Emissions Trading, Electricity Industry Restructuring and Investment in Pollution Abatement

portant respects. First, previous studies have used very blunt measures of compliance
costs; conditional on boiler firing type, capacity and capacity factor, all units are as-
sumed to face identical compliance costs. I use a much more detailed approach to
cost estimation in order to capture a larger proportion of the inter-unit variation
in expected compliance costs. Second, rather than using a deterministic, economic
model of the compliance choice that assumes that managers will choose the compli-
ance choice that minimizes estimated compliance costs, I use an econometric model
of the compliance choice. The economic models used in earlier studies do not allow
for asymmetric investment incentives across electricity markets, heterogeneity in the
responsiveness of plant managers to variation in compliance costs, intrinsic biases
for or against particular types of NOx controls or idiosyncratic errors on the part of
decision makers.

I have presented evidence here that all of these factors have played a signifi-
cant role in the compliance decisions made by firms. Equipped with more precise
cost estimates, and a more realistic model of how plant managers in different elec-
tricity markets respond to variation in compliance costs, I will revisit the question of
whether an exposure based market design would have significantly affected the spatial
distribution of permitted emissions. These simulations are a work in progress.

27

<<   25   26   27   28   29   30   31   >>

More intriguing information