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Market effects of environmental regulation: coal, railroads, and the 1990 Clean Air Act

Authors


  • We are particularly grateful to Erin Mansur and Florian Zettelmeyer for many comments that improved this article. Thanks are also due to Spencer Banzhaf, Severin Borenstein, Michael Greenstone, Matthew Kotchen, Jonathan Levin, Paul Macavoy, Fiona Scott Morton, Sharon Oster, Christopher Timmins, Rob Williams, Frank Wolak, and seminar participants at UC Berkeley, USC, University of Central Florida, the University of Connecticut, Dartmouth, Harvard, Stanford, and Yale, and the 2004 NBER Summer Institute for their comments and suggestions. We are very grateful to Catherine Wolfram and to John Bitzan, who provided us with data used in this article. Daryl Newby of the Kentucky Public Service Commission and Jim Thompson of Energy Publishers provided helpful assistance in gathering information on coal contracts. We also thank the editor and two anonymous referees, whose comments improved the article.

Abstract

Many environmental regulations encourage the use of “clean” inputs. When the suppliers of such an input have market power, environmental regulation will affect not only the quantity of the input used but also its price. We investigate the effect of the Title IV emissions trading program for sulfur dioxide on the market for low-sulfur coal. We find that the two railroads transporting coal were able to price discriminate on the basis of environmental regulation and geographic location. Delivered prices rose for plants in the trading program relative to other plants, and by more at plants near a low-sulfur coal source.

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