SO2 policy and input substitution under spatial monopoly

    Authors

    S. Gerking;S. F. Hamilton

    Comments

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    Abbreviated Journal Title

    Resour. Energy Econ.

    Keywords

    Spatial market power; SO2 policy; SULFUR-DIOXIDE EMISSIONS; MARKET; POWER; COAL; Economics; Energy & Fuels; Environmental Sciences; Environmental Studies

    Abstract

    Following the U.S. Clean Air Act Amendments of 1990. electric utilities dramatically increased their utilization of low-sulfur coal from the Powder River Basin (PRB). Recent studies indicate that railroads hauling PRB coal exercise a substantial degree of market power and that relative price changes in the mining and transportation sectors were contributing factors to the observed pattern of input substitution. This paper asks the related question: To what extent does more stringent SO2 policy stimulate input substitution from high-sulfur coal to low-sulfur coal when railroads hauling low-sulfur coal exercise spatial monopoly power? The question underpins the effectiveness of incentive-based environmental policies given the essential role of market performance in input, output, and abatement markets in determining the social cost of regulation. Our analysis indicates that environmental regulation leads to negligible input substitution effects when clean and dirty inputs are highly substitutable and the clean input market is mediated by a spatial monopolist. (C) 2009 Elsevier B.V. All rights reserved.

    Journal Title

    Resource and Energy Economics

    Volume

    32

    Issue/Number

    3

    Publication Date

    1-1-2010

    Document Type

    Article

    Language

    English

    First Page

    327

    Last Page

    340

    WOS Identifier

    WOS:000278662600004

    ISSN

    0928-7655

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