The role of state regulation in the market-based Acid Rain Program, Title IV of the Clean Air Act Amendment of 1990
The Acid Rain Program under Title IV of the Clean Air Act Amendment of 1990 created a market for emission allowances of sulfur dioxide (SO₂). This program is based on economic incentives that give plant managers the opportunity to choose the most efficient way to comply with the requirements of the program. Plant operators can secure future emission allowances by reducing emissions or gain profits by selling them at the market. This program, the first nationwide application of the market-based approach, has achieved a 40% reduction of SO₂ emissions below their 1980 level, which is widely considered to be a triumph of the market-based approach over the command-and-control approach. The literature emphasizes the economic logic of deregulation. However, the statute explicitly allows the state regulatory authorities to retain their regulatory powers, and the new source performance standards are still applied. These noneconomic aspects of the Acid Rain Program have been virtually ignored by the literature. Using multiple regression methods, this study estimates how economic and noneconomic variables contribute to the emission reductions under the program, measured as SO₂ emissions per heat input of each affected unit. The economic variables influencing the emissions rates include the existence of an SO₂ control device, fuel type, boiler size, and the availability of low-sulfur coal. Noneconomic influences are grouped into several categories such as state policy, regulation, state policy strength, government institution, interest groups and the public, and power company response. As the literature suggests, this study found that economic variables have considerable influence on the level of sulfur emissions. However, this study found considerable evidence that noneconomic factors have roles in this economic incentive-based program. The greatest noneconomic issue is regulation, particularly permit regulations limiting sulfur content in fuel. In addition, this sulfur content regulation is largely influenced by the coal production of the state. Coal interests were one of the forces that created scrubbing requirements under the 1977 Clean Air Act amendments. This study has found that the same coal politics is still affecting the effectiveness of market forces in the Acid Rain Program.