Cost-Effective Reduction of NOx Emissions from Electricity Generation

This paper analyzes the benefits and costs of policies to reduce nitrogen oxides (NOX) emissions from electricity generation in the United States. Because emissions of NOX contribute to the high concentration of atmospheric ozone in the eastern states that is associated with health hazards, the U.S. Environmental Protection Agency (EPA) has called on eastern states to formulate state implementation plans (SIPs) for reducing NOX emissions. Our analysis considers three NOX reduction scenarios: a summer seasonal cap in the eastern states covered by EPA's NOX SIP Call, an annual cap in the same SIP Call region, and a national annual cap. All scenarios allow for emissions trading. Although EPA's current policy is to implement a seasonal cap in the SIP Call region, this analysis indicates that an annual cap in the SIP Call region would yield about 400 million dollars more in net benefits (benefits less costs) than would a seasonal policy, based on particulate-related health effects only. An annual cap in the SIP Call region is also the policy that is most likely to achieve benefits in excess of costs. Consideration of omissions from this accounting, including the potential benefits from reductions in ozone concentrations, strengthens the finding that an annual program offers greater net benefits than a seasonal program.