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Future electricity systems with tight constraints on carbon emissions will rely much more on wind and solar generation, with zero marginal cost, than today. We use capacity expansion modelling of Texas in 2050 to illustrate wholesale price distributions in future energy-only, carbon-constrained grids without price caps under a range of technology/system assumptions. Tightening carbon emissions constraints dramatically increases the frequency of very low prices. The frequency of high prices also increases, and all resources earn the bulk of their energy market revenues in relatively few hours. The presence of demand response, long-duration energy storage, dispatchable low-carbon generation, or a robust market for hydrogen for non-electricity use (and for energy storage) weakens but does not undo these results. Financial instruments to hedge price volatility will consequently be more costly and it is likely that we will need to redesign capacity remuneration mechanisms to provide adequate incentives for optimal investment in VRE generation and, particularly, storage. In order to encourage economy-wide electrification, the marginal retail price of electricity should be low whenever the wholesale price is low. With automated control of demand via demand response contracts, the risks of price volatility faced by retail customers can be mitigated without sacrificing efficiency. To encourage economy-wide electrification, the marginal retail price of electricity should be low when the wholesale spot price is low. We discuss ways of reducing consumers’ risk in this world while providing adequate investment incentives. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

The US Clean Air Act, passed in 1970 with strong bipartisan support, was the first environmental law to give the federal government a serious regulatory role, established the architecture of the US air pollution control system, and became a model for subsequent environmental laws in the United States and globally. We outline the act’s key provisions, as well as the main changes Congress has made to it over time. We assess the evolution of air pollution control policy under the Clean Air Act, with particular attention to the types of policy instruments used. We provide a generic assessment of the major types of policy instruments, and we trace and assess the historical evolution of the Environmental Protection Agency’s policy instrument use, with particular focus on the increased use of market-based policy instruments, beginning in the 1970s and culminating in the 1990s. Over the past 50 years, air pollution regulation has gradually become more complex, and over the past 20 years, policy debates have become increasingly partisan and polarized, to the point that it has become impossible to amend the act or pass other legislation to address the new threat of climate change.

This article reviews the design of environmental markets for pollution control over the past 30 years, and identifies key market-design lessons for future applications. The focus is on a subset of the cap-and-trade systems that have been implemented, planned, or proposed around the world. Three criteria led us to the selection of systems for review. First, among the broader class of tradable permit systems, our focus is exclusively on cap-and-trade mechanisms, thereby excluding emission-reduction-credit or offset programmes. Second, among cap-and-trade mechanisms, we examine only those that target pollution abatement, and so we do not include applications to natural resource management, such as individual transferable quota systems used to regulate fisheries. Third, we focus on the most prominent applications—those that are particularly important environmentally, economically, or both.

This article presents an overview of the design and performance of seven major emissions trading programs that have been implemented over the past 30 years and identifies a number of important less...

When energy storage is employed to facilitate large-scale integration of intermittent renewable electricity generation, do competitive bulk power markets continue to provide incentives for efficient investment? This essay adds competitively-supplied storage to a Boiteux-Turvey model of an electric power system with two types of periods. In the most interesting, tractable cases of this dynamic model, all efficient points are long-run competitive equilibria, and the long-run equilibrium value of storage capacity minimizes expected system cost conditional on generation capacities. But the analysis here cannot rule out the existence of inefficient equilibria.

This article shows that the Supreme Court reached the right outcome in Ohio et al. v. American Express. The District Court had found that American Express was a two-sided transaction platform that provided joint services simultaneously to cardholders and merchants. But it then chose, by adopting a single-sided merchant services market, to analyze the effect of the anti-steering provisions at issue solely on one side of these simultaneous transactions. That decision appears to have prevented the lower court from seeing that the plaintiffs’ evidence of anticompetitive harm to merchants was weak. The District Court also decided that case law prevented it from considering the effect of the conduct on the other half of the transactions even at the second-stage of the rule of reason. The Supreme Court did not discuss the limitations of the plaintiffs’ theory and evidence at length but simply and properly found that the plaintiffs had failed to prove antitrust injury to platform competition for transactions. This article also shows that criticisms of the Supreme Court decision seem to be based on the rejection or misunderstanding of the economics literature on multi-sided platforms on which the District Court, the Appeals Court, and the Supreme Court all relied.

