Who Loses Under Power Plant Cap-and-Trade Programs?
This paper tests how a major cap-and-trade program, known as the NOx Budget Trading Program (NBP), impacted labor markets in the regions where it was implemented. The cap-and-trade program dramatically decreased levels of NOx emissions and added substantial costs to energy producers. Using a triple-differences approach that takes advantage of the geographic and time variation of the program as well as variation in industry energy-intensity levels, I examine how employment dynamics changed in manufacturing industries whose production process requires high levels of energy. After accounting for a variety of flexible state, county and industry trends, I find that employment in the manufacturing sector dropped by 1.3% as a result of the NBP. Young workers experienced the largest employment declines and earnings of newly hired workers fell after the regulation began. Employment declines are shown to have occurred primarily through decreased hiring rates rather than increased separation rates, thus mitigating the impact on incumbent workers.
I thank Spencer Banzhaf, Dallas Burtraw, Olivier Deschenes, Paul Ferraro, Ann Ferris, Barry Hirsch, Thomas Holmes, Josh Linn, Kyle Mangum, Erin Mansur, Karen Palmer, Ron Shadbegian, Joseph Shapiro, Ian Schmutte and Reed Walker for helpful comments and conversations. I also thank seminar participants at the 2012 NBER Summer Institute, IZA Labor Market Effects of Environmental Policies Workshop, Camp Resources XIX, the 2012 AERE Summer Conference, Georgia State University and the Federal Reserve Bank of Atlanta. Computing resources were provided by Cornell’s Social Science Gateway which is supported through NSF grant #1042181. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.