US tax law provides nearly $1 billion annually in tax credits for “refined coal”, which is supposed to reduce local air pollution. Eligibility for the credit requires firms to demonstrate legally specified emissions reductions for three pollutants. Firms typically demonstrate eligibility through laboratory tests, but results from the lab can differ from those in practice. Using a nationally comprehensive boiler-level panel dataset, we find that emission reductions in practice are only about half of the levels required. We also show that the policy reduces social welfare. Because the tax credit is up for reauthorization in 2021, our work has immediate policy relevance.
Note: This paper was originally published in June 2019 and revised in November 2019 and March 2020.
For more analysis and findings, check out the Resources Radio episode, Resources magazine article, and new Common Resources blog post on this topic (linked below).