IDEAS home Printed from https://ideas.repec.org/a/eee/jeeman/v61y2011i1p36-51.html
   My bibliography  Save this article

Plant vintages, grandfathering, and environmental policy

Author

Listed:
  • Heutel, Garth

Abstract

Environmental regulations that grandfather existing plants, by not holding them to the same strict standards as new plants, may have the unintended consequence of retarding new investment. If new plants are cleaner, then this effect may increase pollution in the short run. I develop a dynamic model of a facility's decisions over scrapping and abatement, which depend on capital depreciation, profitability shocks, and environmental policy. Using data from fossil fuel fired boilers at electric power plants, I estimate the structural parameters of the model and assess the impact of grandfathering in the Clean Air Act on sulfur dioxide emissions. Counterfactual policy simulations show that an increase in the stringency of performance standards would have led to a decrease in investment in new boilers. However, this does not lead to increased emissions, since there is less investment in dirtier coal boilers as compared to relatively cleaner oil or natural gas boilers.

Suggested Citation

  • Heutel, Garth, 2011. "Plant vintages, grandfathering, and environmental policy," Journal of Environmental Economics and Management, Elsevier, vol. 61(1), pages 36-51, January.
    • Handle: RePEc:eee:jeeman:v:61:y:2011:i:1:p:36-51
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0095-0696(10)00079-3
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
    2. Bushnell, James & Wolfram, Catherine, 2008. "Enforcement of Vintage Differentiated Regulations: The Case of New Source Review," Staff General Research Papers Archive 31185, Iowa State University, Department of Economics.
    3. Lee, Bong-Soo & Ingram, Beth Fisher, 1991. "Simulation estimation of time-series models," Journal of Econometrics, Elsevier, vol. 47(2-3), pages 197-205, February.
    4. Metcalf, Gilbert E., 2003. "Environmental levies and distortionary taxation:: Pigou, taxation and pollution," Journal of Public Economics, Elsevier, vol. 87(2), pages 313-322, February.
    5. Curtis Carlson & Dallas Burtraw & Maureen Cropper & Karen L. Palmer, 2000. "Sulfur Dioxide Control by Electric Utilities: What Are the Gains from Trade?," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1292-1326, December.
    6. Nathaniel O. Keohane & Erin T. Mansur & Andrey Voynov, 2009. "Averting Regulatory Enforcement: Evidence from New Source Review," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(1), pages 75-104, March.
    7. Levinson, Arik, 1999. "Grandfather regulations, new source bias, and state air toxics regulations," Ecological Economics, Elsevier, vol. 28(2), pages 299-311, February.
    8. Lange Ian & Bellas Allen S, 2007. "The 1990 Clean Air Act and the Implicit Price of Sulfur in Coal," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-25, August.
    9. de Bovenberg, A Lans & Mooij, Ruud A, 1994. "Environmental Levies and Distortionary Taxation," American Economic Review, American Economic Association, vol. 84(4), pages 1085-1089, September.
    10. Nelson, Randy A & Tietenberg, Tom & Donihue, Michael R, 1993. "Differential Environmental Regulation: Effects on Electric Utility Capital Turnover and Emissions," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 368-373, May.
    11. McFadden, Daniel, 1989. "A Method of Simulated Moments for Estimation of Discrete Response Models without Numerical Integration," Econometrica, Econometric Society, vol. 57(5), pages 995-1026, September.
    12. Jerome Adda & Russell Cooper, 2000. "Balladurette and Juppette: A Discrete Analysis of Scrapping Subsidies," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 778-806, August.
    13. Steven Shavell, 2008. "On Optimal Legal Change, Past Behavior, and Grandfathering," The Journal of Legal Studies, University of Chicago Press, vol. 37(1), pages 37-85, January.
    14. Øivind Anti Nilsen & Fabio Schiantarelli, 2003. "Zeros and Lumps in Investment: Empirical Evidence on Irreversibilities and Nonconvexities," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1021-1037, November.
    15. Bushnell, James B. & Wolfram, Catherine D., 2012. "Enforcement of vintage differentiated regulations: The case of new source review," Journal of Environmental Economics and Management, Elsevier, vol. 64(2), pages 137-152.
