The Sources of Emission Reductions: Evidence from U.S. SO2 Emissions from 1985 through 2002

An enduring issue in environmental regulation is whether to clean up existing “old” plants or in some manner to bring in new “clean” plants to replace the old. In this paper, a unit-level data base of emissions by nearly 2000 electric generating units from 1985 through 2002 is used to analyze the contribution of these two factors in accomplishing the significant reduction of sulfur dioxide emissions from these sources in the United States. The effect on SO2 emissions of the new natural-gas-fired, combined-cycle capacity that has been introduced since 1998 is also examined. The results indicate that cleaning up the old plants has made by far the greatest contribution to reducing SO2 emissions, and that this contribution has been especially large since the introduction of the SO2 cap-and-trade program in 1995. The new natural-gas-fired, combined cycle units have displaced conventional generation that would have emitted about 800,000 tons of SO2; however, the effect has not been to reduce total SO2 emissions since the 9.0 million ton cap is unchanged, but to reduce the quantity of abatement required of other units in meeting the cap and thereby the cost of doing so.