There are several reasons why we might observe asymmetries in compliance strat-
egy choices across states. It could be that the costs of installing SCR were lower for
units in unrestructured electricity markets. These differences could also be explained
by differences in generating unit characteristics (for example, older plants might be
less likely to make large capital investments in pollution controls).
Table 1 presents summary statistics for unit level operating characteristics that
significantly affect compliance costs: nameplate capacity, plant vintage, pre-retrofit
emissions rates, pre-retrofit heat rates and pre-retrofit summer capacity factor. Units
in restructured markets had lower pre-retrofit emissions rates on average. Because of
persistent air quality problems in the northeast, plants in this region have historically
been subject to more stringent pollution regulation prior to the SIP Call. With
respect to other important determinants of compliance costs such as capacity, age
and technology type(not summarized here), the two subpopulations of coal units look
very similar.
Table 2 presents estimated capital and variable costs for the most commonly
adopted NOx control technologies. Average costs are very similar across the two
electricity market types, but are slightly higher for units in more regulated electricity
markets. This is likely due to the fact that plants with higher pre-retrofit emissions
rates tend to have higher retrofit costs.
Empirical Framework
Summary statistics suggest that it is unlikely that the differences in compliance strat-
egy choices that we observe across electricity market types can be explained entirely
by differences in unit characteristics and compliance costs. In this section, I develop
an empirical framework for testing whether regulation in the electricity market sig-
nificantly affected the environmental compliance choice.
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