To reduce global carbon dioxide emissions substantially by mid-century, electricity generation from solar energy will likely have to be increased dramatically. While the intermittency of the solar resource and the use of rare elements in some current solar technologies are concerns, the most important barrier to a massive scale-up is the current high cost of solar electricity, which will make a dramatic increase in solar deployment politically difficult in many countries. Ambitious publicly-funded research and development efforts aimed at fundamental advances constitute the most plausible approach to substantial cost reductions. Current deployment support programs are generally inefficient, particularly those that favor residential-scale systems, and are less likely to reduce costs substantially.

The “razor-and-blades” pricing strategy involves setting a low price for a durable basic product (razors) and a high price for a complementary consumable (blades). In a timeless model, Oi (1971) showed that if consumers' demand curves differ and do not cross and unit costs are constant, a monopolist should always price blades above cost. This note studies the optimal razor price. With a uniform distribution of parallel linear demand curves it is never optimal to sell the razor below cost, while with two types of consumers and non-crossing linear demands it is optimal to do so for some parameter values

About 40% of all coal mined in the United States is extracted from lands owned by the federal government, under leases managed by the U.S. Department of the Interior (DOI). Burning that coal accounts for 13% of U.S. energy-related greenhouse gas (GHG) emissions ( 1 ). With the largest and lowest-cost reserves in the United States, federal coal alone—estimated at nearly 10% of the world's known reserves—has potential to contribute substantially to atmospheric CO2 concentrations ( 2 ). In response to calls for reform, DOI has issued a moratorium on new leases while it develops a Programmatic Environmental Impact Statement to guide the first major reform of the program since 1982. We review existing knowledge of key issues relevant to reform, highlighting the social costs of coal extraction, the extent of substitution away from federal coal induced by raising additional leasing revenue, the lack of competition in the leasing auctions, and the incentives inherent in the current leasing program structure. We then turn to critical areas of research that can be done in the near term and would contribute to more informed debate and policy development.

Real value-added per employee in U.S. manufacturing fell between 2010 and 2016. Manufacturing accounted for over half the drop in private economy productivity growth between 1990-2000 and 2010-2016, though it accounted for less than 20% of aggregate value-added. While productivity growth fell in almost all three-digit manufacturing industries, almost 40% of the fall in aggregate manufacturing productivity growth reflected a slower decline of the deflator for computers and electronic products. Almost all of this drop seems to have reflected sharp slowdowns in the decline of the deflators for computers and, especially, semiconductors, for which measurement problems seem to have worsened.

Though U.S. manufacturing output recovered more slowly from the Great Recession than historical experience would have predicted, manufacturing employment, which peaked in 1979, grew between 2010 and 2017. This was the second-longest period of employment growth in the entire post-war period. Linking these developments was an historically unprecedented, protracted absolute decline in labor productivity. This essay provides an overview of these puzzling aggregate developments and of the diverse industry-level changes they summarize. The roles of foreign competition, mis-measurement of real output, and the computer industry are explored, and the value of looking within multi-industry aggregates like manufacturing is illustrated.

The U.S. Clean Air Act, passed in 1970 with strong bipartisan support, was the first environmental law to give the Federal government a serious regulatory role, established the architecture of the U.S. air pollution control system, and became a model for subsequent environmental laws in the United States and globally. We outline the Act’s key provisions, as well as the main changes Congress has made to it over time. We assess the evolution of air pollution control policy under the Clean Air Act, with particular attention to the types of policy instruments used. We provide a generic assessment of the major types of policy instruments, and we trace and assess the historical evolution of EPA’s policy instrument use, with particular focus on the increased use of market-based policy instruments, beginning in the 1970s and culminating in the 1990s. Over the past fifty years, air pollution regulation has gradually become much more complex, and over the past twenty years, policy debates have become increasingly partisan and polarized, to the point that it has become impossible to amend the Act or pass other legislation to address the new threat of climate change.

A surprising amount of debate leading up to the Supreme Court’s decision in American Express, and the commentary following this landmark ruling, attempt to trivialize and marginalize the modern economic learning on multi-sided platforms. Despite these efforts the 2nd Circuit Court of Appeals and the Supreme Court ultimately embraced the economic literature on these business models. This article debunks five red herrings that have been floated in the debate: (1) the two sides are just complements, nothing new there; (2) everything is two-sided, or who’s to know what’s two-sided; (3) as industries mature two-sidedness goes away; (4) markets must be one sided since the services to the two sides aren’t interchangeable; and (5) two-sided analysis “devastates” antitrust law. The Supreme Court’s decision has raised a host of interesting issues, including how to deal with two-sided platform businesses that look different from American Express’s credit-card platform and what sort of evidence is necessary or sufficient in markets with platform businesses to establish competitive effects. Like any Supreme Court decision, not every word was chosen as carefully as it might have been, and clarifications will be needed going forward. The large and evolving literature on two-sided platforms will prove helpful to sort that out and we anticipate that the courts will embrace this constructive approach.

