RESEARCH TRIANGLE INSTITUTE
Contract No. 68-01-0484
RTI Project No. 41U-862
October 1974
FINAL REPORT
ALLOCATIVE AND DISTRIBUTIVE EFFECTS OF
ALTERNATIVE AIR QUALITY ATTAINMENT POLICIES
Prepared for
Implementation Research Division
Environmental Protection Agency
by
Tayler H. Bingham and Alien K. Miedema
RESEARCH TRIANGLE PARK, NORTH CAROLINA 27709
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Contract No. 68-01-0484 October 1974
RTI Project No. 41U-862
FINAL REPORT
ALLOCATIVE AND DISTRIBUTIVE EFFECTS OF
ALTERNATIVE AIR QUALITY ATTAINMENT POLICIES
Prepared for
Implementation Research Division
Environmental Protection Agency
by
Tsyler H. Bingham and Allen K. Miedema
with
Philip C. Cooley and John C. Mathews
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ACKNOWLEDGEMENTS
This project was conducted by the Research Triangle Institute, Research
Triangle Park, North Carolina, pursuant to Contract No. 68-01-0484 with the
Environmental Protection Agency. The statements, findings, conclusions, and
recommendations presented in this report do not necessarily reflect the views
of the Environmental Protection Agency.
Principal investigators for the project were Tayler H. Bingham, under
whose direct supervision this project was conducted, and Allen K. Miedema, who
was responsible for the model design and analysis described in this report.
Several other individuals contributed to specific aspects of the described
research. Principal among these and their contributions are:
Philip C. Cooley Programming and model implementation
John C. Matthews Control costs for fuel combusion sources
Joanne T. Rogoff Data collection and management.
Marshall Rose, Environmental Protection Agency, was project officer. His
interest, guidance, and critical reviews are very much appreciated.
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TABLE OF CONTENTS
Chapter
1: SUMMARY 1
1.1 Objective 1
1.2 Methodology and Limi tati ons 2
1.3 Findings 4
2: INTRODUCTION 13
2.1 Background 13
2.2 Alternative Government Policy Instruments for
Pol 1uti on Abatement 17
2.2.1 Direct Control 18
2.2.2 Price Incentives 20
2.2.2.1 Emission Charge 22
2.2.2.2 Emission Charge with an Exemption 26
2.2.2.3 Emission Charge with a Subsidy 28
2.2.3 Hybrid Programs 28
3: METHODOLOGY FOR EVALUATING SELECTED POLICY INSTRUMENTS 33
3.1 Introduction 33
3.2 Evaluative Criteria 33
3.2.1 Allocative Effects 33
3.2.2 Distributive Effects 34
3.3 Emitter Response Model 34
3.3.1 Model Inputs 35
3.3.2 Model Outputs 37
3.3.3 Model Structure 38
3.4 Selected Air Quality Control Regions 40
3.4.1 Major Point Sources of Emissions 41
4: ANALYSIS OF SELECTED POLICY INSTRUMENTS 47
4.1 Introduction 47
4.2 Emission Standards 48
4.2.1 Allocative Effects 51
4.2.2 Distributive Effects 51
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Chapter Page
4.3 Emission Charge 55
4.3.1 Allocative Effects '.. 55
4.3.2 Distributive Effects 55
4.4 Emission Charge Based on Effects 57
4.4.1 Allocative Effects 61
4.4.2 Distributive Effects 63
4.5 Emission Charge with an Exemption 64
4.5.1 Allocative Effects ' 64
4.5.2 Distributive Effects 56
4.6 Emission Charge with a Subsidy 71
4.6.1 Allocative Effects 71
4.6.2 Distributive Effects 71
4.7 Hybrid Program 71
4.7.1 Allocative Effects 75
4.7.2 Distributive Effects 75
Appendixes
A: SULFUR EMISSION ABATEMENT COSTS 81
B: TABLES FOR AN EMISSION CHARGE 91
C: TABLES FOR AN EMISSION CHARGE WITH AN EXEMPTION 95
D: TABLES FOR AN EMISSION CHARGE WITH A SUBSIDY 99
E: TABLES FOR A HYBRID PROGRAM 104
BIBLIOGRAPHY 114
VI
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Figure Page
20. Net private costs of an emission charge with a subsidy 72
21. Gross private costs of an emission charge with a
subsidy 73
22. Charge payments of an emission charge with a subsidy 74
23. Resource costs and effectiveness of emission standards
