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Cost Implications of GHG Regulation in Hawai‘i

The State of Hawai‘i and the U.S. are developing greenhouse gas (GHG) emissions reduction regulations in parallel. The State requires that economy-wide GHG emissions be reduced to 1990 levels by the year 2020 and the U.S. Environmental Protection Agency is developing new source performance standards (NSPS) for new electricity generation units. The State Department of Health has proposed rules that would reduce existing large emitting electricity generating units by 16% from 2010 levels. The NSPS proposes GHG concentration limits for new electricity units.

We use a comprehensive model of Hawai‘i’s electricity sector to study the potential cost and GHG impacts of State and Federal GHG regulations. Given uncertainty about the final form and implementation of these regulations, we adopt a series of scenarios that bracket the range of possible outcomes. First we consider the State’s GHG cap (for existing units) and NSPS (for new units) being implemented at the facility level. Next, we consider the implications of allowing for partnering to meet the State GHG cap and the NSPS at a system-wide level. We also consider the case where the State GHG cap is extended to apply to both existing and new units. The current proposed State GHG rules exclude biogenic sources of emissions. We address the impacts of this decision through sensitivity analysis and explore the impact of GHG policy on new coal-fired units.

We find that regulating GHGs at the facility level leads to greater reductions in GHG emissions but at higher cost. Over the 30-year period that we study, when biogenic sources of emissions are ignored, facility level implementation of policy will add $3 billion to the cost of electricity generation at an average cost of $180/ton of GHG abatement. If biogenic sources of emissions are included within the accounting framework, abatement costs rise to $340/ton.

Overall, we find that the high cost of Hawai‘i’s current electricity generation provides a strong incentive to move towards less costly alternatives – in this consideration, primarily wind and rooftop PV. This leads to a reduction in GHG emissions. However, this finding would not hold if fuel prices were substantively lower than current levels, either from falling prices or fuel-switching to lower cost products. Regardless, the qualitative implications about the optimal structure of GHG policy are robust to changing assumptions about fuel prices. Implementing GHG policy at the facility level leads to relatively higher levels of GHG emissions reductions, though at substantially higher cost. If a greater level of GHG emissions reduction is desired, the least cost policy is to lower the level of the GHG cap while still allowing for the greatest flexibility in achieving targets.

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Globalization and Wage Convergence: Mexico and the United States

Neoclassical trade theory suggests that factor price convergence should follow increased commercial integration. Rising commercial integration and foreign direct investment followed the 1994 North American Free Trade Agreement between the United States and Mexico. This paper evaluates the degree of wage convergence between Mexico and the United States between 1988 and 2011. We apply a synthetic panel approach to employment survey data and a more descriptive approach to Census data from Mexico and the US. First, we find no evidence of long-run wage convergence among cohorts characterized by low migration propensities although this was, in part, due to large macroeconomic shocks. On the other hand, we do find some evidence of convergence for workers with high migration propensities. Finally, we find evidence of convergence in the border of Mexico vis-à-vis its interior in the 1990s but this was reversed in the 2000s.

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Hawaii Construction Forecast: Construction Upturn On Track

Posted March 28, 2014 | Categories: Forecasts

Hawaii’s construction expansion continues apace. New condo towers in Kakaako are spurring double-digit growth in permits for residential construction. A sharp rise in commercial construction, much of it in resort areas, is on the horizon. Public spending on infrastructure has also leapt upward, as the State works to address shortfalls that have built up in recent years. And with recent federal court victories, the way ahead is now clear for Honolulu rail rapid transit. Now in its third year of recovery, the construction industry is positioned for healthy growth over the next several years.

A summary of this forecast is available as a service to the public. For more detailed analysis, subscribe to UHERO's Forecast Project.

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PURPA and the Impact of Existing Avoided Cost Contracts on Hawai'i’s Electricity Sector

Posted March 13, 2014 | Categories: Coffman, Makena

The United States has been trying to reduce its dependence on imported fossil fuel since the 1970s. Domestic fossil fuel supply initially peaked in 1970, and the oil crises of 1973 and 1979 accelerated domestic policy and investments to develop renewable sources of energy (Joskow, 1997). One such policy—passed in 1978 by the U.S. Congress—was the Public Utility Regulatory Policies Act (PURPA).

In this policy brief, we identify the existing PURPA-based contracts in Hawai'i and use a Hawai'i-specific electric sector generation planning model, The Hawai'i Electricity Model (HELM), to estimate the impact that PURPA contracts have on both total system cost and the mix of generation technologies. We study a variety of scenarios under the maintained assumption that the state will achieve the Hawai'i Renewable Portfolio Standard, which requires that 40% of electricity sales are generated using renewable sources by the year 2030.

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The Conversation: Carl Bonham on the State Forecast Update

Posted March 3, 2014 | Categories: Media

UHERO Executive Director and Professor of Economics Carl Bonham appears on The Conversation to talk about UHERO's latest State Forecast Update: After Austerity, Road Ahead Will Be Smoother.

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UHERO State Forecast Update: After Austerity, Road Ahead Will Be Smoother

Posted February 28, 2014 | Categories: Forecasts

Federal budget woes caused a softening of growth at year-end. With that behind us, we’ll see better performance in 2014.

A summary of this forecast is available as a service to the public. For more detailed analysis, subscribe to UHERO's Forecast Project.

