How Large are the Cost Savings from Emissions Trading? An Evaluation of the U.S. Acid Rain Program

Research output: Working paper

Abstract

Emissions trading programs are designed to keep compliance costs low but studies on actual savings are limited. This paper is the first to conduct a comprehensive analysis of the cost savings from the Acid Rain Program (ARP), the largest emissions trading program implemented in the U.S.. I estimate a discrete choice model of coal procurement and scrubber installation to recover structural parameters of compliance cost functions at the generating unit level. Using the model, I predict compliance choices under a uniform emission standard that yields the same aggregate emissions as the ARP. I estimate cost savings under the ARP to be about 130-330 million (1995 USD) per year. The numbers are much smaller than in previous literature (Carlson et al., 2000; Ellerman et al., 2000). I propose that lower transport costs reduced cost heterogeneity across generating units, and that improvements in scrubbing technology and state policies may have also contributed to a decrease in cost savings.

Bibliographical metadata

Original languageEnglish
Number of pages55
Publication statusPublished - 15 Jun 2015

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