The Economics of Variable Renewable Energy and Electricity Storage

The transformation of the electricity sector is a central element of the transition to a decarbonized economy. Conventional generators powered by fossil fuels have to be replaced by variable renewable energy (VRE) sources in combination with electricity storage and other options for providing temporal flexibility. We discuss the market dynamics of increasing VRE penetration and its integration in the electricity system. We describe the merit-order effect (the decline of wholesale electricity prices as VRE penetration increases) and the cannibalization effect (the decline of VRE value as its penetration increases). We further review the role of electricity storage and other flexibility options for integrating variable renewables and how storage can contribute to mitigating the two mentioned effects. We also use a stylized open-source model to provide some graphical intuition on these issues. While relatively high shares of VRE are achievable with moderate amounts of electricity storage, the role of long-duration storage increases as the VRE share approaches 100%.

Environmental Benefit-Cost Analysis: A Comparative Analysis Between the United States and the United Kingdom

The United States and United Kingdom have long-standing traditions in the use of environmental benefit-cost analysis (E-BCA). While there are similarities between how E-BCA is utilized, there are significant differences too, many of which mirror ongoing debates and recent developments in the literature on environmental and natural resource economics. We review the use of E-BCA in both countries across three themes: ( a) the role of long-term discounting, ( b) the estimation and use of carbon valuation, and ( c) the estimation and use of the value of a statistical life. In each case, we discuss how academic developments are (and are not) translated into practical use and draw comparative lessons. We find that, in some cases, practical differences in E-BCA can be overstated, although in others these seem more substantive. Advances in the academic frontier also raise the question of when and how to update practical E-BCA, with very different answers across our themes. Expected final online publication date for the Annual Review of Resource Economics, Volume 13 is October 2021. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

A Line in Space: Pricing, Location, and Market Power in Agricultural Product Markets

Agricultural economists have a long history of emphasizing and analyzing the spatial dimension of agricultural and food markets. Despite a rich body of literature and important contributions to agricultural and spatial economics, one aspect is frequently disregarded: the oligopsonistic nature of agricultural markets due to spatial competition of neighboring buyers of farm products. This review presents the theoretical foundations of spatial pricing, competition, and location in terms of buyer power and discusses concepts that are relevant for agricultural markets. By providing a comprehensive overview of prior work, we highlight the multifaceted areas of applications to agricultural markets. Additionally, we discuss future research avenues for and challenges of the analysis of spatial competition in agricultural economics. Expected final online publication date for the Annual Review of Resource Economics, Volume 13 is October 2021. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

Agricultural Labor Supply

The labor supply response to agricultural wages is critical to the viability of crop production in high-income countries, which hire a largely foreign farm work force, as well as in low-income countries, where domestic workers move off the farm as the agricultural transformation unfolds. Modeling agricultural labor supply is more challenging than modeling the supply of other agricultural inputs or of labor to other sectors of the economy owing to unique features of agricultural production and farm labor markets. Data and econometric challenges abound, and estimates of agricultural labor supply elasticities are sparse. This review explains the importance and challenges of modeling farm labor supply and describes researchers’ efforts to address these challenges. It summarizes estimates of agricultural labor supply elasticities over the last 80 years, provides insights into variation in these estimates, identifies priority areas for future research, and reviews the most influential empirical work related to this important topic. Expected final online publication date for the Annual Review of Resource Economics, Volume 13 is October 2021. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

Understanding the Improbable: A Survey of Fat Tails in Environmental Economics

We survey the growing literature on fat-tailed distributions in environmental economics. We then examine the theoretical and statistical properties of such distributions, focusing especially on when these properties are likely to arise in environmental problems. We find that a number of variables are fat tailed in environmental economics, including the climate sensitivity, natural disaster impacts, spread of infectious diseases, and stated willingness to pay. We argue that different fat-tailed distributions arise from common pathways. Finally, we review the literature on the policy implications of fat-tailed distributions and controversies over their interpretation. We conclude that the literature has made great strides in demonstrating when fat tails matter for optimal environmental policy. Yet, much is less well understood, including how alternative policies affect fat-tailed distributions, the optimal policy in a computational economy with many fat-tailed problems, and how to account for imprecision in empirical tests for fat tails. Expected final online publication date for the Annual Review of Resource Economics, Volume 13 is October 2021. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

