R-3 Repository :: Browsing by Author "Loch-Temzelides, Ted P."

Browsing by Author "Loch-Temzelides, Ted P."

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COVID-19 and the Value of Safe Transport
(2021) Medlock, Kenneth B. III; Loch-Temzelides, Ted P.; Hung, Shih Yu (Elsie); James A. Baker III Institute for Public Policy
We investigate the connection between the choice of transportation mode used by commuters and the probability of COVID-19 transmission. This interplay might influence the choice of transportation means for years to come. We present data on commuting, socioeconomic factors, and COVID-19 disease incidence for several US metropolitan areas. The data highlights important connections between population density and mobility, public transportation use, race, and increased likelihood of transmission. We use a transportation model to highlight the effect of uncertainty about transmission on the commuters’ choice of transportation means. Using multiple estimation techniques, we found strong evidence that public transit ridership in several US metro areas has been considerably impacted by COVID-19 and by the policy responses to the pandemic. Concerns about disease transmission had a negative effect on ridership, which is over and above the adverse effect from the observed reduction in employment. The COVID-19 effect is likely to reduce the demand for public transport in favor of lower density alternatives. This change relative to the status quo will have implications for fuel use, congestion, accident frequency, and air quality. More vulnerable communities might be disproportionally affected as a result. We point to the need for additional studies to further quantify these effects and to assist policy in planning for the post-COVID-19 transportation future.
Employment Impacts of Upstream Oil and Gas Investment in the United States
(2017) Agerton, Mark; Hartley, Peter R.; Medlock, Kenneth B. III; Loch-Temzelides, Ted P.; James A. Baker III Institute for Public Policy
Employment Impacts of Upstream Oil and Gas Investment in the United States
(James A. Baker III Institute for Public Policy, 2014) Agerton, Mark; Hartley, Peter R.; Medlock, Kenneth B. III; Loch-Temzelides, Ted P.; James A. Baker III Institute for Public Policy
Technological progress in the exploration and production of oil and gas during the 2000s has led to a boom in upstream investment and has increased the domestic supply of fossil fuels. It is unknown, however, how many jobs this boom has created. We use time-series methods at the national level and dynamic panel methods at the state level to understand how the increase in exploration and production activity has impacted employment. We find robust statistical support for the hypothesis that changes in drilling for oil and gas as captured by rig counts do, in fact, have an economically meaningful and positive impact on employment. The strongest impact is contemporaneous, though months later in the year also experience statistically and economically meaningful growth. Once dynamic effects are accounted for, we estimate that an additional rig count results in the creation of 37 jobs immediately and 224 jobs in the long run, though our robustness checks suggest that these multipliers could be bigger.
Essays on Asset Pricing
(2018-08-01) Liu, Ruomeng; Back, Kerry E.; Xing, Yuhang; Butler, Alexander W.; Loch-Temzelides, Ted P.
This dissertation studies asset pricing from three perspectives. The first chapter takes the view of a long-run buy-and-hold investor, and offers an an explanation to prominent cross-sectional return anomalies. A commonality shared by these anomalies is that their returns are negatively correlated with the market. I show that this negative covariance implicitly embeds the mispricing of the CAPM beta -- the first and one of the most robust asset pricing puzzles -- in these cross-sectional anomalies. Taking into account the exposure to the beta mispricing either attenuates or eliminates the economic and statistical significance of risk-adjusted returns to a large set of asset pricing puzzles. Given the presence of well-documented cross-sectional return anomalies, the second chapter examines whether and how institutional investors trade to profit, and thereby to mitigate these anomalies. Consistent with the literature, I find that institutions in aggregate do not trade to take advantage of most of these cross-sectional return predictabilities. However, I present evidence that institutions in fact correctly trade to capture the beta risk-premium when and only when it is present in the market. Findings support the view that institutions are the more rational set of investors that seem to capture and correct mispricing caused by opportunistic noise trading. The third chapter takes a closer look at one particular type of asset markets -- the over-the-counter (OTC) markets, and analyzes how trade disclosure impacts market participants' optimal game-strategic behaviors. My co-authors and I show that mandatory trade disclosure makes a market intermediary engage in costly signaling, which reduces transaction prices for investors and equivalently rent per transaction for the intermediary. Investors as a result benefit, and are more likely to trade. The intermediary, however, could benefit too if the increase in trading volume is sufficient to offset the reduction in rent per transaction.
