Hannah Druckenmiller joins the Caltech faculty this year as an assistant professor of economics. An environmental economist, Druckenmiller focuses on governmental policies concerned with preserving natural resources: whether the policies succeed or fail, how their costs and benefits can be better conceptualized for decision-makers, and how the effects of climate change can best be ameliorated through improved regulation.
Druckenmiller earned her PhD in economics at UC Berkeley and most recently worked for Resources for the Future (RFF), a nonprofit in Washington, D.C., focused on environmental economics and policy research.
What environmental policies are you most interested in?
Two of the most significant environmental regulations in the United States at the federal level are the Clean Water Act and the Clean Air Act. Although these regulations have been in place for more than 50 years, they're constantly being reassessed and reinterpreted. The scope of the Clean Water Act, for example, is repeatedly debated and redefined by the Supreme Court, presidential administrations, and state litigation. In fact, the Environmental Protection Agency has had different interpretation of which waters are regulated by the Clean Water Act under Presidents Obama, Trump, and Biden. And the change in the scope of environmental regulation is significant-we estimate that 30-40 percent of regulated waters lost federal protection when the Clean Water Act was reinterpreted by the Trump administration.
How can the scope of the Clean Water Act change so dramatically?
The regulation is written in an ambiguous way. It's not clear exactly what is protected. The Clean Water Act protects the "Waters of the United States." This phrase clearly includes navigable waterways like the Mississippi River, and clearly excludes a small puddle in your backyard. Debates center around whether the law protects intermediate cases like isolated wetlands or ephemeral streams that flow a few days per year. In order to decide whether a water resource-like a lake or a river-is regulated, the government sends out an engineer from the Army Corps. These are case-by-case decisions, and we don't have even a ballpark figure for what percent of streams or wetlands in the United States are regulated. One of my projects is trying to use machine learning to map this. Basically, we're creating an algorithm trained on all these case-by-case decisions that have been made historically to decide what the possibility is of any particular resource being regulated. We're trying to understand what was originally regulated, how that scope changes when you get a narrower interpretation of what's protected, and then what the downstream consequences are.
What types of downstream consequences have you looked at?
I'm interested in how ecosystem services change when you alter environmental protections. Under the Trump administration's interpretation of the "Waters of the United States," a significant share of wetlands was deregulated. I wanted to understand how this would impact the flood protection services that wetlands provide. We found that converting 1 hectare of wetlands (roughly the size of 2.5 football fields) to built-up land increases property damages from flooding by more than $12,000 per year. These costs are rarely borne by the developer who converted the wetlands to another use-they are mostly borne by downstream community members who no longer benefit from the wetlands' ability to trap and slowly release water that would otherwise cause flooding.
How do you look at effects of climate change?
I recently did a project on how to disincentivize development in areas that are most likely to be affected by climate change. We already have high levels of development in places that are at risk from coastal flooding and sea level rise. One big question is, how can we manage retreat from those places? A second question is how we can stop future development in those risky places.
A longstanding hypothesis in economics is that, intentionally or not, the government subsidizes development in environmentally fragile places by providing risk management tools like insurance, or funding for infrastructure such as roads, water lines, and sewage systems, and by providing disaster assistance when problems arise. When there's a hurricane and the federal government comes in and gives the locality or individuals money to recover, that's indirectly subsidizing them for living there in the first place.
So our question was, if you got rid of government subsidies in these fragile places, could that alone prevent development there? Or are these such desirable places-they are along beautiful coastlines-that governmental subsidies, or their lack, wouldn't make a significant dent in the amount of development you see? We looked at this program from the 1980s called the Coastal Barrier Resources System, which was a policy that removed these types of subsidies for development in designated areas along the Atlantic and Gulf coasts. We wanted to see the long-term effect of the policy. Forty years later, do we see much lower levels of development in these places?
The challenge to studying the Coastal Barrier Resources System is that designated areas were not randomly assigned along the coast. They were intentionally selected by land-use planners because they were considered risky or because the land was thought to have environmental value. We were able to find controls-similar places not affected by the Coastal Barrier Resources System program-by running a machine-learning procedure intended to mimic the process by which land-use planners designated target areas in the 1980s. This allowed us to find places that were statistically indistinguishable from treated areas in the 1980s, but which did not enter the program. Then we compared outcomes in the treatment and the control areas. What we found is that this policy did a lot to reduce development. On average, the protected areas had 85 percent lower development levels.
What I found most interesting is that we also found evidence that the areas without federal incentives for development created spillover benefits to surrounding communities. By conserving natural land, ensuring that it wasn't converted into built-up area, we saw flood-protection benefits in the areas surrounding wetlands. We even saw higher property values in those areas because they're next to a natural amenity: namely, these pristine coastal areas.
That was interesting to me as an economist. It implies that federal programs to reduce disaster exposure don't need to conflict with local interests in maintaining the tax base. A lot of localities don't want these protected areas in their jurisdiction because they think that if they kill development it will lower their property tax revenue. But what we found is that restricting development in these coastal areas has no net effect on property tax revenue across the counties they're located in. There are higher property values in surrounding areas and lower property values in the designated protected area, so most often these two effects cancel each other out.
Do you think removing subsidies for development in wildfire prone areas could work the same way?
My coauthors at Resources for the Future and I are hoping to work more on this. Some of my collaborators do a lot of work on wildfires, and we're really interested to see if you could institute a similar policy in the wildland-urban interface. There are differences between coastal areas and wildland-urban interfaces, so it's not obvious that the same policy instrument would work, but that's something we're interested in looking at.
How did you become interested in environmental policy?
