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Technological Modifications in the Nitrogen Oxides Tradable Permit Program

Abstract:
Tradable permit programs allow firms greater flexibility in reducing emissions than command-and-control regulations and encourage firms to use low cost abatement options, including small-scale modifications to capital equipment. This paper shows that firms have extensively modified capital equipment in the Nitrogen Oxides Budget Trading Program, which covers power plants in the eastern United States. The empirical strategy uses geographic and temporal features of the program to estimate counterfactual emissions, finding that modifications have reduced emission rates by approximately 10-15 percent. The modifications would not have occurred under command-and-control regulation and have reduced regulatory costs.

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Energy Specializations: Coal – Policy and Regulation; Energy and the Environment – Air Emissions (other than greenhouse gases); Energy and the Environment – Policy and Regulation

JEL Codes: Q54: Climate; Natural Disasters and Their Management; Global Warming, Q58: Environmental Economics: Government Policy, L94: Electric Utilities, Q41: Energy: Demand and Supply; Prices, Q35: Hydrocarbon Resources, Q47: Energy Forecasting

Keywords: Combustion modification, NOx, coal power, tradable permits, technology adoption

DOI: 10.5547/ISSN0195-6574-EJ-Vol29-No3-8


Published in Volume 29, Number 3 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.