TY  - JOUR
AU  - Fullerton,Don
AU  - McDermott,Shaun P.
AU  - Caulkins,Jonathan P.
TI  - Sulfur Dioxide Compliance of a Regulated Utility
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5542
PY  - 1996
Y2  - April 1996
UR  - http://www.nber.org/papers/w5542
L1  - http://www.nber.org/papers/w5542.pdf
N1  - Author contact info:
Don Fullerton
Department of Finance
University of Illinois
BIF Box#30 (MC520)
515 East Gregory Drive
Champaign, IL  61820
Tel: 217/244-3621
Fax: 217/244-3102
E-Mail: dfullert@illinois.edu
AB  - 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.
ER  -