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Emissions Trading, Electricity Restructuring, and Investment in Pollution Abatement

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  • Meredith Fowlie

Abstract

This paper analyzes an emissions trading program that was introduced to reduce smog-causing pollution from large stationary sources. Using variation in state level electricity industry restructuring activity, I identify the effect of economic regulation on pollution permit market outcomes. There are two main findings. First, deregulated plants in restructured electricity markets were less likely to adopt more capital intensive environmental compliance options as compared to regulated or publicly owned plants. Second, as a consequence of heterogeneity in electricity market regulations, a larger share of the permitted pollution is being emitted in states where air quality problems tend to be more severe. (JEL L51, L94, L98, Q53, Q58)

Suggested Citation

  • Meredith Fowlie, 2010. "Emissions Trading, Electricity Restructuring, and Investment in Pollution Abatement," American Economic Review, American Economic Association, vol. 100(3), pages 837-869, June.
  • Handle: RePEc:aea:aecrev:v:100:y:2010:i:3:p:837-69
    Note: DOI: 10.1257/aer.100.3.837
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    References listed on IDEAS

    as
    1. Joskow, Paul L, 1974. "Inflation and Environmental Concern: Structural Change in the Process of Public Utility Price Regulation," Journal of Law and Economics, University of Chicago Press, vol. 17(2), pages 291-327, October.
    2. Farrell, Alex & Carter, Robert & Raufer, Roger, 1999. "The NOx Budget: market-based control of tropospheric ozone in the northeastern United States," Resource and Energy Economics, Elsevier, vol. 21(2), pages 103-124, May.
    3. Leon Courville, 1974. "Regulation and Efficiency in the Electric Utility Industry," Bell Journal of Economics, The RAND Corporation, vol. 5(1), pages 53-74, Spring.
    4. Brownstone, David & Train, Kenneth, 1998. "Forecasting new product penetration with flexible substitution patterns," Journal of Econometrics, Elsevier, vol. 89(1-2), pages 109-129, November.
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    6. Krupnick, Alan & McConnell, Virginia & Stoessell, Terrell & Cannon, Matthew & Batz, Michael, 2000. "Cost-Effective NOx Control in the Eastern United States," Discussion Papers dp-00-18, Resources For the Future.
    7. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521747387, May.
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    13. Fullerton, Don & McDermott, Shaun P. & Caulkins, Jonathan P., 1997. "Sulfur Dioxide Compliance of a Regulated Utility," Journal of Environmental Economics and Management, Elsevier, vol. 34(1), pages 32-53, September.
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    More about this item

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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