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Fiscal Interactions and the Costs of Controlling Pollution from Electricity

Ian Parry

RAND Journal of Economics, 2005, vol. 36, issue 4, 849-869

Abstract: I quantify the costs of controlling SO 2 , carbon, and NOx emissions from power generation, accounting for interactions between environmental policies and the broader fiscal system. I distinguish a dirty technology (coal) that satisfies baseload demand and a clean technology (gas) that is used at peak period, and I distinguish sectors with and without regulated prices. Estimated emissions control costs are substantially lower than in previous models of fiscal interactions that assume a single, constant-returns technology and competitive pricing. The results are reasonably robust to alternative scenarios, such as full price deregulation, and market power in the deregulated sector.

Date: 2005
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