and charges combined 76
24. Net Private costs of emission standards and charges
combined 77
25. Gross private costs of emission standards and charges
combi ned 79
26. Charge payments of emission standards and charges
combi ned 80
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LIST OF FIGURES
Figure Page
1. Comparison of the allocative and distributive effects of
meeting the St. Louis SOX air quality goal with: emis-
sion standards (A), a uniform emission Charge (0), and
a combined standards-charge approach 7
2. Comparison of the allocative and distributive effects of
meeting the St. Louis SOX air quality goal with an
emission charge-exemption approach 9
3. Comparison of the allocative and distributive effects of
meeting with the St. Louis SOX air quality goal with
an emission charge-subsidy approach 11
4. Socially optimum emission rates 15
5. Emission charge 23
6. Per unit cost of emission abatement 25
7. Resource cost and air quality 26
8. Emission charge with an exemption 27
9. Emission charge with a subsidy 29
10. Shifts in emission charge rates and subsidy constant 29
11. General flow diagram of emitter response model 36
12. Resource costs and effectiveness of an emission charge 56
13. Private costs and effectiveness of an emission charge 58
14. Resource cost of reductions in mortality 62
15. Effectiveness of an emission charge with an exemption 65
16. Resource cost and effectiveness of an emission charge
with an exempt!i.n 67
17. Net private costs of ar. emission charge with an
exemption 68
18. Gross private costs of an emission charge with an
exemption 69
19. Charge payments of an emission charge with an
exemption 70
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LIST OF TABLES
Tabl_e Page
1. Characteristics of selected Air Quality Control Regions 42
2. Summary of emission points 43
3. Steam-electric power plant characteristics, 1971 '. 45
4. Existing source emission standards 49
5. Implied process weight rate emission standards for
fuel combustion sources 49
6. Fuel sulfur content before and after emission
standards (percent) 50
7. Sulfur emission estimates under emission standards 52
8. Allocative effects of emission standards 53
9. Distributive effects of emission standards 54
10. Emissions, air quality, and population estimates 60
11. Allocative and distributive effects of an emission
charge based on effects compared to emission
standards 62
•A-l. Sulfur emission abatement cost for steam-electric
utilities 86
A-2. Sulfur emission abatement cost for petroleum
refineries 88
A-3. Sulfur emission abatement cost for sulfuric acid
plants 89
A-4. Sulfur emission abatement cost for lead smelters 90
B-l. Sulfur emission estimates under an emission charge 92
B-2. Allocative effects of an emission charge 93
B-3. Distributive effects of an emission charge 94
C-l. Sulfur emission estimates under emission charges
with an exemption 96
C-2. Allocative effects of an emission charge with an
exemption 97
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Chapter 1: SUMMARY
1.1 Objective
Private markets have failed to adequately ration the use of the
atmosphere for residuals disposal. This was predictable because the
atmosphere is a public good. As a consequence, government intervention is
justified and was initiated in the form of national ambient air quality
standards for several pollutants (including sulfur oxide, particulate
matter, carbon monoxide, hydrocarbons, and photochemical oxidants). These
air quality standards represent goals to be attained to protect the "public
health" (primary standards) and "public welfare" (secondary standards).*
Effective government action is being achieved through the authority delegated
to the States for the implementation, maintenance, and enforcement of these
ambient air quality standards.