Hurricane Risk Assessment of Petroleum Infrastructure in a Changing Climate
(Frontiers, 2020) Sichani, Majid Ebad; Anarde, Katherine A.; Capshaw, Kendall M.; Padgett, Jamie E.; Meidl, Rachel A.; Hassanzadeh, Pedram; Loch-Temzelides, Ted P.; Bedient, Philip B.
Hurricanes threaten the petroleum industry in the United States and are expected to be influenced by climate change. This study presents an integrated framework for hurricane risk assessment of petroleum infrastructure under changing climatic conditions, calculating risk in terms of monetary loss. Variants of two synthetic probabilistic storms and one historical storm (Hurricane Ike) are simulated using the SWAN+ADCIRC model, representing a range of potential scenarios of impacts of a changing climate on hurricane forward speed and sea-level rise given uncertainties in climate projections. Model outputs inform an infrastructure impact and cascading economic loss analysis that incorporates various sources of uncertainty to estimate five types of losses sustained by petroleum facilities in surge events: land value loss, process-unit damage loss, cost of spill clean-up and repair of aboveground storage tanks, productivity loss, and civil fines. The proposed risk assessment framework is applied as a case study to seven refineries along the Houston Ship Channel (HSC), a densely-industrialized corridor in Texas. The results reveal that either an increase in mean sea level or a decrease in storm forward speed increases the maximum water elevations in the HSC for storms that produce maximum wind setup in Galveston Bay (FEMA 33 and FEMA 36), resulting in larger economic loss estimates. The role of refinery features such as storage capacity and average elevation of the refinery and its critical equipment in the refinery response to hurricane hazards is studied, and the probability distribution of refinery total loss and the loss risk profile in different hurricane scenarios are discussed. Loss estimates are presented, demonstrating the effects of hurricane forward speed and sea level on the losses for the refineries as well as the HSC. Such a framework can enable hurricane risk assessment and loss estimation for petroleum infrastructure to inform future policies and risk mitigation strategies. Potential policy implications for a region like the HSC are highlighted herein as an illustration.
Innovation, Renewable Energy, and Macroeconomic Growth
(James A. Baker III Institute for Public Policy, 2010) Hartley, Peter R.; Medlock, Kenneth B. III; Loch-Temzelides, Ted P.; Zhang, Xinya; James A. Baker III Institute for Public Policy
Many studies assume that the optimal size of research and development (R&D) in the energy sector is five to 10 times the current level. Is the energy sector under-investing in R&D? What would be the effects of subsidies to R&D in renewable energy on macroeconomic growth? There is an extensive ongoing policy discussion in the United States about innovations in the “green economy” and their potential to act as a new engine of economic growth. As the new administration devotes substantial resources to production and investment subsidies in the renewable energy and biofuels sector, it is important to evaluate the validity of such a strategy. In our model, energy is needed in order to produce the economy’s consumption good. We find that the economy goes through three distinct regimes. Initially, production uses only fossil fuel, and investment takes place in order to improve the efficiency of supplying fossil fuel. In the medium to long run, the price of fossil fuel inevitable increases, and the economy makes a transition to a renewable energy regime. Finally, in the very long run, a limit is reached after which renewable energy is produced at the lowest possible cost. We calibrate the model and examine how the transition to renewable energy is affected by imposing taxes on fossil fuel energy or by imposing subsidies to renewable energy R&D.
