Technological Modifications in the Nitrogen Oxides Tradable Permit Program

Tradable permit programs allow firms greater flexibility in reducing emissions than command-and-control regulations and encourage firms to use low cost abatement options, including small-scale modifications to capital equipment. This paper shows that firms have extensively modified capital equipment in the Nitrogen Oxides Budget Trading Program, which covers power plants in the eastern United States. The empirical strategy uses geographic and temporal features of the program to estimate counterfactual emissions, finding that modifications have reduced emission rates by approximately 10-15 percent. The modifications would not have occurred under command-and-control regulation and have reduced regulatory costs.