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Capping Emissions: How Low Should We Go?

Investigating where environmental efficiency and good public policy intersect.
Fortnightly Magazine - December 2002

population. In contrast, emissions in other western states have the lowest impacts. Overall, damages from SO 2 are about 43 percent higher east of the Mississippi than they are to the west. Likewise, damages from NO x emissions are about 22 percent higher east of the Mississippi. These large differences suggest there would be advantages to differentiating the programs by origin of emissions.

Fortunately, most of the emission reductions likely would come from the higher-damage areas. Our model suggests that under the efficient policy, the largest reductions would come from a cluster of Midwestern states from Pennsylvania to Missouri, a cluster of Southeastern states from North Carolina to Alabama, and Texas. Accordingly, reductions of ambient pollution levels would be greatest in these areas as well, and in states to the east and north. Western states would see the smallest improvements in air quality. Significantly, however, our analysis suggests that no part of the country would see worse air quality, even with free trading among utilities. Consequently, pollution "hot spots," a concern that has partly motivated technology standards on individual plants, are not likely to be a danger. Figure 1 displays the predicted reductions in particulate matter by state under the efficient policy.

Effects of Efficient Emission Levels on the Electricity Sector

There are three ways to reduce emissions from electricity generators: installing post-combustion controls, switching fuels, or reducing generation. All three methods are used to achieve the efficient level of 1.1 million tons of SO 2 emissions. Scrubbers will be required at over 270 GW of coal-fired capacity (including the capacity that is currently scrubbed under Title IV of the Clean Air Act), with an incremental annual cost for additional scrubbers of roughly $7.5 billion.

Fuel switching, both from high-sulfur coal to low-sulfur coal, and from coal to natural gas and nuclear, is also important. Under the efficient policy, low-sulfur coal use increases by 50 percent to about 1 billion tons. 4 Fuel switching from coal to gas and nuclear also contributes to achieving the efficient emission cap. At the efficient level of emissions, coal-fired generation is 7 percent below its level in the baseline, while gas-fired generation is 15 percent above its baseline level and nuclear generation is 4 percent higher. Even under the efficient policy, coal-fired generation accounts for roughly half of total generation.

The third way to achieve emission reductions is through a reduction in total generation, which results from an increase in electricity price. The efficient policy leads to a 4 percent increase in electricity price but, because electricity demand is fairly insensitive to changes in price, leads to only a 1 percent drop in electricity generated.

Figure 2 illustrates how reductions of SO 2 are achieved to move from the baseline to the efficient level of emissions. We find the largest piece of the pie (55 percent) represents an increase in scrubbing of coal-fired generation. Switching from high- to low-sulfur coal at unscrubbed units accounts for 32 percent of the reductions. Fuel switching occurs at scrubbed units as well, accounting for 6 percent of the emission reductions.