Working Paper: NBER ID: w21383
Authors: H. Ron Chan; B. Andrew Chupp; Maureen L. Cropper; Nicholas Z. Muller
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) emissions from all units regulated under the ARP in 2002—approximately 10.2 million tons—and compare them with damages from a No-Trade counterfactual in which each unit emits SO2 at a rate equal to its allocation of permits for the year 2002, plus any drawdown of its allowance bank. Damages under the ARP are $2.4 billion (2000$) higher than under the No-Trade. This reflects the transfer of allowances from EGUs west of the Mississippi River to units in the eastern US with higher exposed populations.
Keywords: Acid Rain Program; Sulfur Dioxide; Emissions Trading; Health Damages
JEL Codes: Q51; Q52; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trading (F19) | health damages (I12) |
| trading (F19) | emissions distribution (D39) |
| emissions distribution (D39) | health damages (I12) |
| ARP (Y60) | compliance costs (Q52) |