Policy Innovation Impacts on Scrubber Electricity Usage

The introduction of scrubbers as a means of controlling sulfur dioxide pollution from stationary sources coincided with the implementation of the Clean Air Act of 1970. Since that time, there have been many policy changes affecting the electricity generation industry. These changes may be characterized as moving from direct regulation toward market-based incentives, both in deregulation or restructuring of power markets and adoption of market-based environmental regulation. These changes provide natural experiments for investigating whether the form of regulation can alter the rate of technological progress. Previous literature (Popp 2003, Lange and Bellas 2005) is mixed on whether advancements as a result of the switch to market-based environmental incentives have led to lower costs. This paper extends this literature by analyzing changes in scrubbers’ use of electricity (also known as parasitic load) in relation to regulatory policy regimes. Results show that restructured electricity markets have led to a considerable (30-45%) decrease in parasitic load. Conversely, the change to a cap-and-trade system for sulfur dioxide has not led to a decrease.