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CEP/STICERD Applications Seminars

Technology Lock-In and Optimal Carbon Pricing

Katherine Wagner (Berkeley), joint with Jonathan Hawkins-Pierot

Monday 14 March 2022 16:00 - 17:30

This event is both online and in person

32L 3.05, 3rd Floor Conference Room, LSE, 32 Lincoln's Inn Fields, London WC2A 3PH

About this event

This paper studies the implications of low energy prices today for energy efficiency and climate policy in the future. If adjustment costs mediate manufacturing plants’ responses to increases in energy prices, incumbents may be limited in their ability to re-optimize energy-inefficient production technologies chosen based on past market incentives. Using U.S. Census data and quasi-experimental variation in state energy prices, we first show that the initial electricity prices that manufacturing plants pay in their first year of operations are important determinants of long-run energy intensity. Plants that open when the prices of electricity and fossil fuel inputs into electricity are low consume more energy throughout their lifetime, regardless of current electricity prices. We then measure the relative contributions of initial productivity and capital adjustment frictions to creating this “technology lock-in” by estimating a model of plant input choices. We find that lock-in can be largely explained by persistent differences in the relative productivity of energy inputs chosen at entry. We discuss how these long-run effects of low entry-year energy prices increase the emissions costs of delayed action on carbon policy.

This event will take place in 32L 3.05, 3rd Floor Conference Room, LSE, 32 Lincoln's Inn Fields, London WC2A 3PH.

The building is labelled 32L on the map. Enter the building via Lincoln's Inn Fields.

LSE Campus Map

This series is part of the CEP's Labour Markets programme.