NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Sulfur Dioxide Compliance of a Regulated Utility

Don Fullerton, Shaun P. McDermott, Jonathan P. Caulkins

NBER Working Paper No. 5542
Issued in April 1996
NBER Program(s):   PE

Electric utilities can reduce sulfur dioxide emissions through a variety of strategies such as adding scrubbers, switching to low- sulfur coal, or shifting output between generating plants with different emissions. The cost of achieving a given emission target can be minimized using a market for emission allowances, as under the Clean Air Act Amendments of 1990, if firms with high abatement costs buy allowances while those with low abatement costs reduce emissions and sell allowances. However, public utility commissions regulate which costs can be passed to customers. Previous theoretical work has analyzed effects of regulations on a utility's choice between permits and a single continuous `abatement technology.' Here, we consider three abatement technologies and the discrete choices among them. Our numerical model uses market and engineering information on permit prices, scrubber cost and sulfur removal efficiency, alternative fuel costs and sulfur content, plus generating plant costs and efficiency. Using illustrative sets of parameters, we find that regulatory rules could more than double the cost of sulfur dioxide compliance.

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Document Object Identifier (DOI): 10.3386/w5542

Published: Journal of Environmental Economics and Management, Vol. 34, no. 1(September 1997): 32-53. citation courtesy of

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