Several economists have claimed that markets in which two-sided firms compete become one-sided at maturity, when everyone has joined a platform. That is, they assert that in mature markets policymakers, such as courts in antitrust cases, can properly exclude one side from consideration, even though both sides matter to the two-sided firms involved. One court—in U.S. Airways v. Sabre—has agreed. For the purposes of analyzing alleged anticompetitive practices by Sabre, which operates a Global Distribution Services (GDS) platform serving airlines and travel agents, the court allowed the jury to ignore the travel agent side of the platform. The Second Circuit Court of Appeals is now considering this matter. Our Amicus Brief explains why the mature market theory proposed by these economists, which is based on nothing more than assertion, is not consistent with the foundational papers on two-sided platforms, with the competitive realities faced by two-sided firms in mature markets, or with standard principles for defining relevant markets in antitrust cases.

Though network effects are important for multisided platforms, the simple winner-take-all notion that they always give larger platforms an insurmountable advantage over smaller rivals has been disproven by numerous counterexamples. It is now being argued that big data is power, so that a firm that has more customer data than its rivals has an insurmountable advantage over them. This argument has no theoretical or empirical support, and it, too, has been disproven by numerous counterexamples.

Two decades have passed since the Clean Air Act Amendments of 1990 launched a grand experiment in market-based environmental policy: the SO2 cap-and-trade system. That system performed well but created four striking ironies: First, by creating this system to reduce SO2 emissions to curb acid rain, the government did the right thing for the wrong reason. Second, a substantial source of this system's cost-effectiveness was an unanticipated consequence of earlier railroad deregulation. Third, it is ironic that cap-and-trade has come to be demonized by conservative politicians in recent years, as this market-based, cost-effective policy innovation was initially championed and implemented by Republican administrations. Fourth, court decisions and subsequent regulatory responses have led to the collapse of the SO2 market, demonstrating that what the government gives, the government can take away.

This timely Handbook reviews many key issues in the economics of energy and climate change, raising new questions and offering solutions that might help to minimize the threat of energy-induced climate change.

This collection of papers includes authors who served on the National Academy of Science-Transportation Research Board (TRB) Committee for a Study of Freight Rail Transportation and Regulation (2014–15) and other authors who participated in the Economics and Regulation of the Freight Railroad Industry Research Colloquium at Georgetown University (June 2015). It covers topics from the TRB report and a wide range of other topics related to the freight railroad industry. These include: a synopsis of the research and findings of the TRB committee, the financial performance of railroads since deregulation, examination of price regulation, costing theory and methods, measuring revenue adequacy, consequences of providing network access, as well as railroad safety. The collection provides a comprehensive review of regulation, economics, and current issues confronting the freight railroad industry.

“Green growth” is an attractive slogan with a variety of possible meanings. This essay critically examines several potential meanings of this slogan and provides a brief overview of some of the main implications of the other papers in this special issue. Taken together, these papers argue for the importance of careful analysis of energy/environmental policies, particularly ambitious ones claiming to offer huge benefits with little or no cost.

This essay provides a brief overview of the evolution of the field of industrial organization from its emergence to the present, and it offers some observations about the present state of the field. While there has been considerable progress in industrial organization over time, its uphill path has not been straight.

Due to a variety of recent policy changes and technical innovations, the U.S. electric grid will encounter significant opportunities and challenges over the next several decades. As we have described above, various policy and system-level issues will need to be addressed and new technologies will need to be fully developed and used appropriately for the U.S. grid to evolve along an efficient path with minimal disruption and to ensure electricity rates and levels of reliability remain acceptable. The journey to the electric grid of 2030 has begun, and there will be plenty of surprises along the way. Much can and should be done now to smooth the road ahead.

