Regulatory Spillover and Climate Co-Benefits: Evidence from the New Source Review Lawsuits

Abstract

Though policies on greenhouse gas emissions have been shown to generate benefits in
reducing local pollutants such as SO2 and NOx, spillover benefits in the reverse direction
have not been well studied. This paper estimates one such spillover by examining how SO2
and NOx regulations of the New Source Review affect CO2 emissions of US power plants.
We address the ambiguity surrounding the stringency of enforcement of the regulations by
using a discrete-time duration model that allows us to predict the likelihood of being named
in a lawsuit, and to use this likelihood as a continuous treatment variable. We find that a 1
percent increase in the probability of being sued reduces CO2 emissions by 0.3 percent, an
effect comparable to a carbon tax of $10 per ton. Further decomposition analysis suggests
that most of these carbon co-benefits arise from the shutdown of both coal-fired-only power
plants and certain power-generating units.

Keywords: New Source Review, Environmental Lawsuits, Pollution Emissions, Climate Policies, Fuel Switches

JEL Classification: L94, K32, Q58, H23