Trading one waste for another? Unintended consequences of fly ash reuse in the Indian electric power sector

In this paper, we examine the direct consequences of waste by-product reuse in a polluting industry, namely, India's coal-fired electric power sector, where ‘fly ash’ is legally required to be used as a substitute input in other industries. We first develop a simple theoretical model to gain insight and derive testable hypotheses applicable to our specific empirical setting. We provide empirical support for our model's predictions by exploiting plant-level variation in fly ash utilization. Results indicate greater reuse of fly ash per kWh of generation increases coal consumption per kWh, reduces the quality of coal used, and increases plant-level CO2 emissions per kWh. These results suggest the potential benefits of this policy—e.g., reduced waste disposal costs—may be offset by unanticipated increases in other external costs, particularly if not accompanied by supplementary regulation of other forms of pollution.