Environmental Federalism and Sulfur Dioxide Emissions from Electricity Plants

1. Environmental Federalism and Sulfur Dioxide Emissions from Electricity Plants B. Andrew Chupp H. Spencer Banzhaf

2. Introduction • What level of government should regulate environmental problems? • The optimal solution: A system where each state is responsible for all of the damages it generates. • Current Options: • Make states self-regulatory. • Federal regulation that is constrained to a uniform policy.

3. Research Questions • Are interstate spillovers or heterogeneity in damages the bigger problem? • This research examines the case of sulfur dioxide and nitrogen oxide emissions from the electricity sector to determine which policy is closer to the optimum. • Is the optimal state level policy an indicator of how likely that state is to adopt green electricity laws? • Does the most beneficial uniform policy of each state influence legislative voting on environmental issues?

4. Literature Review • Oates and Schwab (1988) and others • Dinan et al. (1999) • List and Gerking (2000), and others • Banzhaf et al. (2004)

5. Data and Methodology • Haiku • A detailed simulation model developed by RFF that allows a per-unit tax to be implemented and then forecasts emissions. • A MCA curve can be derived and then smoothed to eliminate inconsistencies. • TAF • An integrated assessment model of air pollution. • Includes source-receptor matrices. • Only health effects were included. • Uses constant marginal damage estimates. • I varied one state’s emissions while holding other states at the baseline to see the change in benefits.

6. Methodology (cont.) • By observing the intersection between the MCA curve and the state’s own benefits of abatement, I obtain the state-level optimal abatement. • By repeating this process for the nationally optimal uniform tax and the truly optimal differentiated policy, I obtain all levels of abatement.

7. Results

8. Results • The state level policies result in a loss of $18,823,285,459 from the nationally optimal fully differentiated policy. • This reflects roughly 31.6% of the total benefits. • The nationally optimal uniform policy results in a loss of $119,596,886 from the optimal policy (0.20% of the total benefits). • The uniform policy is closer to the nationally optimal policy.

9. Adoption of Green Electricity Policies • I use the state level preferred policies as explanatory variables to determine which states are more likely to adopt green electricity policies. • Renewable portfolio standards • Generation disclosure rules • Net metering rules • Public benefit funds • Vachon and Menz (2006)

10. Congressional Voting • Using the Haiku and TAF models, I am able to derive the uniform tax levels preferred by each state. • Each state’s preferred uniform tax can help explain how its Senators and Representatives vote on national environmental and energy-related bills. • Prior work on Congressional roll call voting attempts to disentangle the effects of the legislator’s ideology and the actual interest of his or her constituency. • My measure is the ideal measure of the interest of the population since it truly reflects the costs and benefits of environmental legislation.

11. Questions