Climate Policy in the Energy Industry
Market-based incentives or penalties to reduce greenhouse gas emissions have dominated climate policy discourse in the energy industry. Carbon taxes and other policies that put a price or penalty on emissions have been touted as “the most important step to slowing climate change.” Policymakers have similarly advocated for increasing the price of carbon consumption through reducing fossil fuel subsidies. How effective are market-based policies in reducing emissions? What obstacles remain for implementing these policies, especially in emerging markets within the Global South?
The EGAPE Lab’s research in this area has concentrated on two areas of government policy to curb emissions from the production and consumption of fossil fuels:
Climate risk disclosure in the oil and gas industry. What drives firm choices over climate responsibility? When and why do firms disclose their climate risks? And what are the effects of mandatory rules like the SEC’s proposal on climate risk disclosure? Prof. Mahdavi and students at UCSB and beyond seek to address these questions in three new strands of research: (1) Mapping climate risk disclosure in the oil industry through machine learning and natural language processing; (2) Building a firm-centered theory of climate disclosure and the role of institutional investors and the public; and (3) Quantifying effects of mandatory disclosure on firm behavior, industry standards, and the future value of fossil fuel investments.
Fossil fuel subsidy reform. In four separate studies, Prof. Mahdavi and collaborators at UCLA show that reducing fossil fuel subsidies has been far more limited than NGOs and governments themselves have indicated. Reform is rarely successful; but where it succeeds it is driven by micro-level political conditions, such as the capacity of citizens to mobilize against sudden price changes. This strand of research explains why reforming gas taxes and subsidies -- and increasing the cost of fossil fuel consumption in general -- is so difficult to achieve politically.
Ending methane flaring and venting in the oil sector. A study by Prof. Mahdavi and a Georgetown climate economist examines the effectiveness of policies designed to stop the burning off (or “flaring”) of methane at oil wells around the world. These range from penalties and caps on flaring to outright flaring bans. The study finds that anti-flaring policies appeared not only to have failed to curb flaring, but may even have incentivized direct venting of methane, a far more potent greenhouse gas than carbon dioxide emitted during flaring.