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Enforcement of Vintage Differentiated Regulations: The Case of New Source Review

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  • Bushnell, James
  • Wolfram, Catherine

Abstract

�This paper analyzes the effects of the New Source Review (NSR) environmentalregulations on coal-fired electric power plants. �Regulations that grew out of the Clean Air Act of 1970 required new electric generating plants to install costly pollution control equipment but exempted existing plants. �Existing plants lost their exemptions if they made ``major modifications.'' �We examine whether this caused firms to invest less in grandfathered plants, possibly leading to lower efficiency and higher emissions. We find �evidence that heightened NSR enforcement reduced capital expenditures at vulnerableplants. However, we find no discernable effect on other inputs or emissions.This paper analyzes the effects of the New Source Review (NSR) environmental�regulations on coal-fired electric power plants. �Regulations that grew out of the Clean Air Act of 1970 required new electric generating plants to install costly pollution control equipment but exempted existing plants. �Existing plants lost their exemptions if they made ``major modifications.'' �We examine whether this caused firms to invest less in grandfathered plants, possibly leading to lower efficiency and higher emissions. We find �evidence that heightened NSR enforcement reduced capital expenditures at vulnerable�plants. However, we find no discernable effect on other inputs or emissions.�

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 31805.

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Date of creation: 02 Mar 2010
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Handle: RePEc:isu:genres:31805

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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Keywords: New Source Review; Environmental Regulations; productivity; electricity;

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References

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  1. Michael Greenstone, 2003. "Did the Clean Air Act Cause the Remarkable Decline in Sulfur Dioxide Concentrations?," Working Papers, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research 0407, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  2. Gollop, Frank M & Roberts, Mark J, 1983. "Environmental Regulations and Productivity Growth: The Case of Fossil-Fueled Electric Power Generation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(4), pages 654-74, August.
  3. George S Olley & Ariel Pakes, 1992. "The Dynamics Of Productivity In The Telecommunications Equipment Industry," Working Papers 92-2, Center for Economic Studies, U.S. Census Bureau.
  4. Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," Harvard Institute of Economic Research Working Papers 1719, Harvard - Institute of Economic Research.
  5. 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.
  6. Goldberg, Pinelopi Koujianou, 1998. "The Effects of the Corporate Average Fuel Efficiency Standards in the US," Journal of Industrial Economics, Wiley Blackwell, vol. 46(1), pages 1-33, March.
  7. Stavins, Robert, 2005. "Vintage-Differentiated Environmental Regulation," Working Paper Series rwp05-065, Harvard University, John F. Kennedy School of Government.
  8. Andrew N. Kleit & Dek Terrell, 2001. "Measuring Potential Efficiency Gains From Deregulation Of Electricity Generation: A Bayesian Approach," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 523-530, August.
  9. Christopher R. Knittel, 2002. "Alternative Regulatory Methods And Firm Efficiency: Stochastic Frontier Evidence From The U.S. Electricity Industry," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 530-540, August.
  10. Nelson, Randy A & Tietenberg, Tom & Donihue, Michael R, 1993. "Differential Environmental Regulation: Effects on Electric Utility Capital Turnover and Emissions," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 368-73, May.
  11. Maloney, Michael T & Brady, Gordon L, 1988. "Capital Turnover and Marketable Pollution Rights," Journal of Law and Economics, University of Chicago Press, vol. 31(1), pages 203-26, April.
  12. Ian Lange & Josh Linn, 2006. "Bush v. Gore and the Effect of New Source Review on Power Plant Emissions," Working Papers UWEC-2007-02, University of Washington, Department of Economics.
  13. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 70(2), pages 317-341, 04.
  14. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, Econometric Society, vol. 65(3), pages 557-586, May.
  15. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
  16. Heutel, Garth, 2011. "Plant vintages, grandfathering, and environmental policy," Journal of Environmental Economics and Management, Elsevier, vol. 61(1), pages 36-51, January.
  17. List John A. & Millimet Daniel L & McHone Warren, 2004. "The Unintended Disincentive in the Clean Air Act," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(2), pages 1-28, February.
  18. Christensen, Laurits R & Greene, William H, 1976. "Economies of Scale in U.S. Electric Power Generation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 84(4), pages 655-76, August.
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Cited by:
  1. David Popp & Richard G. Newell & Adam B. Jaffe, 2009. "Energy, the Environment, and Technological Change," NBER Working Papers 14832, National Bureau of Economic Research, Inc.
  2. Linn, Joshua & Mastrangelo, Erin & Burtraw, Dallas, 2013. "Regulating Greenhouse Gases from Coal Power Plants under the Clean Air Act," Discussion Papers, Resources For the Future dp-13-05, Resources For the Future.

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