Agricultural Trade and Environmental Sustainability

Global agriculture consumes substantial resources and produces significant pollution. By shifting its production to new locations, and inducing changes in technology and input use, trade has a substantial impact on environmental sustainability of the world's food systems, but due to suboptimal environmental policy, the exact nature of these impacts is in dispute. We review the literature on agricultural trade and environmental sustainability, highlighting the different approaches taken in ecology versus economics. While useful in identifying environmental costs, much of the ecological literature does not compare these costs to a trade-free counterfactual and can therefore be misleading. Further, by moving production to places with more resources and increasing production efficiency, trade can reduce the environmental impact of food production. On the other hand, trade can also limit the effectiveness of domestic environmental policy because production can be shifted to countries with less stringent regulations. However, recently, consumers are leveraging trade policy to induce exporters to improve environmental sustainability. While such policies are gaining traction in wealthy countries, evidence suggests that such measures will not reach their potential without buy-in from decision makers in the countries where the environmental damages are occurring. Expected final online publication date for the Annual Review of Resource Economics, Volume 13 is October 2021. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

Food Systems for Human and Planetary Health: Economic Perspectives and Challenges

Food systems are currently facing unprecedented challenges. More than 690 million people still suffer hunger while climate change, rapid depletion of natural resources, and loss of biodiversity further threaten future food systems. Influential global reports emphasize the need for fundamental transformations of food systems for human and planetary health, but few incorporate economic considerations. This review adopts an economic lens to assessing potential transitions to ideal food systems that are productive, sustainable, nutritious, resilient, and inclusive. Our findings show that new technologies, policies, institutions, and behavior changes can leverage synergies for achieving multiple food system targets, but rigorous economic analysis is needed to further analyze trade-offs and to overcome complex behavioral, institutional, and political barriers. This review also points to important knowledge gaps that economists and other social scientists must address to contribute to the radical transformation of food systems. Expected final online publication date for the Annual Review of Resource Economics, Volume 13 is October 2021. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

Price Transmission in Agricultural Markets

We review recent developments in the analysis of price transmission in agricultural markets. Markets may be separated in time, form, and space (as well as in combinations of such factors). Transactions and storage costs as well as production and marketing factors delineate these markets. We show that much of the research on spatial market linkages has reflected methodological advances that have led to increasingly nonlinear time-series models. Advances in the theoretical and empirical literature over the last few decades have demonstrated that price relationships in the food chain are highly context specific. Improvements in marketing, information, and transportation technology have strengthened the links between prices in the food system, but at the same time links in the food chain are increasingly subject to vertical coordination and, thus, less visible to outside observers, including researchers. Expected final online publication date for the Annual Review of Resource Economics, Volume 13 is October 2021. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

The Capitalization of Agricultural Subsidies into Land Prices

We review the recent theoretical and empirical literature on the capitalization of agricultural subsidies into land prices. The theoretical literature predicts that agricultural subsidies are capitalized into land prices when land supply is inelastic and land markets function well. The share of capitalized subsidies significantly depends on the implementation of farm subsidies, local land-market institutions, rural market imperfections, and spatial effects. Most empirical studies have shown that agricultural subsidies are only partially capitalized into land prices, estimating that decoupled payments and land-based subsidies exhibit higher capitalization than coupled payments and nonland-based subsidies, respectively. However, estimated capitalization rates vary widely across studies largely because of data availability and identification challenges. Expected final online publication date for the Annual Review of Resource Economics, Volume 13 is October 2021. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.