Essays on Environmental Policy: Design and Evaluation

In this thesis, I analyze the impacts of the design and implementation of different environmental policy tools from a theoretical and empirical perspective: certificates providing information on the energy performance of buildings (chapter 1); urban road pricing schemes such as congestion charges (chapter 2); quantity-based policy tools to support production with non-polluting technologies (chapter 3).In chapter 1, co-authored with Luisa Dressler, we study how energy performance certificates (EPCs) impact the residential rental market. These certificates can help solve information asymmetries between landlords and tenants about the thermal quality of dwellings for rent, which, in turn, is expected to facilitate investment aimed at improving dwellings' energy performance. However, disclosure of EPCs is often incomplete, which hampers their effectiveness in relieving such information asymmetries. Moreover, even when a certificate is available, landlords do not always disclose it. This contradicts the so-called information unraveling result, according to which all landlords should disclose quality information unless it is costly to do so: in such a setting, information eventually unravels. Using a cross-sectional dataset of residential rental advertisements from the Belgian region of Brussels, we empirically evaluate incentives to disclose energy performance ratings. We find that two fundamental assumptions underlying the unraveling result are not confirmed in our setting: firstly, tenants value energy performance of rental property only when dwellings are of very high quality; secondly, tenants do not appear to rationally adjust their expectations when faced with dwellings that withhold their energy performance rating. Finally, we formulate specific policy advice for reforming EPC mechanisms to increase disclosure rates.In chapter 2, I study how urban congestion pricing impacts the use of sustainable mobility options such as bike sharing, presenting evidence from the city of Milan, Italy.As concern for air pollution grows in cities across the world, policies such as urban road pricing are rolled out to induce urban residents to opt for greener transport options. While several papers have analyzed the impact of urban road pricing on air pollution and on car use, this is the first analysis of its impact on sustainable travel behaviors, such as the use of bike sharing.I extend a stylized theoretical model of travel behavior to formalize the drivers of bike-sharing demand. Then, I exploit a panel dataset covering all bike-sharing trips carried out over an 8-year period in the city of Milan to estimate the impact of congestion pricing on bike-sharing use. The empirical strategy I employ in this study is based on the sudden suspension and reintroduction of congestion pricing, which generate a quasi-experimental setting. Adopting an event study approach, I find that suspending the congestion charge reduces daily bike-sharing traffic by about 5% in the short run. I show that, in Milan, congestion pricing mainly impacts bike-sharing use through the reduction of road traffic congestion, which makes cycling safer and more pleasant. The direct effect of the increased relative cost of car use is secondary in individual decisions to use bike-sharing. The role of these effects is likely to be context-specific, as they may be affected by the baseline level of urban congestion, the broader policy mix affecting the cost of driving and the specific design of the congestion pricing scheme.In chapter 3, co-authored with Renaud Foucart, we study the impact of different quantity-based tools that governments can use to support the production of homogeneous goods through clean rather than polluting inputs in a setting where production costs are uncertain.In recent years, many sectors have been disrupted by clean innovation, as clean inputs have emerged as close substitutes of polluting ones: for example, in the power sector renewable energy sources are increasingly used for electricity generation instead of fossil fuels. Whenever the negative externalities caused by polluting incumbent technologies are not internalized in production costs, emerging clean technologies are left at a disadvantage. For this reason, governments may want to design policy support schemes for emerging clean technologies.We develop a theoretical framework in which well-established polluting technologies entail known production and pollution costs, while using emerging green technologies requires higher, steeper and uncertain production costs. In this context, a government chooses between a range of quantity-based instruments to support the deployment of clean technologies based on cost estimates, as costs of production with green inputs are uncertain.We show that a cap on production with polluting inputs is the least distortionary among quantity instruments; next is a mandatory share of production with green inputs out of total production. Setting a policy objective in terms of a precise level of green inputs for production is the least efficient policy approach. This ranking results from the so-called “technology effect”, which determines the extent to which the market corrects cost estimation errors after real costs are observed.