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Technology Diffusion and Environmental Regulation: The Adoption of Scrubbers by Coal-Fired Power Plants

  • Elaine Frey
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    This research examines the technological diffusion of scrubbers, a sulfur dioxide (SO2) abatement technology, in response to Title IV of the Clean Air Act. Title IV implemented a tradable pollution permit system for SO2, which is radically different from the state emission rate standards that were in place previously. I find that power plants with strict state regulations (or command-and-control regulations) and low expected scrubber installation costs have a high probability of installing a scrubber. These findings suggest that, although Title IV has encouraged diffusion, some scrubbers have been installed because of state regulatory pressure. Since policies are often evaluated based on the incentives they provide to promote adoption of new technologies, it is important that policy makers understand the relationship between technological diffusion and regulatory structure to make informed decisions. Although tradable permit systems are thought to give firms more flexibility in choosing abatement technologies, I show that interactions between a permit system and pre-existing command-and-control regulations can limit that flexibility.

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    Paper provided by National Center for Environmental Economics, U.S. Environmental Protection Agency in its series NCEE Working Paper Series with number 200804.

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    Length: 36 pages
    Date of creation: Mar 2008
    Date of revision: Mar 2008
    Handle: RePEc:nev:wpaper:wp200804
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    1. Stoneman, Paul & Kwon, Myung-Joong, 1994. "The Diffusion of Multiple Process Technologies," Economic Journal, Royal Economic Society, vol. 104(423), pages 420-31, March.
    2. Jaffe, Adam B. & Newell, Richard G. & Stavins, Robert N., 2003. "Chapter 11 Technological change and the environment," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 1, chapter 11, pages 461-516 Elsevier.
    3. Jung, Chulho & Krutilla, Kerry & Boyd, Roy, 1996. "Incentives for Advanced Pollution Abatement Technology at the Industry Level: An Evaluation of Policy Alternatives," Journal of Environmental Economics and Management, Elsevier, vol. 30(1), pages 95-111, January.
    4. Wayne B Gray & Ronald J Shadbegian, 1997. "Environmental Regulation, Investment Timing, and Technology Choice," Working Papers 97-9, Center for Economic Studies, U.S. Census Bureau.
    5. Nancy L. Rose & Paul L. Joskow, 1990. "The Diffusion of New Technologies: Evidence from the Electric Utility Industry," RAND Journal of Economics, The RAND Corporation, vol. 21(3), pages 354-373, Autumn.
    6. Stavins, Robert & Snyder, Lori & Miller, Nolan, 2003. "The Effects of Environmental Regulation On Technology Diffusion: The Case of Chlorine Manufacturing," Discussion Papers dp-03-25, Resources For the Future.
    7. Geroski, P. A., 2000. "Models of technology diffusion," Research Policy, Elsevier, vol. 29(4-5), pages 603-625, April.
    8. Parry, Ian & Pizer, William & Fischer, Carolyn, 1998. "Instrument Choice for Environmental Protection When Technological Innovation is Endogenous," Discussion Papers dp-99-04, Resources For the Future.
    9. Massoud Karshenas & Paul L. Stoneman, 1993. "Rank, Stock, Order, and Epidemic Effects in the Diffusion of New Process Technologies: An Empirical Model," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 503-528, Winter.
    10. Suzi Kerr & Richard G. Newell, 2003. "Policy-Induced Technology Adoption: Evidence from the U.S. Lead Phasedown," Journal of Industrial Economics, Wiley Blackwell, vol. 51(3), pages 317-343, 09.
    11. Bellas, Allen S., 1998. "Empirical evidence of advances in scrubber technology," Resource and Energy Economics, Elsevier, vol. 20(4), pages 327-343, December.
    12. Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-79, June.
    13. Ireland, N & Stoneman, P, 1986. "Technological Diffusion, Expectations and Welfare," Oxford Economic Papers, Oxford University Press, vol. 38(2), pages 283-304, July.
    14. David Popp, 2001. "Pollution Control Innovations and the Clean Air Act of 1990," NBER Working Papers 8593, National Bureau of Economic Research, Inc.
    15. Milliman, Scott R. & Prince, Raymond, 1989. "Firm incentives to promote technological change in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 247-265, November.
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    17. Hannan, Timothy H & McDowell, John M, 1987. "Rival Precedence and the Dynamics of Technology Adoption: An Empirical Analysis," Economica, London School of Economics and Political Science, vol. 54(214), pages 155-71, May.
    18. repec:sae:ecolab:v:16:y:2006:i:2:p:1-2 is not listed on IDEAS
    19. Nikolay Nenovsky & S. Statev, 2006. "Introduction," Post-Print halshs-00260898, HAL.
    20. M. Ruth & K. Donaghy & P. Kirshen, 2006. "Introduction," Chapters, in: Regional Climate Change and Variability, chapter 1 Edward Elgar.
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