An Empirical Study of the SO_2 Allowance Market: Effects of PUC Regulations

摘要

This paper investigates electric utility behavior under the SO_2 allowance market in Phase I. The probit model shows that cost recovery rules promoted high sulfur coal usage for utilities located in states with coal mines. A simulation shows that protecting these local coal industry increased high sulfur coal usage by 50/100. Another finding is that the uncertainty of PUC regulations pushed utilities from the allowance market toward fuel switching/blending. Since the second effect was stronger than the first, the overall PUC regulations contributed to an unexpectedly low allowance price at the beginning of Phase I.