Environmental Regulations and Productivity Growth: The Case of Fossil-fueled Electric Power Generation

Abstract

This paper measures and analyzes the effect of sulfur dioxide emission restrictions on the rate of productivity growth in the electric power industry over the 1973-79 business cycle. A firm-specific measure of regulatory intensity is developed which depends on the severity of the emission standard, the extent of enforcement, and the unconstrained emission rate relevant to each utility. The results indicate that emission regulations result in significantly higher generating costs, primarily from the increased use of low-sulfur fuels. The average rate of productivity growth was reduced by 0.59 percentage points per year for constrained utilities.