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Optimal groundwater management when recharge is declining: a method for valuing the recharge benefits of watershed conservation

Demand for water will continue to increase as per capita income rises and the population grows, and climate change can exacerbate the problem through changes in precipitation patterns and quantities, evapotranspiration, and land cover—all of which directly or indirectly affect the amount of water that ultimately infiltrates back into groundwater aquifers. We develop a dynamic management framework that incorporates alternative climate-change (and hence, recharge) scenarios and apply it to the Pearl Harbor aquifer system on O‘ahu, Hawai‘i. By calculating the net present value of water for a variety of plausible climate scenarios, we are able to estimate the indirect value of groundwater recharge that would be generated by watershed conservation activities. Enhancing recharge increases welfare by lowering the scarcity value of water in both the near term and the future, as well as delaying the need for costly alternatives such as desalination. For a reasonable range of parameter values, we find that the present value gain of maintaining recharge ranges from 31.1million to over1.5 billion.

Published version: Burnett, K. and Wada, C.A., 2014. Optimal groundwater management when recharge is declining: a method for valuing the recharge benefits of watershed conservation. Environmental Economics and Policy Studies. In Press.

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The Conversation: Carl Bonham on Raising the Minimum Wage

Posted February 12, 2014 | Categories: Media

UHERO Executive Director and Professor of Economics Carl Bonham appears on The Conversation to talk about the research surrounding the issue of raising the minimum wage.

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Global Value Chains and Trade Elasticities

Previous studies have argued that global value chains (GVCs) have increased the sensitivity of trade to external business cycle shocks. This may occur either because GVC trade is concentrated in durable goods industries, which are known to have high income elasticities (a composition effect), or because, within industries, GVC trade has a higher income elasticity than regular trade (a supply chain effect). Using Chinese trade data across customs regimes and industries during the period 1995-2009, we find evidence for the former, but not the latter.

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Hawaii News Now: Dr. Carl Bonham on Raising the Minimum Wage

Posted February 3, 2014 | Categories: Media

UHERO Executive Director and Professor of Economics Carl Bonham appears on Hawaii News Now to weigh in on the topic of minimum wage increase and the research behind it.

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The Effect of Plan B on Teen Abortions: Evidence From the 2006 FDA Ruling

The 2006 FDA ruling made Plan B, the popular brand of emergency contraception (EC), available without a doctor's prescription to women 18 and older; women younger than 18 still have to produce a doctor's prescription for the drug. We hypothesize that since unplanned pregnancies are more likely to be terminated, an increase in the availability of EC may lead to a decrease in the abortion rate among women affected by the ruling. Therefore, in the absence of a change in the sexual risk taking, we expect to observe a decline in the abortion rate among women aged 18 and 19 after 2006, and expect no change in the abortion rate for women aged 15 and 16. We use the difference-in-difference methodology on the age-by-year-by-state abortion data to test this hypothesis. In contrast to the related literature, we find a moderate reduction in abortion rates among women age 18 and 19 in years after 2006 in states that were affected by the change, compared to changes in the control group in the same states. Yet, we do not observe a similar large change in abortion rates among women age 20-24.

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Unemployment and Mortality: Evidence from the PSID

We use micro-data to investigate the relationship between unemployment and mortality in the United States using Logistic regression on a sample of over 16,000 individuals. We consider baselines from 1984 to 1993 and investigate mortality up to ten years from the baseline. We show that poor local labor market conditions are associated with higher mortality risk for working-aged men and, specifically, that a one percentage point increase in the unemployment rate increases their probability of dying within one year of baseline by 6%. There is little to no such relationship for people with weaker labor force attachments such as women or the elderly. Our results contribute to a growing body of work that suggests that poor economic conditions pose health risks and illustrate an important contrast with studies based on aggregate data.

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Are Hotel Property Taxes Fully Passed on to Hotel Guests?

Recent research on the excise tax effects of the property tax in small, multi-sector open economies suggests that the property tax may not be fully forward shifted to consumers as previously believed. I adapt this analysis to examine whether local hotel property taxes in Hawaii are fully passed on to hotel guests as lawmakers had intended. We conclude that full forward shifting is unlikely. I argue that an excise/sales tax on hotel occupancy is preferable to the property tax as a tourist tax.

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UHERO Asia-Pacific Forecast: Pacific Rim Will Edge Forward After Weak 2013

Posted December 6, 2013 | Categories: Forecasts


The Asia-Pacific region has seen another year of lackluster growth. The global environment for exports— the region’s lifeblood—has remained exceptionally weak, as the European debt crisis has lingered and US fiscal contraction and inaction have slowed the world’s largest economy. Developed economy weakness and a deliberate policy shift have limited the growth impetus from China as well. 2014 promises to be marginally better, now that Europe has begun to emerge from recession and the worst of the US budget drag is hopefully behind us.

A summary of this forecast is available as a service to the public. For more detailed analysis, subscribe to UHERO's Forecast Project.

 

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Sumner La Croix on NPR: Could Hawaii Become a Same Sex Wedding Destination?

Molly Solomon of Hawaii Public Radio interviews UHERO Research Fellow and Professor of Economics Sumner La Croix, and others, in her piece 'Could Hawaii Become A Same Sex Wedding Destination?'.

"Same sex couples will be attracted to Hawaii for the same reasons that opposite-sex couples are attracted to Hawaii. It's the great weather, it's the warm water, it's the beautiful scenery. And it's also the Aloha spirit."

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