Transmission Lowers US Generation Costs, But Generator Incentives Are Not Aligned
with Dasom Ham and Catie Hausman
2026. The Proceedings of the National Academy of Sciences, 123(9).
Abstract: The US electricity grid is rapidly evolving with the entry of low-cost renewable electricity. As a result, new supply is not spatially matched to demand, and the transmission network has become more strained. Better market integration could thus lower US generation costs. We document that eliminating interregional constraints would have reduced electricity generation costs across the lower US 48 states by $5.8 to 7.1 billion in 2022 and $3.4 to 5.0 billion in 2023. But market integration creates winners and losers among generation companies, and we show that producers in some regions have incentives to delay or block grid integration despite the overall system benefits.
Time-Limited Subsidies: Optimal Taxation with Implications for Renewable Energy Subsidies
with Michael Ricks
2025. The Journal of Political Economy, 133(12): 3801-3845.
Abstract: Pigouvian subsidies are efficient, but output subsidies with uncertain or limited durations are not Pigouvian. We show that optimal "time-limited" policies must also subsidize investment to correct externalities generated after the output subsidy ends. Furthermore, an output subsidy's optimal duration is characterized by the change in production when it ends. In the wind-energy industry, we find that power generation decreases by 5-10% after the end of facilities' ten-year eligibility for the Renewable Energy Production Tax Credit. This behavioral response has implications for energy transitions and highlights how time limits could cause larger distortions in more elastic industries.
Public Debt Levels and Real Interest Rates: Causal Evidence from Parliamentary Elections
with Gabriel Ehrlich and Aditi Thapar
Conditionally accepted (data) at The American Economic Review: Insights
Abstract: We use close elections in parliamentary democracies as natural experiments to estimate public debt levels’ effects on real interest rates. An election in which no party achieves a majority causes the debt-to-GDP ratio to increase by 17 percentage points over the following five years relative to an election in which one party barely secures a majority. Real interest rates rise by a relative 99 basis points following such an election, implying that a one percentage point increase in the debt-to-GDP ratio causes a 5.8 basis point increase in real rates. That effect is larger than most previous estimates.
Pollution Taxes and Clean Subsidies in an Open Economy
Abstract: In open economies, the effectiveness of taxing a global pollutant is diminished by "pollution leakage," where some polluting activity shifts abroad as a result of the tax. This paper shows that the same economic conditions that lead to pollution leakage enhance the efficacy of clean subsidies. As a result, the optimal policy in an open economy is a combination of a pollution tax and a clean subsidy, the balance of which depends on the leakage rate. Furthermore, efficient corrective policy sets the sum of the tax and subsidy rates, a measure of policy ambition, equal to the marginal damages from pollution, and therefore does not depend on the leakage rate.
Processing Power: The Effect of Data Centers on Wholesale Electricity Markets
with Robert Reaser and Reid Taylor
Abstract: Artificial-intelligence-driven data centers are reversing two decades of flat U.S. electricity demand and have generated questions about how this growth will impact electricity prices. We quantify this effect using an hourly, unit-level least-cost dispatch model covering wholesale electricity markets in the continental United States. We find that existing data centers have already increased wholesale prices by 3 to 5% on average nationwide, with substantially larger effects in regions hosting major data center corridors. Extending the model through 2028, we show that if proposed construction proceeds under high-utilization scenarios, wholesale prices could rise dramatically (50%), while more moderate build-out yields smaller (20%) but still meaningful effects. Impacts vary due to utilization and build-out assumptions. Finally, we use the model to address several policy discussions including optimal data center siting decisions and renewable build-out uncertainty.