Labor reallocation and the regional greenhouse gas initiative

ABSTRACT

Policies intended to reduce the amount of greenhouse gas emissions are among the most hotly debated policy problems of our time. Among the concerns raised are that costs will be passed on to consumers and jobs will be lost. We use the introduction and eventual tightening of the Regional Greenhouse Gas Initiative (RGGI), a regional carbon permit system in the Northeastern United States, to measure labor market responses and dynamics following the implementation of a carbon pricing system. We find that implementation of the RGGI and the subsequent tightening of the emissions cap has had no effect on employment or earnings in the utilities sector but increased the rate at which workers flow in and out of jobs. In particular, within the utilities sector, we observe some job destruction and worker separation combined with increased labor reallocation across establishments. This is complemented with small spillover effects yielding positive increases in hiring, worker reallocation and job creation in industries outside of utilities. Furthermore, when we account for the endogeneity of electricity prices we find increased hiring, job creation and worker reallocation rates and a decline in job destruction rates across industries.

KEYWORDS:

• Carbon emissions
• climate policy
• labor market dynamics

JEL CODES:

• J23
• L94
• Q48
• Q52

Acknowledgments

We are thankful for comments on early drafts of this work by R. Bruce Williamson of the Maine Public Utilities Commission, and discussants and session participants of the AERE@WEAI sessions of the WEAI conference.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 The cap notches upwards in 2020 to reflect the re-entry of New Jersey into the coalition.

2 A report on state by state investments is available in RGGI (2016).

3 There are three main grids in the United States, the Eastern Interconnection, Western Interconnection, and the Electric Reliability Council of Texas. In each system electricity flows in a different phase, and ‘importing’ of electricity from grid-to-grid generally does not occur.

4 Casey et al. (2020) use a calibrated model to estimate employment changes and spillover to neighboring, non-carbon-pricing states. We discuss this paper more deeply in the robustness section.

5 We used the R2019Q1 version of the public use Quarterly Workforce Indicators. The raw data are available for download from https://lehd.ces.census.gov/data/.

6 Hydroelectric (221111), Fossil Fuels (221112), Nuclear (221113), Solar (221114), Wind (221115), Geothermal (221116), Biomass (22117), and Other (221118).

7 We adjust for New Jersey's exit from the RGGI in 2012 so that RGGI is coded as zero for New Jersey post 2012.

8 National recessions are identified from the NBER. State-specific recession effects are then simply the interaction of state dummies and the recession indicator.

9 The industrial sector encompasses the following types of activity: ‘manufacturing (NAICS codes 31–33); agriculture, forestry, and hunting (NAICS code 11); mining, including oil and gas extraction (NAICS code 21); natural gas distribution (NAICS code 2212); and construction (NAICS code 23)’. (EIA, 2019)

10 The commercial sector is

[a]n energy-consuming sector that consists of service-providing facilities and equipment of: businesses; Federal, State, and local governments; and other private and public organizations, such as religious, social, or fraternal groups. The commercial sector includes institutional living quarters. It also includes sewage treatment facilities. (EIA, 2019)

11 We use data aggregated by state for the ‘All Industries’ category.

12 e.g. at the 6-digit NAICS sector-level we might expect employment at fossil fuel electric power generation to be negatively impacted relative to other industries, though the prior analysis shows that this is not the case

13 hydraulic fracturing or ‘fracking’

14 In some shale regions there have actually been negative upstream prices due to lagging pipeline infrastructure, and in many locations natural gas is burned off or ‘flared’ on site because it is not economically viable to transport.

15 For the parameters on the Henry Hub price to be identified, we cannot include a time period effect for every quarter of the data in this model. Hence, the year effects and quarter effects (now common seasonality across years) are estimated separately in this case.

16 The industrial sector encompasses the following types of activity: ‘manufacturing (NAICS codes 31-33); agriculture, forestry, and hunting (NAICS code 11); mining, including oil and gas extraction (NAICS code 21); natural gas distribution (NAICS code 2212); and construction (NAICS code 23)’. (EIA, 2019)

17 The commercial sector is

[a]n energy-consuming sector that consists of service-providing facilities and equipment of: businesses; Federal, State, and local governments; and other private and public organizations, such as religious, social, or fraternal groups. The commercial sector includes institutional living quarters. It also includes sewage treatment facilities. (EIA, 2019)

18 For both price series the first stage F statistic greatly exceeds 104.7 (D. S. Lee et al. 2020)

19 In the ‘all industries’ specification the electricity price is still specific by EIA sector

20 When we separately accounted for states that are part of the PJM or Leaker territories we did not find any statistically discernible differences in the RGGI region compared to the estimates presented in Tables 2 and 3, nor did we find evidence of spillover into labor outcomes in these regions. These models are not presented here for the sake of brevity but are available on request.

21 No concurrent policy changes that would produce a similar result or bias outcomes one way or another.

22 The triple DDD model that follows is yet another check on this assumption.