Sulfur dioxide control by electric utilities : what are the gains from trade?
Title IV of the 1990 US Clean Air Act Amendments established a market for transferable sulfur dioxide emission allowances among electric utilities. The market offers firms facing high marginal costs for pollution abatement the opportunity to purchase the right to emit sulfur dioxide from firms with lower costs. It is expected to yield more cost savings than a command and control approach to environmental regulation. To evaluate the performance of themarket for sulfur dioxide allowances, the authors use econometrically estimated marginal abatement cost functions for power plants affected by Title IV. They investigate whether the much-heralded fall in the cost of abating sulfur dioxide can be attributed to allowance trading. They find that for plants that use low-sulfur coal to reduce sulfur dioxide emissions, technical change and the fall in low-sulfur coal prices have lowered marginal abatement cost curves by more than half since 1985. And that is the main source of cost reductions rather than trading allowances per se. In the long run, allowance trading may achieve cost savings of $700 million to $800 million a year more than could be expected from an"enlightened"command and control program with a uniform emission-rate standard. But comparing potential cost savings in 1995 and 1996 with actual emissions costs suggests that most trading gains were unrealized in the first two years of the program.
|Date of creation:||31 Aug 1998|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Denny Ellerman, 1998. "Note on The Seemingly Indefinite Extension of Power Plant Lives, A Panel Contribution," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
- Burtraw, Dallas & Lile, Ron, 1998. "State-Level Policies and Regulatory Guidance for Compliance in the Early Years of the SO2 Emission Allowance Trading Program," Discussion Papers dp-98-35, Resources For the Future.
- Atkinson, Scott E & Kerkvliet, Joe, 1989. "Dual Measures of Monopoly and Monopsony Power: An Application to Regulated Electric Utilities," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 250-57, May.
- Don Fullerton & Gilbert Metcalf, 1997.
"Environmental Controls, Scarcity Rents, and Pre-Existing Distortions,"
NBER Working Papers
6091, National Bureau of Economic Research, Inc.
- Fullerton, Don & Metcalf, Gilbert E., 2001. "Environmental controls, scarcity rents, and pre-existing distortions," Journal of Public Economics, Elsevier, vol. 80(2), pages 249-267, May.
- Don Fullerton & Gilbert E. Metcalf, 1997. "Environmental Controls, Scarcity Rents, and Pre-Existing Distortions," Discussion Papers Series, Department of Economics, Tufts University 9703, Department of Economics, Tufts University.
- 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.
- Morgenstern, Richard & Harrington, Winston & Nelson, Per-Kristian, 1999. "On the Accuracy of Regulatory Cost Estimates," Discussion Papers dp-99-18, Resources For the Future.
- Don Fullerton & Shaun P. McDermott & Jonathan P. Caulkins, 1996.
"Sulfur Dioxide Compliance of a Regulated Utility,"
NBER Working Papers
5542, National Bureau of Economic Research, Inc.
- Oates, Wallace E & Portney, Paul R & McGartland, Albert M, 1989. "The Net Benefits of Incentive-Based Regulation: A Case Study of Environmental Standard Setting," American Economic Review, American Economic Association, vol. 79(5), pages 1233-42, December.
- Gollop, Frank M & Roberts, Mark J, 1985. "Cost-minimizing Regulation of Sulfur Emissions: Regional Gains in Electric Power," The Review of Economics and Statistics, MIT Press, vol. 67(1), pages 81-90, February.
- Burtraw, Dallas, 1995. "Cost Savings sans Allowance Trades? Evaluating the SO2 Emission Trading Program to Date," Discussion Papers dp-95-30-rev, Resources For the Future.
- Winebrake, James J. & Farrell, Alexander E. & Bernstein, Mark A., 1995. "The clean air act's sulfur dioxide emissions market: Estimating the costs of regulatory and legislative intervention," Resource and Energy Economics, Elsevier, vol. 17(3), pages 239-260, November.
- Bohi, Douglas R., 1994. "Utilities and state regulators are failing to take advantage of emission allowance trading," The Electricity Journal, Elsevier, vol. 7(2), pages 20-27, March.
- Charles D. Kolstad & Michelle H. L. Turnovsky, 1998. "Cost Functions And Nonlinear Prices: Estimating A Technology With Quality-Differentiated Inputs," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 444-453, August.
- Dallas Burtraw & Alan Krupnick & Erin Mansur & David Austin & Deirdre Farrell, 1998. "Costs And Benefits Of Reducing Air Pollutants Related To Acid Rain," Contemporary Economic Policy, Western Economic Association International, vol. 16(4), pages 379-400, October.
- Ellerman, A. Denny & Montero, Juan-Pablo, 1998. "The Declining Trend in Sulfur Dioxide Emissions: Implications for Allowance Prices," Journal of Environmental Economics and Management, Elsevier, vol. 36(1), pages 26-45, July.
- Rubin, Jonathan D., 1996. "A Model of Intertemporal Emission Trading, Banking, and Borrowing," Journal of Environmental Economics and Management, Elsevier, vol. 31(3), pages 269-286, November.
- Lawrence H. Goulder & Ian W. H. Parry & Dallas Burtraw, 1996. "Revenue-Raising vs. Other Approaches to Environmental Protection: The Critical Significance of Pre-Existing Tax Distortions," NBER Working Papers 5641, National Bureau of Economic Research, Inc.
- Bohi, Douglas R. & Burtraw, Dallas, 1992. "Utility investment behavior and the emission trading market," Resources and Energy, Elsevier, vol. 14(1-2), pages 129-153, April.
- Burtraw, Dallas & Krupnick, Alan & Austin, David & Farrell, Deirdre & Mansur, Erin, 1997. "The Costs and Benefits of Reducing Acid Rain," Discussion Papers dp-97-31-rev, Resources For the Future.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1966. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.