Still your grandfather’s boiler

Notes

Published in the Journal of the Association of Environmental and Resource Economists (JAERE).

See related presentations at:

• AERE@OSWEET 2023
• AWEEE 2022

Abstract

While vintage differentiation is a highly prominent feature of various regulations, it can induce significant biases. We study these biases in the context of New Source Review—a program within the US Clean Air Act imposing costly sulfur dioxide (SO₂) abatement requirements on new boilers but not existing ones. Leveraging a novel dataset covering state-level SO₂ regulations, we show that the regulatory differentiation decreased the probability of a grandfathered boiler retiring in a given year by 2.4 percentage points (i.e., 60% smaller) and increased their operations by around 1,150 hours annually. Conservative back-of-the-envelope calculations suggest annual societal damages of up to $2.5 billion associated with additional SO₂ emissions caused by delayed retirements, higher utilization, and higher emission rates in the years considered. The results imply that long after their passage and in the presence of many subsequent, more stringent environmental policies, grandfathering provisions continued to have strong perverse impacts.

Figure 1. Total sulfur dioxide emissions and damage effects from NSR.

Notes. Back-of-the-envelope estimates for approximately 500 investor-owned-utility, commercial and industrial boilers identified as having enjoyed grandfathering status after the introduction of NSR.