Emissions Trading, Electricity Industry Restructuring and Investment in Pollution Abatement

(Business Wire, 2001; Business Wire, 2004a; Business Wire, 2004b;Platts Utility
Environment Report, 2002, Business Wire 2003). This has likely made securing
financing for a large capital investment in NOx control technology more costly for
firms in restructured electricity markets. Concerns about maintaining shareholder
value could also bias management against compliance alternatives that require large,
up-front capital investments.¹⁹

Data and Preliminary Evidence

Data description

Information about which compliance strategies were chosen by coal plant managers
was obtained from the Environmental Protection Agency, the Energy Information
Administration, the Institute for Clean Air Companies and M.J. Bradley and Asso-
ciates. The data set includes the 702 coal fired generating units that are regulated
under the NOx SIP Call. Of these, 326 are classified as "regulated" for the purpose of
this analysis. "Regulated" plants include those subject to PUC regulation in states
that have chosen not to restructured their electricity industries, and a state owned
and operated facility operating in a restructured market. The results presented here
are generated using data from 588 units. I am awaiting data on 46 units. Compli-
ance costs for the remaining 68 generating units cannot be generated due to data
limitations.

I do not directly observe the variable compliance costs V_ij and fixed capital costs
K_ij or the post-retrofit emissions rates m_ij that plant managers anticipated when
making their decisions. I can, however, generate unit-specific engineering estimates
of these variables using detailed unit-level and plant-level data. In the late 1990’s, to
help generators prepare to comply with market-based NOx regulations, the Electric
Power Research Institute²⁰ developed software to generate cost estimates for all major
NOx control options, conditional on unit and plant level characteristics.²¹ I use

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