    16. Mark E. Doms & Timothy Dunne, 1998. "Capital Adjustment Patterns in Manufacturing Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 409-429, April.
    17. Joskow, Paul L, 1987. "Contract Duration and Relationship-Specific Investments: Empirical Evidence from Coal Markets," American Economic Review, American Economic Association, vol. 77(1), pages 168-185, March.
    18. John Haltiwanger & Russell Cooper & Laura Power, 1999. "Machine Replacement and the Business Cycle: Lumps and Bumps," American Economic Review, American Economic Association, vol. 89(4), pages 921-946, September.
    19. Fullerton, Don & Heutel, Garth, 2007. "The general equilibrium incidence of environmental taxes," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 571-591, April.
    20. Maloney, Michael T & Brady, Gordon L, 1988. "Capital Turnover and Marketable Pollution Rights," Journal of Law and Economics, University of Chicago Press, vol. 31(1), pages 203-226, April.
    21. Gruenspecht, Howard K, 1982. "Differentiated Regulation: The Case of Auto Emissions Standards," American Economic Review, American Economic Association, vol. 72(2), pages 328-331, May.
    22. List John A. & Millimet Daniel L & McHone Warren, 2004. "The Unintended Disincentive in the Clean Air Act," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(2), pages 1-28, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ximin (Natalie) Huang & Tarkan Tan & L. Beril Toktay, 2021. "Carbon Leakage: The Impact of Asymmetric Regulation on Carbon‐Emitting Production," Production and Operations Management, Production and Operations Management Society, vol. 30(6), pages 1886-1903, June.
    2. Adair, Sarah K. & Hoppock, David C. & Monast, Jonas J., 2014. "New Source Review and coal plant efficiency gains: How new and forthcoming air regulations affect outcomes," Energy Policy, Elsevier, vol. 70(C), pages 183-192.
    3. Proost, Stef & Van Dender, Kurt, 2012. "Energy and environment challenges in the transport sector," Economics of Transportation, Elsevier, vol. 1(1), pages 77-87.
    4. Li, Zhe, 2008. "Productivity Dispersion across Plants, Emission Abatement, and Environmental Policy," MPRA Paper 9564, University Library of Munich, Germany.
    5. LaPlue, Lawrence D., 2019. "The environmental effects of trade within and across sectors," Journal of Environmental Economics and Management, Elsevier, vol. 94(C), pages 118-139.
    6. Bialek, Sylwia & Gregory, Jack & Revesz, Richard L., 2022. "Still your grandfather's boiler: Estimating the effects of the Clean Air Act's grandfathering provisions," Working Papers 05/2022, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
    7. J. Scott Holladay, 2016. "Exporters and the environment," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 49(1), pages 147-172, February.
    8. Chan, H. Ron & Zhou, Yichen Christy, 2021. "Regulatory spillover and climate co-benefits: Evidence from New Source Review lawsuits," Journal of Environmental Economics and Management, Elsevier, vol. 110(C).
    9. Bushnell, James B. & Wolfram, Catherine D., 2012. "Enforcement of vintage differentiated regulations: The case of new source review," Journal of Environmental Economics and Management, Elsevier, vol. 64(2), pages 137-152.
    10. Bushnell, James & Wolfram, Catherine, 2008. "Enforcement of Vintage Differentiated Regulations: The Case of New Source Review," Staff General Research Papers Archive 31185, Iowa State University, Department of Economics.
    11. Calcott, Paul, 2012. "Regulatory triggers and New Source Review," Resource and Energy Economics, Elsevier, vol. 34(3), pages 337-348.
    12. Wenjie Luo & Xunyong Xiang, 2024. "Unsynchronised Legislation and Unintended Pollution: Estimating Regulation-Induced Substitution in China," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(3), pages 731-760, March.
    13. Alejandro Caparrós & Richard E. Just & David Zilberman, 2015. "Dynamic Relative Standards versus Emission Taxes in a Putty-Clay Model," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 2(2), pages 277-308.
    14. Li, Shoude & Zhang, Yingxuan, 2023. "Abatement technology innovation and pollution tax design: A dynamic analysis in monopoly," Energy Economics, Elsevier, vol. 119(C).
