Emissions Trading, Electricity Industry Restructuring and Investment in Pollution Abatement

deviations are also large in absolute value and statistically significant. This indicates
that there is random variation in response to changes in variable operating costs,
even after accounting for differences in response across units of different vintages and
across electricity market types. In an effort to attribute some of this variation to ob-
servable plant characteristics, other interactions were also tested, but none improved
the fit of the model.

The negative and significant coefficient values on the two capital cost∕age in-
teraction terms indicate first that more capital intensive strategies are less likely to
be adopted at older plants, and that when age is held constant, this coefficient is
larger in absolute value among plant managers in restructured electricity markets.
Neither of the coefficients on the capital cost constants are significant, although these
coefficients vary significantly in both sub-populations.

Because these models are non-linear, the coefficients on the interaction terms
involving the restructured electricity industry indicator variable and the capital (vari-
able) cost variable (in both the CL and the RPL models) are not equal to the marginal
effect of electricity industry regulation on the responsiveness to changes in capital
(variable) cost. To assess the effect of electricity industry regulation on managers’ re-
sponse to changes in costs, I compare the marginal effects implied by the RPL model
in the two different electricity market types. ²⁸ These marginal effects are calculated
for each unit.

Table 5 presents average interaction effects for the most frequently chosen NOx
control technologies. These estimates indicate that plant managers in restructured
markets are relatively more responsive to incremental changes in compliance costs.
For example, if the expected capital costs of SCR increase incrementally by $100,000,
the probability that this compliance alternative will be chosen decreases by approxi-
mately 0.008% in regulated markets and 0.014% in restructured markets. The mar-
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