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The 1990 Clean Air Act and the Implicit Price of Sulfur in Coal

Author

Listed:
  • Lange Ian

    () (US EPA)

  • Bellas Allen S

    () (Metropolitan State University)

Abstract

Prior to implementation of the 1990 Clean Air Act Amendments (CAAA), many estimates of the marginal cost of SO2 abatement were provided to guide policy makers. Numerous studies estimated the marginal cost of abatement to be between $250 and $760 per ton, though permits initially traded well below $200 and remained below $220 until 2004. We use a fixed effects estimator and a hedonic price model of coal purchases in order to determine the implicit price of sulfur. Data on contract coal purchases are divided into regulatory regimes based on when the contract was signed or re-negotiated. We find that purchases by Phase I plants made under contracts signed or re-negotiated after the passage of the 1990 CAAA show an implicit price of SO2 of approximately $50 per ton, an amount much closer to the eventual permit price. The implicit market price of sulfur seems to have revealed better information than did the calculations of industry experts.

Suggested Citation

  • Lange Ian & Bellas Allen S, 2007. "The 1990 Clean Air Act and the Implicit Price of Sulfur in Coal," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-25, August.
  • Handle: RePEc:bpj:bejeap:v:7:y:2007:i:1:n:41
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    Citations

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    Cited by:

    1. Chan, H. Ron & Chupp, B. Andrew & Cropper, Maureen & Muller, Nicholas Z., 2015. "The Net Benefits of the Acid Rain Program: What Can We Learn from the Grand Policy Experiment?," Discussion Papers dp-15-25, Resources For the Future.
    2. Kosnik, Lea & Lange, Ian, 2011. "Contract renegotiation and rent re-distribution: Who gets raked over the coals?," Journal of Environmental Economics and Management, Elsevier, vol. 62(2), pages 155-165, September.
    3. Di Maria, Corrado & Lange, Ian & van der Werf, Edwin, 2014. "Should we be worried about the green paradox? Announcement effects of the Acid Rain Program," European Economic Review, Elsevier, vol. 69(C), pages 143-162.
    4. Chan, H. Ron & Fell, Harrison & Lange, Ian & Li, Shanjun, 2017. "Efficiency and environmental impacts of electricity restructuring on coal-fired power plants," Journal of Environmental Economics and Management, Elsevier, vol. 81(C), pages 1-18.
    5. He, Qingxin & Lee, Jonathan M., 2014. "Additional market incentives for abatement: An analysis of flue-gas desulfurization by-products," Resource and Energy Economics, Elsevier, vol. 36(2), pages 370-393.
    6. Heutel, Garth, 2011. "Plant vintages, grandfathering, and environmental policy," Journal of Environmental Economics and Management, Elsevier, vol. 61(1), pages 36-51, January.
    7. Ian Lange, 2012. "Hedging in Coal Contracts under the Acid Rain Program," Land Economics, University of Wisconsin Press, vol. 88(3), pages 561-570.

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