‘‘Short-Run and Long-Run Impacts of Environmental Regulations on the U.S. Electricity Sector from 1938-1999,’’ presented by Akshaya Jha, assistant professor of economics and public policy, John Heinz III School of Public Policy and Management, Carnegie Mellon University.
Firms can comply with environmental regulations in three ways: they can reduce output, change their mix of variable inputs, or invest in pollution abatement technologies. This paper quantifies the productive efficiency costs of each of these compliance methods for the U.S. electricity production sector.
We use newly digitized annual, plant-level data on the vast majority of fossil fuel fired power plants from 1938-1999. This historical sample period allows us the unique opportunity to compare plant operations before versus after the introduction of any air quality regulation in the United States.
In particular, our difference-in-differences framework utilizes panel variation in the stringency of environmental regulation generated by the National Ambient Air Quality Standards (NAAQS) implemented in 1972 as part of the Clean Air Act. We find that plants facing stricter environmental regulations reduced their output by 7.0 percent. However, these plants were unable to adjust labor or capital in response to changing environmental policy; plants facing stricter environmental regulation experienced declines in total factor productivity (TFP) of 6.3 percent.
Both of these effects are persistent, suggesting that existing plants were unable to adapt to the NAAQS even in the long run.
Jha holds a PhD from Stanford University. His research examines the benefits and costs of economic and environmental policy pertaining to the transportation, storage, and combustion of fossil fuel both in the United States and India. His recent work calculates the health costs of local air pollution emitted by freight trains, the coal storage and handling process at power plants, as well as the combustion of coal.
In related research, he quantifies the economic cost of distortions in power plant operations due to different economic and environmental policies such as output price regulation and the Clean Air Act.
Sponsored by the Department of Economics Danforth-Lewis Speakers Series.