Building on a review of experience in the United States and the European Union, this article advances four main propositions concerning policies aimed at increasing electricity generation from renewable energy. First, who bears the short-run costs of programs to subsidize the generation of electricity from renewable sources varies with the organization of the electric power industry, and this variation may be a significant contributor to such programs' political attractiveness in U.S. states. Second, despite the greater popularity of feed-in tariff schemes worldwide, renewable portfolio standard (RPS) programs may involve less long-run social risk. Third, in contrast to the European Union's approach to reducing carbon dioxide emissions, its renewables program is almost certain not to minimize the cost of achieving its goals. Fourth, state RPS programs in the United States are also almost certain to cost more than necessary, even though most use market mechanisms. To support this last proposition I provide a fairly detailed description of actual markets for renewable energy credits and their shortcomings. Copyright 2012, Oxford University Press.

This paper reports significant discrepancies in the Census’s methods and reports of online and physical retail sales in the United States. We recommend material changes in how the Census Bureau reports e-commerce and physical sales reported to it. We also recommend that the Census commission an independent review of its methods and reporting.

The new economics of multi-sided platforms involves a number of concepts that are familiar to economists as well as some new ones. This glossary, which is drawn from our book Matchmakers: The New Economics of Multi-sided Platforms, is an attempt to put together the main concepts and to provide short definitions for them. We believe this common vocabulary, which we’re sure others will refine and evolve, will be helpful for research and the exchange of ideas going forward and may serve as a quick primer for those who are new to the field, including students.

Based on the publicly available information on the data sources and methodology used by the Census Bureau to estimate e-commerce and physical retail sales, and based on detailed e-mail communications with the Census official responsible for the retail trade data, we found, in a version of this paper released on January 28, 2016, that the Census Bureau significantly undercounted online retail sales; we also provided what we believed were conservative estimates of the undercount. The Census Bureau has subsequently “corrected” the e-mail communications from the Census official and informed us that they follow different procedures and report different figures than we, and we believe any reasonable researcher, would have surmised. Assuming that Census does what they now say they do, we still believe that the Census Bureau undercounts online retail sales but it is not possible to verify that this the case or provide an estimate of the magnitude. We make several recommendation for the Census Bureau in light of our research, and our experience trying to validate their data, including that the Census Bureau commission an independent audit of the calculations of its e-commerce data for retail trade.

The Tennessee Valley Authority (TVA) and the other federal electric utilities were created under Democratic administrations, and their service territories were initially bluer (that is, more Democratic-leaning) than average. These subsidized enterprises sell cheap power preferentially to non-investor-owned distributors, so such utilities are more prominent where the federal utilities are important sellers. The political map of the United States has changed dramatically since the federal utilities were created. The federal utilities and non-investor-owned distributors are now more important on average in red (that is, Republican-leaning) states than in blue ones. Interest has trumped ideology: Republican policy-makers strongly opposed to socialism in principle seem happy with the important role of government enterprises in the U.S. electric utility industry.

Using data on hourly outputs and spot prices for a sample 25 wind and nine solar generating plants covering all seven U.S. ISOs for 2011 and up to 12 adjacent months, this study examines capacity factors, average output values, and several aspects of intermittency. Most performance measures studied vary substantially within and between ISOs, and some vary substantially over time. Implications for research, market design, and policies to support renewable generation are briefly discussed.

United States v. Microsoft and the related state suit filed in 1998 appear to have concluded. In a unanimous en banc decision issued in late June 2004, the U.S. Court of Appeals for the D.C. Circuit rejected challenges to the remedies specified in a settlement reached in late 2001 and approved by the district court in November 2002. We examine the remedies imposed in the United States, in terms of both their relationship to the violations found and their impact on consumer welfare. We conclude that the remedies addressed the violations ultimately found by the Court of Appeals (which were a subset of those found by the original district court and an even smaller subset of the violations alleged, both in court and in public discourse) and went beyond them in important ways. The remedies imposed appear to have struck a reasonable balance between protecting consumers against the types of actions found illegal, on the one hand, and, on the other hand, avoiding excessive restrictions that would harm consumers by restricting Microsoft's ability to compete in pro-competitive ways.

Software platforms are a critical component of the computer systems underpinning leading-edge products ranging from third-generation mobile phones to video games. After describing some key economic features of computer systems and software platforms, the paper presents case studies of personal computers, video games, personal digital assistants, smart mobile phones, and digital content devices. It then compares several economic aspects of these businesses including their industry evolution, pricing structures, and degrees of integration. (JEL L86, L11, L15)

This essay provides an overview of the major emissions trading programs of the past thirty years on which significant documentation exists, and draws a number of important lessons for future applications of this environmental policy instrument. References to a larger number of other emissions trading programs that have been implemented or proposed are included.