A broad variety of policy instruments have potential for controlling
pollutant discharges to rates consistent with the ambient air quality
standards. These policy instruments range from the use of moral suasion,
which requires voluntary compliance, to outright prohibition of pollutant
discharges, which requires legal sanctions.t In practice, the States
have not chosen either extreme but instead have relied upon a system of
direct controls usually termed "emission standards." This approach
embodies the use of government regulatory authority to dictate the residuals
management behavior of emitters. An alternative to the use of direct control
is the establishment of price incentives for inducing emitters to reduce their
discharges of pollutants to the atmosphere.
Both direct controls and price incentives can be expected to have
a unique set of impacts on emission rates and costs depending, among other
things, on the specific policy instrument and its chosen parameter values;
*See The Clean Air Act, December 1970 (42 U.S.C. 1857 et seq.).
tSee Government Approaches to Air Pollution Control, Institute of Public
Administration, Environmental Protection Agency, Washington, D.C., July 1971,
and The Instruments for Environmental Policy^ Wallace E. Gates and William J.
Baumol, Conference on Economics of the Environment, National Bureau of
Economic Research, November 1972.
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the industrial composition of the region; and on the zeal of the enforcement
authority. This study provides projections of the allocative and distribu-
tive* effects of emission standards, several types of emission charges, and
a combination of standards and charges (called "hybrid programs") as applied
to the major point sources of sulfurt emissions in two of the Nation's Air
Quality Control Regions (AQCR)..
1.2 Methodology and Limitations
Six policy instruments were selected for analysis:
1. emission standards (direct control), .
2. emission charges (price incentive),
3. emission charges based on effects (price incentive),
4. emission charges with an emission exemption (price incentive),
5. emission charges with a subsidy (price incentive),
6. emission charges combined with current and relaxed emission
standards (hybrid program).
Emitters, faced with either emission standards or charges, are assumed
(holding output constant) to be cost minimizers. That is, with emission
standards, emitters choose the least-cost abatement alternative such that
emissions are less than, or equal to, the standard. Under a system of emission
charges, emitters minimize the sum of abatement costs and charge payments.
Costs in the emitter decision-function are measured on an after-corporate
income tax basis using a present value approach and assuming rapid amortization
of abatement equipment capital outlays. These after-tax costs are referred
to as net private costs.
The capital and operating costs and abatement efficiencies of abatement
alternatives have been included in a programmed, deterministic, simulation
model that uses a comparative statics approach to estimating costs and
emissions under each policy instrument for the major point sources of sulfur
*As used here, allocative effects are those that relate to the aggregate
level of the resource (i.e., abatement) costs, and emissions, whereas dis-
tributive effects are those that relate to the incidence of the private costs
of a policy instrument.
tThe term "sulfur" is used herein to mean any one of the several forms
in which sulfur-bearing gases may be discharged to the atmosphere. All
measurements in this study are in terms of the sulfur equivalent.
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emissions in the St. Louis and Cleveland AQCR's. The sulfur emission sources
included in the model are: steam-electric power plants; industrial, com-
mercial, and institutional boilers; petroleum refineries; sulfuric acid
plants; and primary nonferrous smelters. Abatement alternatives costed
for the model include process modification, stack-gas desulfurization, and
fuel switching.
Some caveats are in order regarding the following analysis. First,
the redistributive impact that is estimated actually represents only the
initial incidence of the increase in costs. Clearly the producers who initially
bear these costs may be in a position to pass them forward. Whether they can
depends on (1) the extent of the market and the proportion of that market's out-
put represented by the particular firm(s) under analysis, (2) the extent to
which other firms in the affected industry bear similar cost increases, (3) the
overall elasticity of demand facing the industry, and (4) the elasticity of
supply in the industry. Of course if demand facing all affected emitters is
perfectly inelastic the entire redistribution measured in this study is
actually a redistribution away from consumers not the producers. The opposite
result, i.e., all costs are borne by producers, under the assumption of
perfectly elastic demand. No attempt is made in this report to measure these
elasticities and market factors. Hence no estimates of the final incidence
of increased costs are given here.
