1. Air pollution, water pollution and GHG emissions could all rise if the scale of the overall economy rises under President Trump. All else equal (and ignoring technological change), a boom increases consumption and production and pollution increases.
2. Composition refers to which industries and energy sources are a growing share of a given economy. For example, as Pittsburgh transitioned from steel to the human capital sector, this induced a "greening" of its industrial composition. San Francisco today has a very clean composition of industry. President Trump seeks to "brown" our industrial composition through lowering energy prices and reducing industrial regulations. I do not believe that these efforts will significantly degrade environmental quality because I don't believe that these jobs "are coming back" to the Rust Belt.
A key composition effect relates to power plant fuel sources. Will states who now get their power from natural gas and renewables go back to Coal? I don't see California making this choice. The richer, more educated states definitely won't go back to the high particulate days of the 1960s.
3. Technique = emissions per unit of economic activity. So, regulation and environmental engineering play a key role here. Mr. Pruitt's actions will affect the "technique effect" . The NY Times will argue that firms' emissions per unit of economic output will rise under President Trump but a key question here pertains to the durability of capital. At any point in time, most of our capital stock (factories, power plants, cars, truck, buildings) are old pieces of capital. For example, I was born in 1966. The building I work at at USC was built in the 1970s, my home was built in 1962. Regulations really only affect "new capital" (and this is a small % of the overall capital stock) and the Gruenspecht effect argues that stringent regulation of new capital can actually backfire and it encourages investors to substitute and to keep old "grandfathered" capital longer because such capital does not face the new emissions control standards.
The key technique issue relates to endogenous technological change. Will the Elon Musks of the world continue investing in the Green Economy? I think they will and thus the Trump Administration will have little impact on the green technological frontier. During the Manhattan Project, the government played the central role in technological leadership. In this age of private capital, this is no longer the case. Green buildings will be adopted by private business if they save investors money. These technologies need to be effective and cost-effective and then even Don Trump will adopt them in his own private deals regardless of the presence of government incentives to "go green".
Given that President Trump can only be President for 8 years, I do not believe that his actions will have long term effects on local pollution challenges. I do think that the U.S would have been more involved in global carbon mitigation had Hilary Clinton been elected. I do not believe that we will see significant impacts of climate change on the U.S economy over the next 8 years. Part of my belief in this last claim is my argument that the U.S firms and households are increasingly investing climate resilience to reduce our exposure to losses from climate change.
Read my papers;
- Matthew E. Kahn, 2016. "The Climate Change Adaptation Literature," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 10(1), pages 166-178.
- Matthew J. Holian & Matthew E. Kahn, 2015. "Household Demand for Low Carbon Policies: Evidence from California," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 2(2), pages 205-234.
- Kahn, Matthew E., 2015. "Climate Change Adaptation: Lessons from Urban Economics," Strategic Behavior and the Environment, now publishers, vol. 5(1), pages 1-30, June.
- Matthew E. Kahn, 2014. "Climate Change Adaptation: Lessons from Urban Economics," NBER Working Papers 20716, National Bureau of Economic Research, Inc.
- Kahn Matthew E., 2015. "Climate Change Adaptation Will Offer a Sharp Test of the Claims of Behavioral Economics," The Economists' Voice, De Gruyter, vol. 12(1), pages 25-30, August.
- Matthew E. Kahn, 2015. "A Review of The Age of Sustainable Development by Jeffrey Sachs," Journal of Economic Literature, American Economic Association, vol. 53(3), pages 654-666, September.
I do hope that the Trump Administration continues to invest in the "Big Data" sensing of environmental outcomes. We need real time information on the heat, rainfall, local pollution and climate risk that every inch of the U.S faces and how these risks evolve over time. Since this information is a public good, NASA should have the budget to measure and post this information. The Trump Administration has nothing to hide. Mike Bloomberg grew rich providing information for traders through the Bloomberg terminals. Why can't the new President provide us with real time facts so that people can adapt and businesses can innovate given emerging data patterns? Let markets work!
One serious margin where the technique effect could turn "brown" would be if polluting firms expect that liability law will be weakened under President Trump. Again, he only appoints new judges but he can't fire incumbent judges. Imagine a case in which it is costly for firms to reduce their emissions (so there is a variable cost of exerting abatement effort). In this case, if firms anticipate that they face low expected fines for pollution, they will respond by exerting less effort and more pollution and industrial accidents will be the result. This is a type of moral hazard effect. Good law and economics scholars should explore this margin.