When the regulator goes home: The effectiveness of environmental oversight

Walter, Jason and Raff, Zach (2019): When the regulator goes home: The effectiveness of environmental oversight.

Abstract

The U.S. EPA designates areas as in non-attainment with National Ambient Air Quality Standards (NAAQS) if ambient air concentrations of certain pollutants exceed standard levels. Stationary sources located in these areas are required to significantly reduce emissions through technological and other requirements; these sources are also subjected to greater regulatory oversight. However, non-attainment is not a permanent designation and regulatory oversight subsides once an area moves out of non-attainment. In this paper we examine whether the additional regulatory oversight of non-attainment designation is successful (and necessary) at reducing emissions from stationary sources. We estimate the effects of an area moving out of non-attainment on emissions at coal-fired power plants located in these areas. We first model the actions of utility managers subjected to emission reduction requirements. The model suggests that firms under additional scrutiny via non-attainment designation intentionally lower emissions. However, when areas exit non-attainment, i.e., direct regulatory oversight subsides, firms under-utilize clean strategies-including technology-which results in emission increases. Empirical analysis results show that boilers with abatement technology installed as a result of non-attainment increase NO x emissions and emission rate by 16% and 9%, respectively, when exiting non-attainment. Extended model results present evidence that regulated firms are less likely to use fully emission control methods in the absence of direct regulatory oversight. Specifically, the emission increases of exiting non-attainment are driven by the under-utilization of abatement technology inputs and the switch to lower quality fuel.

• Item Type: MPRA Paper
• Language: English
• Keywords: Coal-fired power plants; environmental regulation; National Ambient Air Quality Standards; nitrous oxide; sulfur dioxide
• Subjects: D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q53 - Air Pollution ; Water Pollution ; Noise ; Hazardous Waste ; Solid Waste ; Recycling; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q58 - Government Policy

References

Auffhammer, M., A. Bento, and S. Lowe, "The city-level effects of the 1990 Clean Air Act amendments," Land Economics, 2011, 87 (1), 1-18.

Auffhammer, M., A. Bento, and S.E. Lowe, "Measuring the effects of the Clean Air Act amendments on ambient PM10 concentrations: the critical importance of a spatially disaggregated analysis," Journal of Environmental Economics and Management, 2009, 58 (1), 15-26.

Becker, G.S., "Crime and punishment: An economic approach," Journal of Political Economy, 1968, 76 (2), 169-217.

Bi, X., "Cleansing the air at the expense of waterways?" Empirical evidence from the toxic release of coal-fired power plants in the United States," Journal of Regulatory Economics, 2017, doi:10.1007/s11149-016-9314-6.

Caneghem, J. Van, J. De Greef, C. Block, and C. Vandecasteele, "NOx reduction in waste incinerators by selective catalytic reduction (SCR) instead of selective noncatalytic reduction (SNCR) compared from a life cycle perspective: a case study," Journal of Cleaner Production, 2016, 112, 4452-4460.

Chay, K. and M. Greenstone, "The impact of air pollution on infant mortality: Evidence in pollution shocks induced by a recession," Quarterly Journal of Economics, 2003, 118 (3), 1121-1167.

Chay, K.Y. and M. Greenstone, "Does air quality matter? Evidence from the housing market," Journal of Political Economy, 2004, 113 (2), 376.

Earnhart, D.H., "Regulatory factors shaping environmental performance at publicly owned treatment plants," Journal of Environmental Economics and Management, 2004, 48 (1), 655-681.

EPA, "State Implementation Plans for Lead Nonattainment Areas," Fed. Reg, 1990, 58(2), 67748-67754.

EPA, "The Benefits and Cost of the Clean Air Act from 1990 to 2010," 2009. Retrieved: July 2018.

EPA, "EPA Air Pollution Control Cost Manual, 7th edition," Technical Report, Washington, D.C. 2017.

EPA, "EPA green book," 2017. https://www.epa.gov/green-book, Retrieved: February 2017.

EPA, "Integrated science assessment for particulate matter," Technical Report, Research Triangle Park, NC 2018.

EPA, "NOx RACT summary," 2018. Retrieved: March 2019.

EPA, "Required SIP Elements by Nonattainment Classification," 2018. https://www.epa.gov/ozone-pollution/required-sip-elements-nonattainment-classification,Retrieved: August 2018.

