Technology diffusion and environmental regulation: Evidence from electric power plants under the Clean Air Act

Even though environmental policy can greatly affect the path of technology diffusion, the economics literature contains limited empirical evidence of this relationship. My research will contribute to the available evidence by providing insight into the technology adoption decisions of electric generating firms. Since policies are often evaluated based on the incentives they provide to promote adoption of new technologies, it is important that policy makers understand the relationship between technological diffusion and regulation structure to make informed decisions. Lessons learned from this study can be used to guide future policies such as those directed to mitigate climate change. I first explore the diffusion of scrubbers, a sulfur dioxide (SO 2) abatement technology, in response to federal market-based regulations and state command-and-control regulations. I develop a simple theoretical model to describe the adoption decisions of scrubbers and use a survival model to empirically test the theoretical model. I find that power plants with strict command-and-control regulations have a high probability of installing a scrubber. These findings suggest that although market-based regulations have encouraged diffusion, many scrubbers have been installed because of state regulatory pressure. Although tradable permit systems are thought to give firms more flexibility in choosing abatement technologies, I show that interactions between a permit system and pre-existing command-and-control regulations can limit that flexibility. In a separate analysis, I explore the diffusion of combined cycle (CC) generating units, which are natural gas-fired generating units that are cleaner and more efficient than alternative generating units. I model the decision to consider adoption of a CC generating unit and the extent to which the technology is adopted in response to environmental regulations imposed on new sources of pollutants. To accomplish this, I use a zero-inflated Poisson model and focus on both the decision to adopt a CC unit at an existing power plant as well as the firm-level decision to adopt a CC unit in either a new or an existing power plant. Evidence from this empirical investigation shows that environmental regulation has a significant effect on both the decision to consider adoption as well as the extent of adoption