Second, in estimating the cost associated with each policy instrument
transactions costs are ignored. That is, the cost to emitters and to the
regulatory agency of establishing, maintaining, and modifying each policy instru-
ment are not included.
Third, the effect of uncertainty on emitters' behavior is also ignored.
That is, the approach employed implicitly assumes that emitters expect no
changes in either the costs or efficiencies of the abatement alternatives,
or in the policy instrument over the planning horizon (assumed to be 20
years).
Finally, only one pollutant, sulfur, is examined. Thus, the inter-
relationships between sulfur and particulate emission abatement as well as. the
interrelationships between fuel ash and sulfur content are not covered in this
analysis.
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1.3 Findings
Successful government intervention in private markets for the purpose
of achieving improvements in air quality will have the effect of reallocating
society's scarce resources among competing uses. More resources will have
to be allocated to process modifications, end-of-stack treatment, and to
alternative fuels and less resources (assuming a full employment economy) to
other uses. The means of achieving these reallocations is through the use
>
of policy instruments available to government. Comparison of the allocative
and distributional effects of the alternative policy instruments that offer
potential for achieving the necessary reallocations of resources, requires
that measures of the projected effects of each policy instrument be compared
using normative criteria. That is, a definition of allocative efficiency and
distributional equity must form the basis for judging the relative merits
of each policy instrument.
Allocative efficiency is viewed from the perspective of society as a
whole, and does not require that everyone would actually be better off or that
nobody will be worse off if a given policy instrument is employed. A policy
instrument promotes allocative efficiency to the extent that it results in a
reallocation of resources which—if costless redistributions of income could
be effected—could make everyone better off. Allocatively efficient produc-
tion is achieved when all resources are allocated in a manner such that any
possible reallocation results in a reduction of the output of at least one
good without increasing that of any others. As applied to the scope of this
inquiry, a policy instrument is allocatively efficient to the extent that
projected sulfur emission reductions in each AQCR are achieved at a minimum
total expenditure of real resources (i.e., abatement costs).
Allocative efficiency may not, however, provide a sufficient basis for
comparing the alternative policy instruments. This is because the distri-
bution of the benefits and costs will vary both across policy instruments
and within them for the alternative policy parameters. However, the relative
equity of the distribution of costs and benefits is a value judgment; hence,
no particular distribution of the effects of a policy instrument can be
defined on a purely economic basis as being "equitable." The equity of the
distributional effects of policy instruments must be evaluated within the
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political process. The distribution of the costs of each policy instrument
are, however, measurable. That is, it is possible to project the private
costs, on both net and gross basis, of alternative policy instruments. Gross
private costs include abatement expenditures plus transfers to government.
Net private costs are the actual costs borne by emitters after allowing for
the cost-sharing nature of the corporate income tax and abatement equipment
depreciation. They must be absorbed by the emitter (i.e., shareholders)
and/or shifted to customers. Aggregate resource costs, i.e., true social
costs, are gross private costs less transfers to the government.
The specific policy instruments considered in this analysis fall into
three broad types: direct controls, price incentives, and hybrid programs.
Each State, in complying with sec. 110(a)(l) of the Clean Air Act of
1970, which requires the submission of "...a plan which provides for imple-
mentation, maintenance, and enforcement ..." of the national primary ambient
air quality standard for sulfur oxides, has relied on the use of direct con-
trols to achieve the required emission reductions. These direct controls
establish emission limitations which are usually termed "emission standards."
Given perfect information regarding current and future abatement costs
regulators could establish a system of emission standards such that the emis-
sion reductions necessary to attain the ambient air quality standards are
achieved at a minimum expenditure of real resources. However, obtaining such
information is not costless. Nor is there any incentive for State regulators
to include consideration of allocative efficiency in the development of imple-
mentation plans. Therefore, it is a reasonable a priori expectation that
direct control through emission standards will not achieve the air quality
standards at maximum allocative efficiency.
