The impact of environmental regulation on productivity: the case of electricity generation under the CAAA-1990
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This paper measures the impact of the 1990 Clean Air Act Amendment on productivity
and output of US coal-fired boilers. The Act led to power units adopting a number of different
pollution abating strategies, one of which was an input change to lower SO2 emitting coal. A
key feature is that each boiler is designed to burn a particular variety of coal, with significant
deviations from the targeted coal characteristics resulting in productivity loss. The main innovation
of the paper is to quantify the effect that switching to cleaner coal had on productivity
and output. With data spanning over fifteen years, I incorporate the effect of this deviation
directly into a production function to explicitly quantify the resulting productivity loss. Estimated
output losses range from 0% to more than 6%, varying across regions, over time, and
mainly depending on the proximity of generating units to low-sulfur sources.