by way of the curtailed demand, benefitting all consumers of electricity (not just the participating ones). This is a “win-win”: lower prices for consumers and a profitable return for the aggregator. Importantly, this arrangement would not exist without the wholesale market design.

While the incentives are powerful, getting the design right is not easy. Projects like DRAM have a long way to go before they are approved for permanent integration into market operations—which is exactly why additional research is needed.

Kristina: Another key defining characteristic of electricity markets is that electricity is not storable. How will utility-scale storage affect market operations?

Chris: Yes, storage is not yet available at large scale, but this seems likely to change in the near future. The Federal Energy Regulatory Commission’s landmark Order 841 is intended to facilitate the participation of storage resources in energy markets. Some firms have already begun to complement variable renewable generation assets with large-scale battery technologies, and industry forecasts suggest major cost reductions for batteries in the near future. When storage technologies are deployed at scale, short-run market operations will require a new set of rules, which must be guided by economic research.

Kristina: Could you explain to our readers what this has to do with decarbonization?

Chris: Both price responsive demand and storage are closely tied to decarbonization because they allow consumers to buy electricity when it is cheap and clean rather than when it is expensive and carbon intensive (this is most apparent when there is a price on carbon). Electricity from wind and solar is essentially free once investment costs have been incurred and the plants have been built. Currently, when electricity is scarce, carbon-intensive peaker plants are needed to maintain reliability. These peaker plants, which are also relatively expensive to run, are increasingly needed to complement the variability of renewables, e.g. when the sun goes down in California, or the wind stops blowing in Texas. Unlocking price responsive demand and introducing storage capacity will reduce the need to rely on peakers.

Kristina: How will long-run investments be affected by increased participation of electric storage and price-responsive demand?

Chris: Changes to demand-side price response and the storability of electricity have crucial implications for how firms plan to invest in new generation assets and retire old plants. If consumers are able to pre-empt the high prices associated with peaker plants, why invest in peaker plants at all? Storage may bring benefits in helping to reduce emissions, but will firms be incentivized to invest in it? Regulators in New York, for example, have set considerable storage capacity targets. Experts suggest many ways to reach such targets and to ensure that more storage capacity indeed translates to decarbonization (carbon pricing is central among them).

The difficult task of guiding efficient long-run investment is further complicated when an electricity system spans political jurisdictions with differing policies. The simple fundamentals of electricity market economics are of value here, reminding us that proper pricing is often the key to efficiency—pricing that reflects resource scarcity, the value of quickly dispatchable resources and demand response, and the harm imposed by carbon pollution. Through my EDF pre-doc fellowship, I found that we need new research to connect these classic fundamentals to the new challenges associated with scaling up renewables.

Kristina: Finally, what would you like to tell other PhD students who have the opportunity to apply for an EDF pre-doc fellowship about your experience at EDF?

Chris: The pre-doc fellowship is a great way to focus in on the questions you might want to address in your dissertation. My job market paper was inspired in large part by my time at EDF. Having access to the network of experts that the fellowship offered was an ideal way to become more familiar with certain areas and overcome the steep learning curve associated with my field. EDF also values their alumni—I have continued to keep in touch with folks I met through the fellowship and attend EDF workshops. Overall, I would highly recommend the fellowship!