Technological Change for Sulfur Dioxide Scrubbers under Market-Based Regulation

(CAAA) introduced tradable permits for controlling sulfur dioxide (SO2) emissions from coal-burning power plants and forced scrubbers to compete with other SO2 abatement options. While the flexibility of permits reduced overall compliance costs, a second-ary benefit would exist if there were resulting ad-vances in scrubber technology. A hedonic model is used to estimate the effect of changing regulatory regimes on scrubber costs. While scrubbers installed under the 1990 CAAA are cheaper to purchase and operate than older scrubbers, these cost reductions seem to be a one-time drop rather than a continual decline. (JEL Q52, Q55) I. BACKGROUND Flue gas desulfurization (FGD) units, commonly known as scrubbers, have been used at U.S. power plants since the late 1960s to control emissions of sulfur dioxide (SO2) and resulting acid rain. Use of scrubbers re-sulted largely from the implementation of regulations specific to new boilers, known as new source performance standards (NSPS). Prior to implementation of NSPS there were very few scrubbers. As NSPS were intro-duced and revised, use of scrubbers was at first optional, and later essentially manda-tory for new coal burning boilers. The first set of standards, NSPS-D, were included in the 1970 Clean Air Act (CAA) and specified only that new boilers not emit more than 1.2 pounds of SO2 per million Btu (mm Btu) of heat input. The next set of standards, NSPS-Da, were included as part of the 1977 Clean Air Act Amendments (CAAA) and specified a limit of 1.2 pounds of SO2 per mm Btu and a removal rate of 90 % of SO2 from the emission stream.