SO2 control by electric utilities: What are the gains from trade?
Title IV of the 1990 Clean Air Act Amendments, which establishes a market for transferrable sulfur dioxide discharge permits (SO{sub 2} allowances), has been hailed by economists as a triumph of economic incentives over command and control regulation. The gains from using economic incentives are a reduction in the costs of pollution control: Firms operating at high marginal pollution abatement costs are supposed to purchase the right to emit SO{sub 2} from firms operating at low marginal abatement costs, with cost savings resulting as abatement shifts from high-to-low marginal cost firms. flow large are the potential cost savings from SO{sub 2} allowance trading? How many of these gains have been realized during the first year of operation of the allowance market? To answer these questions requires estimates of the marginal cost of abating SO{sub 2} emissions for all generating units affected by Title IV of the CAAA. While there have been various engineering cost estimates of abatement costs and of the gains from trade, there have been no estimates based on the actual responses of plants to changes in emissions standards and input prices. The purpose of this paper is to provide such estimates. To provide econometric estimates of marginal abatement costs and the potential gains from trade we have assembled a database covering the years 1985-94, that contains over 800 coal-fired generating units. In 1994 these units produced 87 percent of the SO{sub 2} emissions generated by all coal-fired power plants in the United States and accounted for 77 percent of the heat input consumed by all coal-fired power plants. For each generating unit we have annual observations on labor, generating capital, abatement capital, and inputs of high- and low-sulfur coal. We also know the emissions standard facing the generator, as well as its output and mean annual emissions rate. Data on input prices complete the dataset.
- OSTI ID:
- 617867
- Report Number(s):
- CONF-970145--
- Country of Publication:
- United States
- Language:
- English
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