Fowlie, M., "Emissions trading, electricity restructuring, and investment in pollution abatement," American Economic Review, 2010, 100, 837-869.

Fowlie, M. and N. Muller, "Market-based emissions regulation when damages vary across sources: What are the gains from differentiation?," Journal of the Association of Environmental and Resource Economists, 2019, 6 (3), 593-632.

Gibson, M., "Regulation-induced pollution substitution," Review of Economics and Statistics, 2018, forthcoming.

Gray, W.B. and R.J. Shadbegian, "`Optimal' pollution abatement - whose benefits matter, and how much?," Journal of Environmental Economics and Management, 2004, 47, 510-534.

Greenstone, M., "The impacts of environmental regulations on industrial activity: evidence from the 1970 and 1977 Clean Air Act amendments and the Census of Manufactures," Journal of Political Economy, 2002, 110, 1175-1219.

Greenstone, M., "Estimating regulation-induced substitution: the effect of the Clean Air Act on water and ground pollution," American Economic Review: Papers and Proceedings, 2003, 93, 442-448. Greenstone, M., "Did the clean air act cause the remarkable decline in sulfur dioxide concentrations?," Journal of Environmental Economics and Management, 2004, 47, 585{611.

Henderson, V., "Effects of air quality regulation," American Economic Review, 1996, 86, 789-813.

Lim, J., "The impact of monitoring and enforcement on air pollutant emissions," Journal of Regulatory Economics, 2016, 49 (2), 203-222.

Liu, X., M. Xu, H. Yao, D. Yu, X. Gao, Q. Cao, and Y. Cai, "Effect of Combustion Parameters on the Emission and Chemical Composition of Particulate Matter during Coal Combustion," Energy & Fuels, 2007, 21 (1), 157-162.

Maniloff, P., "Can learning explain deterrence? Evidence from oil & gas production," Journal of the Association of Environmental and Resource Economists, 2019, forthcoming.

Muller, N. Z. and R. Mendelsohn, "Efficient Pollution Regulation: Getting the Prices Right," American Economic Review, 2009, 99, 1714-1739.

Nelson, R., T. Tietenberg, and M. Donihue, "Differential environmental regulation: effects of electric utility capital turnover and emissions," The Review of Economics and Statistics, 1993, 75 (2), 368-373.

Raff, Z. and D.H. Earnhart, "Effect of cooperative enforcement strategies on wastewater management," Economic Inquiry, 2018, 56 (2), 1357-1379.

Raff, Z. and J. M. Walter, "Regulatory avoidance and spillover: the effects of environmental regulation on emission at coal-fired power plants," 2017. Available at SSRN: https://ssrn.com/abstract=3012106.

Raff, Z. and J. M. Walter, "What are the benefits of re-adjusting the National Ambient Air Quality Standards?," 2018. Available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3335401.

Romero, C. E., Y. Li, H. Bilirgen, N. Sarunac, and E. K. Levy, "Modification of boiler operating conditions for mercury emissions reductions in coal-fired utility boilers," Fuel, 2006, 85 (2), 204-212.

Sheriff, G., A.E. Ferris, and R.J. Shadbegian, "How did air quality standards affect employment at U.S. power plants? The importance of timing, geography, and stringency," Journal of the Association of Environmental and Resource Economists, 2019, 6 (1), 111-149.

Shimshack, J.P. and M.B. Ward, \Regulator reputation, enforcement, and environmental compliance," Journal of Environmental Economics and Management, 2005, 50(3), 519-540.

Walker, W.R., "Environmental regulation and labor reallocation: Evidence from the Clean Air Act," American Economic Review, 2011, 101 (3), 442-447.

Walker, W.R., "The transitional costs of sectoral reallocation: Evidence from the Clean Air Act and the workforce," Quarterly Journal of Economics, 2013, 128 (4), 1787-1835.

Xiong, T., W. Jiang, and W. Gao, "Current status and prediction of major atmospheric emissions from coal-fired power plants in Shandong Province, China," Atmospheric Environment, 2016, 124, 46-52.

Xu, B., D. Wilson, and R. Broglio, "Lower-cost alternatives De-NOx solutions for coal-fired power plants," Power Engineering, 2015, 119 (12).