| In the first chapter, I focus on the relationship between energy futures and the aggregate economy. Wide and frequent variation in the association between energy futures and the overall stock market facilitates a novel test of the conditional Capital Asset Pricing Model (CAPM). Using commodity futures and covariances with the S&P; 500, I find excess returns on rollover futures contracts to be strongly associated with market betas, and fail to reject conditional CAPM when weekly beta estimates are corrected for measurement error. Moreover, the time path of estimated betas of crude oil reflects historical shocks to demand and supply that would naturally give rise to betas of different signs. Examples include the Gulf War of 1990-1991 (negative beta), Iraq War of 2003 (negative beta), OPEC oil expansion in 1986 (negative beta), and Recessions of 2000 and 2007(positive betas).;In the second chapter, I examine how uncertainty affects the choice of discount rate especially in the context of energy investments. The expected present value of investments that pay dividends in the form of energy savings is strongly influenced by uncertainty about discount rates. Discount rate uncertainty stems from interest rate uncertainty, risk premium uncertainty and energy-price uncertainty. I develop a state-space model that simultaneously considers all three components of the discount rate and use the model to project uncertainties into the future. From these projections, I estimate certainty-equivalent discount rates for investments with different longevities, including fuel efficient cars (10-15 years), photovoltaic solar panels and windmills (20-30 years). I find certainty-equivalent discount rates are sensitive to model specification but tend to be much lower than discount rates conventionally used in practice.;In the third chapter, I study prices and sales of individual clothes washer models before, during and after a 2007 standard that banned manufacture (but not sale) of low-efficiency units and increased the threshold for Energy Star certification. While quantities sold of washer models banned from manufacture decreased sharply, prices for banned models increased only modestly. At the same time, sales of higher-efficiency units rose markedly while prices for high-efficiency units declined. On average, washer efficiency increased but prices changed little. A simple welfare analysis indicates that consumer welfare loss from banned washers was far outweighed by gains from lower-priced high-efficiency units. While a full cost-benefit analysis is not feasible with the available data, I estimate a lower-bound gain in consumer surplus equal to 3-15 percent of total sales. This result may accord with earlier theoretical research that shows quality standards can increase welfare in monopolistically competitive industries that possess increasing returns to scale (Ronnen, 1991). Thus, if energy efficiency is a close proxy for quality, energy efficiency standards may increase competition, market efficiency and welfare. |
