Sulfur Dioxide Compliance of a Regulated Utility

37 Pages Posted: 14 May 1998 Last revised: 1 Oct 2010

See all articles by Don Fullerton

Don Fullerton

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Shaun P. McDermott

Carnegie Mellon University

Jonathan P. Caulkins

Carnegie Mellon University

Date Written: April 1996

Abstract

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.

Suggested Citation

Fullerton, Don and McDermott, Shaun P. and Caulkins, Jonathan P., Sulfur Dioxide Compliance of a Regulated Utility (April 1996). NBER Working Paper No. w5542. Available at SSRN: https://ssrn.com/abstract=4931

Don Fullerton (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
(217) 244-3621 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Shaun P. McDermott

Carnegie Mellon University

Pittsburgh, PA 15213-3890
United States

Jonathan P. Caulkins

Carnegie Mellon University ( email )

Pittsburgh, PA 15213-3890
United States

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