In turn, CEEPR is one of the two MIT research centers sponsoring:
Since before the Center’s inception, Professor Paul L. Joskow has led an extensive and influential research effort broadly focused on the performance and regulation of the electric utility industry. Among the more important results of that work is Markets for Power, by Professor Joskow and Professor Richard Schmalensee, a former director of the Center. This book helped shape a decade of debate on deregulation, regulatory reform, and the role of competition in the electric utility sector. The Center continues to publish research on all aspects of electricity markets, including assuring adequate generating capacity,transmission investments, retail competition and new technologies.
As environmental problems have become increasingly complex and the cost of achieving more stringent environmental goals has risen, public policy interest has turned to alternatives to traditional command-and-control approaches to environmental regulation. Since early 1995, the Center has contributed greatly to public understanding of one such alternative through its definitive study of implementation of the U.S. Acid Rain Program, the first large-scale use of tradable permits to achieve an environmental goal. The program is described and evaluated in the book Markets for Clean Air, principally authored by Ellerman, Joskow, and Schmalensee, and was published in early 2000. The Center continues this work in its studies of the creation of markets for carbon including the European Union’s Emissions Trading Scheme, as well as studies of market approaches to regulation of traditional pollutants.
The Center’s most ambitious effort to date is the Joint Program on the Science and Policy of Global Change, which is co-sponsored with MIT’s Center for Global Change Science and co-directed by Professors Henry D. Jacoby, the CEEPR’s first director, and Ronald G. Prinn, director of MIT’s Center for Global Change Science. Through this program, MIT’s excellence in physical sciences, engineering, and the policy sciences is focused on a completely integrated approach to the problems of global change.
Human Welfare and the Environment
The Center applies scientific tools to understand the complex relationship between human welfare and the environment in a variety of different contexts. Among the leaders in this field is Professor Michael Greenstone who has studied the economic impacts of climate change, the costs and benefits of air quality, the returns to clean-ups of hazardous waste sites, and the role of environmental quality in fostering growth in developing countries, bringing rigorous economic analysis to bear on the design of public policies that govern the environment.
Investment, Finance & Risk Management
Capital budgeting and contract design for large-scale energy projects is increasingly complicated by future operating cost uncertainty, changing regulations and tax policies, and technology developments. Recent advances in finance theory have resulted in new analytical methods that directly address the strategic costs and benefits associated with these uncertainties. Since the mid-1980s, the Center has funded research that has developed practical methods of applying option-pricing techniques to evaluate a large class of risky investments. Some results have been published in Professor Robert S. Pindyck’s Investment Under Uncertainty, co-authored with Professor Avinash K. Dixit of Princeton. Current research is directed toward improving our understanding of the use of energy futures, forwards, and other forms of risk management in energy markets.