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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. Christensen, Laurits R & Greene, William H, 1976. "Economies of Scale in U.S. Electric Power Generation," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 655-76, August.
  2. Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," NBER Working Papers 5067, National Bureau of Economic Research, Inc.
  3. 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.
  4. 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.
  5. 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.
  6. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
  7. 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.
  8. 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.
  9. 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.
  10. Greenstone, Michael, 2004. "Did the Clean Air Act cause the remarkable decline in sulfur dioxide concentrations?," Journal of Environmental Economics and Management, Elsevier, vol. 47(3), pages 585-611, May.
  11. 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.
  12. 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.
  13. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Wiley Blackwell, vol. 70(2), pages 317-341, 04.
  14. 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.
  15. Heutel, Garth, 2011. "Plant vintages, grandfathering, and environmental policy," Journal of Environmental Economics and Management, Elsevier, vol. 61(1), pages 36-51, January.
  16. 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, vol. 91(4), pages 654-74, August.
  17. 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.
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Cited by:
  1. Linn, Joshua & Mastrangelo, Erin & Burtraw, Dallas, 2013. "Regulating Greenhouse Gases from Coal Power Plants under the Clean Air Act," Discussion Papers dp-13-05, Resources For the Future.
  2. 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.

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