Bushnell, James; Wolfram, Catherine

WP #10027, March 2010

This paper analyzes the effects of the New Source Review (NSR) environmentalregulations on coal-fired electric power plants.  Regulations that grew out of the Clean Air Act of 1970 required new electric generating plants to install costly pollution control equipment but exempted existing plants.  Existing plants lost their exemptions if they made ``major modifications.''  We examine whether this caused firms to invest less in grandfathered plants, possibly leading to lower efficiency and higher emissions. We find  evidence that heightened NSR enforcement reduced capital expenditures at vulnerableplants. However, we find no discernable effect on other inputs or emissions.

This paper analyzes the effects of the New Source Review (NSR) environmental regulations on coal-fired electric power plants.  Regulations that grew out of the Clean Air Act of 1970 required new electric generating plants to install costly pollution control equipment but exempted existing plants.  Existing plants lost their exemptions if they made ``major modifications.''  We examine whether this caused firms to invest less in grandfathered plants, possibly leading to lower efficiency and higher emissions. We find  evidence that heightened NSR enforcement reduced capital expenditures at vulnerable plants. However, we find no discernable effect on other inputs or emissions.

JEL Classification: L51, L94, Q52, Q58

Keywords: New Source Review, Environmental Regulations, productivity, electricity

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