    15. Coysh, Daniel & Johnstone, Nick & Kozluk, Tomasz & Nachtigall, Daniel & Cárdenas Rodríguez, Miguel, 2020. "Vintage differentiated regulations and plant survival: Evidence from coal-fired power plants," Ecological Economics, Elsevier, vol. 176(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bialek, Sylwia & Gregory, Jack & Revesz, Richard L., 2022. "Still your grandfather's boiler: Estimating the effects of the Clean Air Act's grandfathering provisions," Working Papers 05/2022, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
    2. Coysh, Daniel & Johnstone, Nick & Kozluk, Tomasz & Nachtigall, Daniel & Cárdenas Rodríguez, Miguel, 2020. "Vintage differentiated regulations and plant survival: Evidence from coal-fired power plants," Ecological Economics, Elsevier, vol. 176(C).
    3. Amundsen, Alexander, 2023. "Interaction effects in the adjustment cost function of firms," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).
    4. Lapatinas Athanasios, 2012. "On the Interrelation of Capital and Labor Adjustment Costs at the Firm Level," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 16(3), pages 1-36, September.
    5. Stavins, Robert, 2004. "Environmental Economics," Working Paper Series rwp04-051, Harvard University, John F. Kennedy School of Government.
    6. Øivind A. Nilsen & Magne Vange, 2019. "Intermittent Price Changes in Production Plants: Empirical Evidence Using Monthly Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 81(1), pages 98-122, February.
    7. John Haltiwanger & Russell Cooper & Laura Power, 1999. "Machine Replacement and the Business Cycle: Lumps and Bumps," American Economic Review, American Economic Association, vol. 89(4), pages 921-946, September.
    8. Ian Lange & Joshua Linn, 2008. "Bush v. Gore and the Effect of New Source Review on Power Plant Emissions," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 40(4), pages 571-591, August.
    9. Dalia Patino-Echeverri & Dallas Burtraw & Karen Palmer, 2013. "Flexible mandates for investment in new technology," Journal of Regulatory Economics, Springer, vol. 44(2), pages 121-155, October.
    10. Bushnell, James & Wolfram, Catherine, 2008. "Enforcement of Vintage Differentiated Regulations: The Case of New Source Review," Staff General Research Papers Archive 31185, Iowa State University, Department of Economics.
    11. Erhan Artuç & Germán Bet & Irene Brambilla & Guido Porto, 2013. "Trade Shocks and Factor Adjustment Frictions: Implications for Investment and Labor," IIE, Working Papers 101, IIE, Universidad Nacional de La Plata.
    12. Adair, Sarah K. & Hoppock, David C. & Monast, Jonas J., 2014. "New Source Review and coal plant efficiency gains: How new and forthcoming air regulations affect outcomes," Energy Policy, Elsevier, vol. 70(C), pages 183-192.
    13. Nathaniel O. Keohane & Erin T. Mansur & Andrey Voynov, 2009. "Averting Regulatory Enforcement: Evidence from New Source Review," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(1), pages 75-104, March.
    14. Popp, David & Newell, Richard G. & Jaffe, Adam B., 2010. "Energy, the Environment, and Technological Change," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 2, chapter 0, pages 873-937, Elsevier.
    15. Bushnell, James B. & Wolfram, Catherine D., 2012. "Enforcement of vintage differentiated regulations: The case of new source review," Journal of Environmental Economics and Management, Elsevier, vol. 64(2), pages 137-152.
    16. Victor Aguirregabiria, 2006. "Another Look at the Identification of Dynamic Discrete Decision Processes: With an Application to Retirement Behavior," 2006 Meeting Papers 169, Society for Economic Dynamics.
    17. Raouf Boucekkine & Bruno de Oliveira Cruz, 2015. "Technological Progress and Investment: A Non-Technical Survey," AMSE Working Papers 1519, Aix-Marseille School of Economics, France.
    18. Nilsen, Oivind A. & Salvanes, Kjell G. & Schiantarelli, Fabio, 2007. "Employment changes, the structure of adjustment costs, and plant size," European Economic Review, Elsevier, vol. 51(3), pages 577-598, April.
    19. Gebreeyesus, Mulu, 2009. "Inactions and Spikes of Investment in Ethiopian Manufacturing Firms: Empirical Evidence on Irreversibility and Non-convexities," MERIT Working Papers 2009-061, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    20. José Varejão & Pedro Portugal, 2007. "Employment Dynamics and the Structure of Labor Adjustment Costs," Journal of Labor Economics, University of Chicago Press, vol. 25(1), pages 137-165.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jeeman:v:61:y:2011:i:1:p:36-51. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622870 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.