The establishment of price incentives is an attempt to induce firms
to reduce discharges of emissions to the atmosphere by altering the cost of
abatement or the cost of pollution discharges. A charge on emissions uni-
formly applied to all emitters within a given geographic area is the most
commonly proposed price incentive.
Hybrid programs are an attempt to combine the predictability of direct
control with the incentive nature of price incentives.
Since the central focus of this study was to identify the trade-off
between allocative efficiency and negative redistributive effects, it is
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useful to compare all five policies designed to achieve equivalent emission
reductions. (The effects-based emission charge was designed to achieve a
reduction in the mortality rate equivalent to that associated with the emis-
sion standards.) As an example, the summary figures presented below array
the aggregate resource costs and the net private costs which are estimated
to accompany various policy parameter combinations that will just achieve
that air quality standards in St. Louis. Because the proportional air quality
model was assumed, the policy parameter values were chosen to induce emission
reductions just equal to, or slightly in excess of, those which are estimated
to accompany the emission standards for St. Louis.*
Although these figures present the summary for only St. Louis, not
Cleveland, the order-of-magnitude of the resource cost-private cost trade-off
in Cleveland is similar to that in St. Louis. For the Cleveland-related
detail of the kind presented in the summary figures, the reader is referred
to the later chapters and appendixes of this report.
Although somewhat apparent, it's important to note the impreciseness of
the empirical results presented. Accurate estimation of the differences in
the real resource costs of emission standards and emission charges would
ideally require perfect information regarding abatement costs. This study
makes no pretense of providing such estimates. What are presented are only
first approximations of these costs, based on engineering estimates of abate-
ment hardware costs and statistical analyses of fuel costs.
Figure 1. displays the cost impacts of three alternative policies that can
achieve the level of emission reductions in St. Louis required by the emission
standards. Those policies are: (1) emission standards, (2) a uniform emission
charge (29 cents), and (3) the hybrid program that employs a combined standards-
charge approach. With this hybrid program, the emissions limitation required by
emission standards at each emission source are proportionally relaxed for all
emitters by some fraction, g, of the emission constraint under standards alone.
Simultaneously, the emission charge is increased so as to induce the desired
*The proportional model uses emission reductions as a proxy for air quality.
This implied the absence of locational considerations. If sulfur emitters in
either of the regions have differentia'! impacts on air quality depending on
their spatial distribution, the additional resource costs of emission standards
may be either greater or less than indicated.
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00
01
1.0
.9
.8
.7
.6
.5
.4
.3
.2
.1
SvResource
cost
50 45
Net private
cost
20 15 10
10
15
20
25
30.
(106 dollars per year)
Charge rate
(cents per kilogram)
Figure 1. Comparison of the allocative and distributive effects of
meeting the St. Louis SOX air quality goal with: emission standards (A), a
uniform emission charge (©), and a combined standards-charge approach.
(Source: Research Triangle Institute)
reductions in emissions. The vertical axis in figure 1 measures the propor-
tion, B, of the existing emission constraints that continue to be applied.
The curve in the right panel shows the locus of combinations of 8 and charge
rates where necessary emission reductions are achieved. For example, with
no relaxation in the current emission standards in St. Louis (8 = 1.0) the
required charge rate is of course zero. On the other hand, with complete
relaxation of the emission standards, but no change in the air quality goal,
an emission charge of 29 cents per kilogram is required to induce the
necessary emission reductions. If the emission standards are relaxed for
all emitters by 20 percent (i.e., 8= 0.8) then the charge rate would have
to be set at about 23 cents per kilogram. Emitters must pay an emission
charge on all remaining emissions. The aggregate resource cost associated
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with this combination of policy parameters is, as shown in the left panel
figure 1, about $44 million per year while the net private cost is about
$37.5 million per year.
