The Impact of Trading on the Costs and Benefits of the Acid Rain Program

Abstract

This study quantifies the cost savings from the Acid Rain Program (ARP) compared with a command-and-control alternative and also examines the impact of trading under the ARP on health damages. To quantify cost savings, we compare compliance costs for non-NSPS (New Source Performance Standards) coal-fired Electricity Generating Units (EGUs) under the ARP with compliance costs under a uniform performance standard that achieves the same aggregate emissions. We do this for the year 2002, the third year of Phase II of the program. We find annual cost savings of approximately $240 million (1995$). To examine the health effects of trading, we compute the health damages associated with observed sulfur dioxide (SO2)

What Do Economists Have to Say about the Clean Air Act 50 Years after the Establishment of the Environmental Protection Agency?

“…Other research has focused on the regional air quality programs under the Clean Air Act, such as the NO x Budget Trading Program (Deschênes, Greenstone, and Shapiro 2017), the SO 2 Acid Rain Program (Barreca, Neidell, and Sanders 2017;H. Chan et al 2018), and the Clean Air Interstate Rule (Murphy 2017).…”

“…These "undifferentiated" policies can have significant distributional consequences and have led to contentious debates. For example, H. Chan et al (2018) argue that by allowing permits to be traded between relatively less populous areas with low abatement costs and relatively densely populated areas with high abatement costs, the SO 2 Acid Rain Program achieved lower gains in health than a counterfactual program that would have simply mandated equal reductions across areas. 2 In another example, Fowlie (2010) studies the introduction of the NO x budget program and the way that it interacted with electricity market deregulation and the restructuring of regional electricity markets that was occurring at that time.…”

Policy Evolution under the Clean Air Act

“…Two other market-oriented environmental programs that merit attention were regional programs executed under the authority of the Environmental Protection Agency and the Clean Air Act: the Regional Clean Air Incentives Market in the Los Angeles area, and NO x trading among eastern states. 7 6 H. Chan et al (2018) argue that the actual SO 2 emissions had worse health impacts than emissions under a hypothetical uniform performance standard with the same total emissions. Of course, given very heterogeneous costs of compliance, that hypothetical program had been a political nonstarter.…”

Policy Evolution under the Clean Air Act

“…Chan et al (2018) argue that the actual SO 2 emissions had worse health impacts than emissions under a hypothetical uniform performance standard with the same total emissions. Of course, that hypothetical program had been a political non-starter.…”