Looking to expand MIT’s institutional capacity in key areas of energy research and education, the MIT Energy Initiative has initiated a program to create several endowed faculty chairs across the Institute. The first new chair has been filled by Christopher R. Knittel, who was named the William Barton Rogers Professor of Energy Economics at the MIT Sloan School of Management in the spring.
Born in South Dakota, Christopher R. Knittel grew up in California and had hopes of one day becoming either a professional baseball player or a corporate lawyer. Both passions ultimately lost out when Knittel fell in love with economics as a freshman at California State University at Stanislaus. From there, he went on to the University of California at Davis for his master's degree and then to the University of California, Berkeley for his doctorate. After teaching for several years at Boston University's School of Management, he returned to U.C. Davis, joining the faculty there in 2002. He joined the MIT faculty in spring 2011.
Knittel now works mainly on the economics of transportation policy, but he originally focused on electricity during the deregulation push of the late 1990s. "Actually, when I think back, I'm surprised I didn't [go into transportation] early on," he says. "I've always been a car guy. In high school I built a '68 Mustang Fastback, took the engine out, doubled its horsepower ... My dad was an engineer for Peterbilt, so it's kind of in my blood. But on the economics side of things, I think [I'm motivated by] frustration. If you look at the policies in place, a lot of them are terrible. This is an area in which someone could have a sizeable impact, if they can show via their research what's actually going on."
Through various types of research — empirical, theoretical and model-based — Knittel has done just that, showing the often-hidden costs and benefits of current and prospective policies. "A lot of policies that look really great from a high level and seem like a good thing to do can be quite inefficient," he says. "That's the frustration for economists working in this field: We sort of know what the right set of policies is, but they're politically unfathomable. Essentially, environmental economists want taxes to reverse the externalities associated with pollutants, whether they are nitrogen oxides or greenhouse gases, and policymakers are very reluctant to do that. A lot of my work seeks to make an influence in that arena by showing how inefficient these other policies are."
To that end, Knittel has investigated a wide range of areas. A working paper from August 2011, "Some Inconvenient Truths About Climate Change Policy," finds that the most popular alternatives to a cap-and-trade program, such as ethanol subsides, renewable fuel standards and low-carbon fuel standards, are as much as two and a half to four times costlier. Another recent paper presents results from a study of the impact of traffic, weather conditions and local pollutants on infant mortality rate; the analysis shows a clear relationship among those factors. And in 2009, he examined the very popular Cash for Clunkers program and found it to be a very expensive way of reducing greenhouse gases. (For copies of Knittel's working papers, go to web.mit.edu/ceepr/www/publications/workingpapers.html.)
Similar concerns regarding high cost and more widespread negative economic implications are often raised by carbon-tax and cap-and-trade opponents, but Knittel feels there are ways to implement those programs that would avoid such outcomes and make the measures more politically palatable. He uses his longtime home, California, as an example.
California will soon be implementing a cap-and-trade program for greenhouse gases that will eventually include transportation fuels. Knittel served on an advisory committee convened by the state to give recommendations on how to use the $12 billion that the government would raise each year by auctioning off emissions permits. "We basically said, you should use that revenue to lower taxes. The environmental taxes, as long as they're not too high, are good for the economy, but things like income taxes and sales taxes are bad for the economy. As long as you use the revenue generated from the [environmental] program — whether it be a carbon tax or a cap-and-trade system — to lower those other taxes, which are distorionary, you could actually create a boon to the economy," Knittel says. "We recommend that about 25 percent of the revenue be funneled back to low-income consumers, as we think this tax will be somewhat regressive. So it can be done; it just has to be implemented."
With his work spanning so many fields — from engineering to public health to climate science, often in fine, technical detail — the strength of MIT across disciplines was a big draw for Knittel, as was its institutional commitment to tackling the energy challenge. "The work I do draws heavily on a broad set of sciences ... so even at Davis, I was tapped into the engineering faculty as well as the science faculty. And Davis is great, but on the science side and economics side, there's nothing like MIT. For instance, I was in a research group discussion with [professor emeritus and Sloan Automotive Laboratory stalwart] John Heywood just this week ... The people who are here and the resources are just mind-boggling."
Knittel's first foray into the classroom at MIT will come this spring, when he teaches Energy Economics and Policy (15.037J), a new class that will focus on energy taxes, price regulation, deregulation, energy efficiency and policies for controlling pollution and carbon dioxide emissions. "There are a lot of markets in the economy that we don't worry about because there's nothing wrong with them. A market economy is a great way to organize things," Knittel says. "But sometimes markets fail. The big thing about energy economics is understanding those failures as well as the optimal policies to correct them."
The class will examine various energy markets and how their structures differ and can be differently impacted by policy. "We think of the oil market as a world market, and there's very little the U.S. can do to influence oil prices. But U.S. policymakers can have a big influence on gasoline prices," Knittel explains. "Just understanding the structure of the markets is important for understanding which policies are optimal or can have an influence." Students will get a bit of "real-world experience" through an in-class simulation of the oil market in which they will play firms and make decisions on output and pricing under changing market conditions.
Knittel hopes that the students will also benefit from each other. "Maybe because my research draws on different disciplines, my ideal class is to have students from various fields in the classroom talking about the economics behind all [aspects of energy]," he says. "Inevitably you have to bring in the science, and with [a mix of] students around, everyone's teaching everyone. That's the hope, at least."
This article first appeared in the Autumn 2011 issue of Energy Futures magazine, a publication of the MIT Energy Initiative.