Sulfur Dioxide Compliance of a Regulated Utility

Electric utilities can reduce sulfur dioxide emissions through a variety of strategies, and the cost of abatement can be minimized using tradable permits as under the Clean Air Act Amendments of 1990. Previous theoretical work has analyzed effects of public utility commission regulations on a utilityʹs choice between permits and a single continuous “abatement technology.” Our numerical model considers discrete choices among three abatement technologies. Using illustrative parameters, we find that regulatory rules could more than double the cost of sulfur dioxide compliance. They can even make costs with allowance trading higher than costs with command and control regulation