Food, energy and water sectors are heavily affected by climate change. Multiple new technologies have been introduced to these sectors as mitigation strategies for climate change. This dissertation aims to study whether the use of these technologies in these sectors leads to unexpected environmental consequences and whether these consequences could be alleviated by properly-designed environmental policies and institutions. Different economic analysis tools, such as reduced-form econometrics, structural econometrics, and structural microeconomics simulation, are applied in the analysis.I first study the interaction of environmental policies and technology improvements in food and water sectors. Irrigation technology is used as an example due to its ability to bridge the two sectors. Specifically, I study how institutions such as water rights complement new irrigation technologies in promoting the sustainability of US agriculture. Using data from the Ogallala-High Plains Aquifer (HPA) region of Kansas, I find that water extraction moderately increases after adoption of the more efficient LEPA irrigation. About half of the LEPA's rebound effects arise because adopters tend to irrigate more land and grow more water intensive crops, with the remaining half attributable to more intensive irrigation. More importantly, this rebound effect is in general higher for farmers with larger water rights. A 10% reduction of water rights will reduce water use by 6% in the long run, and if the reduction targets the majority of the water rights, which lie between 100 and 500 AF, LEPA's rebound effects decrease by 15.4%. Finally, farmers also have incentive to apply a small amount of water in order to preserve their water rights, but the associated water waste is insignificant.A related policy question is how to effectively promote the adoption of more efficient irrigation technologies. Complementing the first study in the dissertation, a structural dynamic discrete choice model is developed next to estimate adoption determinants and aggregate diffusion paths of LEPA technology in the Kansas HPA. The estimation results confirm that farmers value the option to delay adoption in the presence of uncertainties and sunk costs. Besides, behavioral biases such as inertia to change farming practices also significantly delay LEPA adoption by increasing perceived adoption costs. This inertia is reduced when more neighbors have adopted LEPA. Finally, under the same level of expected government budget, increase in average adoption probability under profit gain insurance policies is 10% higher than that under cost share subsidies.The last study turns to the energy sector, which is critical in mitigating climate change. Specifically, it looks at how the projected fast decline in solar energy capacity costs affects renewable penetration and CO2 emissions. Using both an analytical model and a dynamic structural simulation model, I show that wind energy capacity investment first increases and then decreases as solar costs decrease due to the complex interaction of wind and solar capacities. Results indicate that when solar costs drop from its 2030 projected level to 2050 projected level, CO2 emissions increase by 12.9% because of the decline in wind energy investment, which indicates that cheaper solar cost does not necessarily imply a cleaner grid without any carbon policy interventions. The use of energy storage to increase renewable penetration in order to reduce carbon emissions, as is suggested in the literature, is economically infeasible as the high storage capacity costs currently prevent any storage investment. However, if the regulator requires that renewable penetration rate could not drop below 36%, the maximum renewable penetration obtained under all levels of possible future solar capacity costs, social welfare from renewable investment in 2050 would increase by $0.77 billion/year due to a decrease in CO2 emissions. This study illustrates the importance of a second-best-type policy in the energy sector facing future decline in solar capacity costs if a carbon tax is not politically available.
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