Environmental adders in the real world

This paper evaluates the use of environmental ‘adders’ as a regulatory instrument. It evaluates their likely performance in meeting the policy objective of social costing given the changes in the electric utility industryʹs structure and in environmental policy since the efforts to estimate these costs were initiated. The prognosis is largely negative — suggesting that environmental adders are inconsistent with the increased competition already underway in the utility industry, as well as with the trend toward greater use of true market-based approaches to environmental policy that are not subject to detailed economic regulation.