Mercantilism’s Groundhog Day: The U.S.-China Trade War and Some Regional Energy Market Implications
(James A. Baker III Institute for Public Policy, 2020) Medlock, Kenneth B. III; Loch-Temzelides, Ted P.; Chung, Woongtae; James A. Baker III Institute for Public Policy
An expanding trade deficit and mounting concerns over intellectual property rights alongside slow economic growth and rising inequality created a political upheaval in the US that paved the way for anti-trade sentiment and protectionist policies. While this has impacted a broad set of US trading partners across a number of commodities, the relationship between the US and China, the world’s two largest economies, has drawn the most attention. As such, we examine the potential impacts of the US-China trade dispute for US and Northeast Asian economies, with a specific focus on energy markets. In general, barriers to international trade are detrimental to US and global energy security, as they raise uncertainty, harm investment, and harm efficiency, ultimately leading to higher prices. Market depth, which is critical for energy security, can be compromised if policy becomes burdensome for new investments, capital flows, and market participation. Shifts in US-China trade policy will likely drive a reshuffling of the international energy supply portfolio. However, Northeast Asian trading partners that are mutual to the US and China—in particular, Japan, and South Korea—are at risk of being caught in a vortex of expanding collateral damage. That stated, long-run negative implications for the broader international energy market are likely to be mediated as long as the US-China trade rift remains bilateral in its focus. Given the Trump administration’s apparent desire for trade surpluses, we consider it likely that the US will take steps to facilitate greater energy exports. This will carry spillover benefits for global energy markets and enhance energy security more broadly. However, if an implication of a protracted US-China trade war is slower global economic growth, there is a risk that any positive balance of trade impacts from expanding US energy exports will be limited. Therein lies a conundrum: promote growth through more open trade, thereby expanding US energy exports or adopt protectionist measures, thereby compromising trade and diminishing the prospects for expanding US energy exports. We find evidence that tariffs on imported energy-related commodities, such as solar panels, do not appear to be negatively impacting imports due to a shift in the source of imports and counterbalancing policies at the federal, state, and local levels. In the latter case, for example, if direct and/or indirect subsidies to residences for the installation of solar panels encourage demand, then those policies work to offset the negative effects of tariffs. Hence, there appears to be a contradictory approach to policy when it comes to addressing costs. Finally, the recently signed “Phase One” agreement is a positive step toward resolution of the US-China trade dispute, but the road ahead remains rife with challenge. The agreement, given the current energy commodity landscape across crude oil, natural gas and coal, presents some serious logistical challenges. These challenges will ultimately render a positive outcome dependent on the economic health of nations other than China and the US. In particular, meeting the terms of the Phase One agreement will depend heavily upon the broader market’s ability to absorb the increased volumes of crude oil, LNG and coal. Beyond this, a more robust “Phase Two” is not expected until after the 2020 US presidential election, so although the US-China trade dispute may be temporarily relaxed, it is far from settled.
Monetary Emissions Trading Mechanisms
(James A. Baker III Institute for Public Policy, 2012) Loch-Temzelides, Ted P.; Monnet, Cyril; James A. Baker III Institute for Public Policy
Emissions trading mechanisms have been proposed, and in some cases implemented, as a tool to reduce pollution. Under an emissions trading system ETS), producers must acquire permits equal to the amount of their emissions in a given period. These permits are then remitted to the issuing institution. So far, the results from actual implementations of emissions trading have been mixed, and some policymakers have argued that taxes would be more effective in reducing emissions. Related criticisms have also appeared in academic studies. For example, in a highly publicized recent study, Clò and Vendramin (2012) criticized features of the ETS that have led to low prices for permits. They also point out shortcomings, specifically in regard to the ability of emissions trading to induce investment in new technologies. They advocate a tax as a more effective non-distortionary instrument. We use insights from dynamic mechanism design in monetary economics to derive properties of optimal dynamic emissions trading mechanisms. We argue that efficient tax policies must be “state-contingent,” and we demonstrate an equivalence between such state-contingent taxes and emissions trading. Restrictions resulting from the money-like feature of permits can break this equivalence when there is endogenous progress in clean technologies. We argue that these restrictions must be taken into consideration in actual policy implementation. Our analysis introduces several ingredients that are largely missing in the existing literature. First, if the policy objective is to maximize social welfare, as opposed to simply reducing emissions to a predetermined level, and if the economy is subject to shocks, then it is likely that the optimal path for emissions will be time-dependent. In particular, the welfare maximizing level of emissions will depend on the aggregate state of the economy. Second, our analysis identifies state-contingent taxes as an important tool toward implementing efficient levels of output and emissions. Third, we discuss the optimal permit-issue policy in the presence of shocks. Our model shows that a state-contingent tax system can do at least as well as a cap-and-trade system in most cases, and it can dominate it when there is endogenous clean technology adoption. More generally, we argue that policymakers should think about permit-issue in a manner similar to that used by central bankers. At the optimum, the price of permits must increase over time. In the presence of aggregate risk, the optimal supply of permits is not constant over time and must respond to the shocks affecting the economy. Finally, when firms can choose the level of technological progress in green technologies, emissions trading cannot implement the optimal allocation if there is a high fraction of “dirty firms.” The reason is that emissions trading either makes technology adoption by these firms too slow, or it must distort production levels relative to the first best. Interestingly, fiscal policies do not suffer from this drawback.
