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Plant vintages, grandfathering, and environmental policy

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  • Heutel, Garth

Abstract

Environmental regulations that grandfather existing plants, by not holding them to the same strict standards as new plants, may have the unintended consequence of retarding new investment. If new plants are cleaner, then this effect may increase pollution in the short run. I develop a dynamic model of a facility's decisions over scrapping and abatement, which depend on capital depreciation, profitability shocks, and environmental policy. Using data from fossil fuel fired boilers at electric power plants, I estimate the structural parameters of the model and assess the impact of grandfathering in the Clean Air Act on sulfur dioxide emissions. Counterfactual policy simulations show that an increase in the stringency of performance standards would have led to a decrease in investment in new boilers. However, this does not lead to increased emissions, since there is less investment in dirtier coal boilers as compared to relatively cleaner oil or natural gas boilers.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 61 (2011)
Issue (Month): 1 (January)
Pages: 36-51

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Handle: RePEc:eee:jeeman:v:61:y:2011:i:1:p:36-51

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Web page: http://www.elsevier.com/locate/inca/622870

Related research

Keywords: Clean Air Act Sulfur dioxide Method of simulated moments Vintage-differentiated regulation Electric power plants;

References

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Cited by:
  1. Bushnell, James & Wolfram, Catherine, 2008. "Enforcement of Vintage Differentiated Regulations: The Case of New Source Review," Staff General Research Papers 31185, Iowa State University, Department of Economics.
  2. Li, Zhe, 2008. "Productivity Dispersion across Plants, Emission Abatement, and Environmental Policy," MPRA Paper 9564, University Library of Munich, Germany.
  3. Adair, Sarah K. & Hoppock, David C. & Monast, Jonas J., 2014. "New Source Review and coal plant efficiency gains: How new and forthcoming air regulations affect outcomes," Energy Policy, Elsevier, vol. 70(C), pages 183-192.
  4. Calcott, Paul, 2012. "Regulatory triggers and New Source Review," Resource and Energy Economics, Elsevier, vol. 34(3), pages 337-348.

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