Who Pays for Cleaner Air? Evidence from the Nitrogen Oxides Budget Trading Program
View Journal ArticleTradable permit programs have become an increasingly common means of regulating power plant emissions, but there is little evidence about the extent to which firms can pass costs through to consumers. I use stock prices to estimate the effect on expected profits for a recent tradable permit program, the Nitrogen Oxides Budget Trading Program (NBP). Using regional variation in compliance costs, I estimate that the NBP reduced expected future profits by about $30 billion. The NBP would primarily affect coal generators, which have higher baseline emission rates than other fossil fuel generators. These results are similar to pre-program predictions, which simulated electricity sector models to forecast the effect of the program on profits.
