The Economic Effects of Vintage Differentiated Regulations: The Case of New Source Review
AbstractThis paper analyzes the effects of the New Source Review (NSR) environmental regulations on coal-fired electric power plants. The New Source Review program, which grew out of the Clean Air Act of 1970, required new plants to install costly pollution control equipment but exempted existing plants with a grandfathering clause. Previous theoretical research has shown that vintage differentiated regulations, like NSR, can lead to distortions, and if the distortions are large, the short-run effect of a regulation like NSR may be to increase pollution rather than reduce it. Older, dirtier plants may be kept in service longer or run more intensively since replacing them becomes more expensive. In the case of NSR, there is also an effect associated with its enforcement. Since upgrading a plant could potentially qualify it as a new plant, the old plants may have done less maintenance leading to lower efficiency and higher emissions. This paper attempts to estimate the extent to which these mechanisms have impacted coal-fired electric power plants. We find suggestive evidence that NSR increased operating lifetimes of plants in areas where environmental regulations were most stringent. We also find evidence that the risk of NSR enforcement reduced capital expenditures at plants. However, we find no discernable effect on the operating costs or fuel efficiency of these plants.
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Bibliographic InfoPaper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 13132.
Date of creation: 01 Jan 2006
Date of revision:
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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
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- Steven Shavell, 2007. "On Optimal Legal Change, Past Behavior, and Grandfathering," NBER Working Papers 13563, National Bureau of Economic Research, Inc.
- Nathaniel Keohane & Erin T. Mansur & Andrey Voynov, 2007.
"Averting Regulatory Enforcement: Evidence from New Source Review,"
NBER Working Papers
13512, National Bureau of Economic Research, Inc.
- Nathaniel O. Keohane & Erin T. Mansur & Andrey Voynov, 2009. "Averting Regulatory Enforcement: Evidence from New Source Review," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(1), pages 75-104, 03.
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