Technology Diffusion and Environmental Regulation: The Adoption of Scrubbers by Coal-Fired Power Plants

This research examines the technological diffusion of scrubbers, a sulfur dioxide (SO2) abatement technology, in response to Title IV of the Clean Air Act. Title IV implemented a tradable pollution permit system for SO2, which is radically different from the state emission rate standards that were in place previously. I find that power plants with strict state regulations (or command-and-control regulations) and low expected scrubber installation costs have a high probability of installing a scrubber. These findings suggest that, although Title IV has encouraged diffusion, some scrubbers have been installed because of state regulatory pressure. Since policies are often evaluated based on the incentives they provide to promote adoption of new technologies, it is important that policy makers understand the relationship between technological diffusion and regulatory structure to make informed decisions. Although tradable permit systems are thought to give firms more flexibility in choosing abatement technologies, I show that interactions between a permit system and pre-existing command-and-control regulations can limit that flexibility.