Transfer of Production and Emission Leakages: An Empirical Analysis on Phase II of the Acid Rain Program
Abstract: The Acid Rain Program was introduced by the U.S. Environmental Protection Agency in 1990 to control for sulfur dioxide emissions from the U.S. power sector. The program has been widely applauded for its environmental success. However, there has been little discussions on possible emission leakages issues in this program. The primary focus of my thesis is to test the potential for emissio... read moren leakages problems in Phase II of the ARP: a transfer of production from regulated units to exempted units caused by compliance costs of the program. I conducted an empirical analysis on production performances of boilers in six U.S. northeastern states, using data from the EPA Air Market Program Database from 1999-2012. The empirical models used include difference-in-differences models testing behavioral changes of exempted and regulated units, and sulfur factor models testing exempted units' emission responses to the ARP. This paper supports the transfer of production hypothesis, but finds little evidences for the overall sulfur emission leakages. However, the findings in this paper indicate possible loopholes existing in cap-and-trade systems' regulations, and suggest that avoiding the substitutability between participants and non-participants is crucial for future environmental regulation designs to ensure the environmental effectiveness.
Thesis (M.S.)--Tufts University, 2016.
Submitted to the Dept. of Economics.
Advisor: Grilbert Metcalf.
Committee: Brooke Jack, and Ujjayant Chakravorty.
Keywords: Economics, and Environmental economics.read less