Regulatory spillover and climate co-benefits: Evidence from New Source Review lawsuits

Though policies on greenhouse gas emissions have been shown to generate benefits in reducing local pollutants such as SO2 and NOx, spillover benefits in the reverse direction have not been well studied. This paper estimates one such spillover by examining how SO2 and NOx regulations of the New Source Review affect CO2 emissions of US power plants. We address the ambiguity surrounding the stringency of enforcement of the regulations by using a discrete-time duration model that allows us to predict the likelihood of being named in a lawsuit, and to use this likelihood as a continuous treatment variable. We find that a 1 percent increase in the probability of being sued reduces CO2 emissions by 0.3 percent, an effect comparable to a carbon tax of $10 per ton. Further decomposition analysis suggests that most of these carbon co-benefits arise from the shutdown of both coal-fired-only power plants and certain power-generating units.