New Alignments? The Geopolitics of Gas and Oil Cartels and the Changing Middle East
(2012) Fang, Songying; Jaffe, Amy Myers; Loch-Temzelides, Ted P.; James A. Baker III Institute for Public Policy
We analyze the likelihood of different coalitions emerging in energy markets in light of two new transformational events: the Arab Awakening and the rise of shale gas in the United States. Our analysis considers both economic and political payouts resulting from alternative energy policies of three major petro-powers: Saudi Arabia, Russia, and Qatar. We discuss the likelihood of price wars in energy markets and identify two conditions under which price wars can occur. There can be a price war in the gas market if Russia is determined to protect its market share in Europe by knocking out other higher cost producers. We find that competitive pressures created by shale gas could make this option more appealing to Russia. Second, Saudi Arabia can generate an oil price war as a foreign policy tool in order to weaken Iran’s position as a rival to the Kingdom. Finally, we consider the recent democratization movement in the Middle East. Significant changes in geopolitical payouts may bring about new coalitions involving Russia. Nevertheless, we find that a gas cartel is unlikely to form in the perceivable future.
Pandemics, the Economy, Nature and the Energy Sector
(2021) Loch-Temzelides, Ted P.; James A. Baker III Institute for Public Policy
Pollution and Labor Productivity: Evidence from Chilean Cities
(2022) Jooste, Charl; Loch-Temzelides, Ted P.; Sampi, James; Dudu, Hasan; James A. Baker III Institute for Public Policy
This paper investigates the effects of pollution on labor productivity in Chile. Data on fine particulate matter pollution in Chile were collected and matched to sectoral labor productivity at the city level. The endogeneity between labor productivity and pollution is controlled for by instrumenting on the presence of coal and diesel power plants. The paper finds that pollution reduces labor productivity. A series of robustness checks demonstrate that pollution has a statistically significant effect on productivity when the analysis controls for labor costs and entry rates. The paper provides extensive evidence to support a causal interpretation of this finding. The identification strategy is based on a stylized macroeconomic model. The pollution elasticity of labor productivity is used to demonstrate how the co-benefits of reducing pollution can be incorporated into mitigation policies in a general equilibrium framework.
Renewable Technology Adoption Costs and Economic Growth
(2022) Adao,Bernardino; Narajabad, Borghan; Loch-Temzelides, Ted P.; James A. Baker III Institute for Public Policy
We develop a dynamic general equilibrium integrated assessment model that incorporates costs due to new technology adoption in renewable energy as well as externalities associated with carbon emissions and renewable technology spillovers. We use world economy data to calibrate our model and investigate the effects of the technology adoption channel on renewable energy adoption and on the optimal energy transition. The calibrated model implies several interesting connections between technology adoption costs, the two externalities, and welfare. We investigate the relative effectiveness of two policy instruments — Pigouvian carbon taxes and policies that internalize spillover effects — in isolation as well as in tandem. Our findings suggest that renewable technology adoption costs are of quantitative importance for the energy transition. We find that the two policy instruments are better thought of as complements rather than substitutes.
Robust Dynamic Energy Use and Climate Change
(2015) Li, Xin; Narajabad, Borghan; Loch-Temzelides, Ted P.; James A. Baker III Institute for Public Policy
We study a dynamic stochastic general equilibrium model in which agents are concerned about model uncertainty regarding climate change. An externality from greenhouse gas emissions damages the economyﾒs capital stock. We assume that the mapping from climate change to damages is subject to uncertainty, as opposed to risk, and we use robust control theory to study efficiency and optimal policy. We obtain a sharp analytical solution for the implied environmental externality and characterize dynamic optimal taxation. The optimal tax that restores the socially optimal allocation is Pigouvian. We study optimal output growth in the presence and in the absence of concerns about model uncertainty and find that these can lead to substantially different conclusions regarding the optimal emissions and the optimal mix of fossil fuel.

Browsing by Author "Loch-Temzelides, Ted P."

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