Regulatory Avoidance and Spillover: The Effects of Environmental Regulation on Emissions at Coal-Fired Power Plants

Abstract

The Clean Air Act’s National Ambient Air Quality Standards (NAAQS) and New Source Review (NSR) permitting work in conjunction to improve ambient air quality in the United States. However, all previous studies of the NAAQS ignore this joint nature and focus solely on the effects of NAAQS non-attainment designation on various economic outcomes. Additionally, previous studies ignore the potentiality of regulatory spillover, i.e., abatement for one pollutant decreasing emissions of other, non-regulated pollutants, from the NAAQS. In this paper, we first examine the actions of plant managers who face varying degrees of regulatory oversight. We then estimate the differential effects of the NAAQS and NSR on emissions at coal-fired power plants, while also examining spillover effects. Collectively, this study adds to the literature on environmental regulation in two key ways. First, we use comprehensive data on facility-level NSR permit receipt to examine the differential effects of the NAAQS on plants regulated jointly by NSR and NAAQS non-attainment and those plants regulated only by NAAQS non-attainment. We investigate how the monitoring of areas with non-attainment designation leads to the avoidance of regulatory scrutiny by local plants and find that regulated facilities not subjected to the technological requirements of NSR decreased $$\hbox {NO}_{\mathrm{{x}}}$$ emissions by 20%. We also examine the mechanisms through which this abatement occurs, e.g., technology, use of cleaner inputs. Second, we identify the spillover effects of the NAAQS for certain pollutants by examining the effects of disparate non-attainment designations from the emissions in question. We find a significant decrease in $$\hbox {NO}_{\mathrm{{x}}}$$ and $$\hbox {CO}_{{2}}$$ emissions as a result of carbon monoxide and $$\hbox {SO}_{{2}}$$-affected non-attainment designation, respectively. We provide evidence that regulatory spillover in this case is the result of different emission control strategies.