Publications

Scientists and economists have long recognized that significant uncertainties and irreversibility characterize climate change. And yet, the social cost of carbon (SCC), the preeminent policy tool to address climate change applied by the U.S. government, does not include the option value (OV) that arises due to these characteristics. We demonstrate a simple methodology for approximating the OV underlying the SCC using the Bachelier formula

This report explains how carbon-pricing rules in organized wholesale electricity markets can improve economic efficiency. It then explores the economic principles and legal requirements for RTOs, states, and the Federal Energy Regulatory Commission to consider when implementing a carbon-pricing rule in organized wholesale electricity markets. And it identifies several policy-design approaches that, to varying degrees, meet those economic principles and are likely to be found legally permissible.

This article, published in the Harvard Environmental Law Review, argues that the electricity sector is at a critical juncture, and that a shift to a paradigm with a long-term vision that includes better, economically efficient rate designs is necessary if we want to realize the clean energy future that the modern grid promises us.

While the Trump administration’s goal of “energy dominance” has increased the public lands available for oil and gas development, no effort has been made to modernize the leasing system, even in the face of climate change. Our report explains how option value—which accounts for the informational value gained by delaying leasing decisions—can and should be factored into the Bureau of Land Management’s land use planning processes. Accounting for option value at multiple stages of the land use planning process would significantly improve BLM’s public lands stewardship, better protect the environment, and regain some of the economic and strategic advantages it has ceded to private developers. The report also describes case studies where BLM’s failure to consider option value has led to costly litigation and missed opportunities.

Our report notes the growing presence of distributed energy resources, like solar panels and energy storage installations, and explains how they should be compensated for providing electricity services valued by utilities and their customers. Currently, 40 states use net energy metering programs to compensate DERs. We describe a promising alternative, “value stacking,” which better reflects DERs’ value, and provide suggestions for how to implement this approach.