Permitting Risks, Litigation Threats, and Energy Infrastructure Investment
Presented by:
Yifei Liu
Practice Job Talk
Department of Agricultural and Applied Economics
University of Wisconsin-Madison
Wednesday, October 15, 2025
12:00 pm-1:30 pm
Taylor-Hibbard Seminar Room (Rm103)
Legal risks arising from the permitting process may deter energy infrastructure development, but their magnitude and mechanisms are unclear. Using novel litigation data on environmental and land-use permits, I study this question in the context of renewable energy infrastructure. I find that litigation influences market entry through two pathways. Directly, a history of litigation deters renewable market entry by 4 percent at the mean entry rate through perceived risk, while legal precedent encourages entry by 9 percent by clarifying legal standards. Indirectly, through regulatory agency responses, litigation extends permit review timelines by 21 days on average and by 206 days following negative rulings, while legal precedent mitigates these delays. The informational clarity created by legal precedent generates non-rival, non-excludable spillovers, resembling a public good. Because developers bear private litigation costs while the benefits of clearer standards are shared across the market, economic theory predicts underinvestment in legal precedent. I next develop a structural model of entry and legal proceedings to quantify permitting costs and evaluate the extent of this underinvestment. The model estimates average permitting costs of $5.5 million, or 14 percent of expected project net profits. Counterfactual simulations show that a subsidy for the cost of an appeal would increase market entry by 6 percent, compared to 3.4 percent from permitting cost reductions. Internalizing the externalities of legal precedent may accelerate renewable deployment more effectively than administrative reforms alone.