Technology Diffusion and Environmental Regulation: The Adoption of Scrubbers by Coal-Fired Power Plants

Title IV of the 1990 Clean Air Act Amendments implemented a pollution permit system for sulfur dioxide (SO2) emissions that departs from state command-and-control regulations that were in place prior to and during its implementation. This paper develops a technology diffusion model, relying on rank effects or firm heterogeneity, to explain the adoption of scrubbers, a SO2 abatement technology. Using survival analysis, empirical results show that generating units regulated under Phase I of Title IV, units facing more stringent state regulations, and units with low expected installation costs are much more likely to install a scrubber. In addition, there is evidence of positive scale effects of adoption, meaning larger units are more likely to adopt because expected installation costs are lower. Tradable permit systems should give firms more flexibility in choosing abatement technologies, but results show that when command-and-control regulations overlap with a market-based system, the technology choice is restricted. http://dx.doi.org/10.5547/01956574.34.1.8