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Sulfur dioxide control by electric utilities : what are the gains from trade?

Author

Listed:
  • Carlson, Curtis
  • Burtraw, Dallas
  • Cropper, Maureen
  • Palmer, Karen L.

Abstract

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.

Suggested Citation

  • Carlson, Curtis & Burtraw, Dallas & Cropper, Maureen & Palmer, Karen L., 1998. "Sulfur dioxide control by electric utilities : what are the gains from trade?," Policy Research Working Paper Series 1966, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1966
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    References listed on IDEAS

    as
    1. Harrington, Winston & Morgenstern, Richard D. & Nelson, Peter, 1999. "On the Accuracy of Regulatory Cost Estimates," Discussion Papers 10894, Resources for the Future.
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    More about this item

    Keywords

    Sanitation and Sewerage; Environmental Economics&Policies; Montreal Protocol; Pollution Management&Control; Economic Theory&Research; Carbon Policy and Trading; Energy and Environment; Montreal Protocol; Transport and Environment; Environmental Economics&Policies;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables

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