These allocative and distributive effects can be compared with the two
extreme cases, i.e. emission standards alone (3=1) and an emission charge
along (g = 0). The resource cost of the emission standards alone is about
$50 million per year while that of an emission charge alone is about $29
million per year. These estimates imply that the social costs of achieving
the St. Louis SO air quality goal via the emissions standards approach are
/\
about 72 percent higher than through the emissions charge approach. However,
largely because the emission charges transfer substantial financial resources
away from emitters, the net private costs of emission standards are about
26 percent lower than those of emission charges. The net private costs of
standards alone are about $25 million per year and those associated with
emission charges are about $34 million per year.
The reason emission charges can be more allocatively efficient and yet
at the same time result in higher private costs than standards is that charge
payments are paid on unabated emissions. From the perspective of society,
these charge payments are not properly part of the resource costs of an emis-
sion charge since they are transfers from emitters to government and do not
reflect the utilization of scarce resources. Analogously to payments for
other inputs to production such as labor and capital, charge payments can be
regarded as payments by emitters to government for the use of a public good,
the atmosphere, for residuals disposal. The charge payments also provide
emitters with an incentive to reduce emissions still further as more economical
abatement alternatives approaches are developed.
Arguments based on economic criteria notwithstanding, emission charges ^
have been opposed in some quarters due to their distributional effects. Two
variants of emission charges have been suggested to reduce the private costs
of charges and yet retain their allocative properties. These are exempting
some emissions from charge payments or offering a subsidy for low emission
rates. Both have the effect of reducing the charge payments associated with
any given charge rate.
Figure 2 presents the allocative and distributive effects of meeting
the St. Louis SO air quality goal using an emission charge-exemption approach
X
8
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5000
E
2 4000
01
o
3000
O
'p
Q.
E
(U
X
LU
2000
1000
I ;
Resource I Net private
costs ! costs
35
30
25
20
15
1O
1O
15
20
25
Costs
(106 dollars per year)
3O 35
4O
Charge rate
(cents per kilogram}
Figure 2. Comparison of the allocative and distributive effects
of meeting the St. Louis SOX air quality goal with
an emission charge-exemption approach.
(Source: Research Triangle Institute)
alone without emission standards. With this policy none of the point sources
which have emission rates below the exemption level is required to pay an
emission charge. All point sources with emission rates in excess of the
exemption level must pay at the rate of the applicable charge on only the
excess over the exemption level. Hence, the exemption level is an absolute
emission rate which is applied indiscriminately among all emitters in the
region; e.g. the exemption level does not vary by plant size, location, pro-
duction rate, or other specific attributes.
The range of exemption levels, up to 5 million kilograms per year, is
plotted along the vertical axis in figure 2. As shown in the right panel of
the diagram, increases in the exemption level must be accompanied by increases
in the charge rate to achieve the same level of emission reductions that is
required by the emission standards.
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This policy approach offers some clear advantages over the others pre-
sented. At the highest exemption level, for example, the necessary emission
reductions can be achieved with roughly a 39 cents per kilogram emission
charge (see figure 2). This policy combination implies aggregate resource
costs of about $30 million per year and net private costs of about $22 million
per year. This appears to combine the positive features of both the emission
standards and the emission charge approaches. On the one hand, the net pri-
vate costs of the charge-exemption approach are even lower than with the
standards, $22 million compared to $25 million. On the other hand, the
resource costs associated with this approach are only slightly higher than
the standards $30 million compared to $29 million. It should be noted, how-
ever, that smaller net private costs in the aggregate does not imply that
tney are smaller for all plants in the region. Specifically, since all
plants in the region are freely allowed to emit up to the exemption level,
the emission charge-exemption approach is likely to impose higher net private
costs on large emitters than would be the case with emission standards.
Finally, figure 3 shows the costs associated with the emission-charge-
subsidy approach for the St. Louis region with a charge rate, of 29 cents per
kilogram. With this approach every point source either receives a subsidy
(negative emission charge) or pays an emission charge. The amount of the
subsidy (negative emission charge) or of the payment is computed with the
formula TCP = CR(K-E). CR is the charge rate per kilogram, K is the break-
even emission rate, and E is the plant's emission rate. Clearly, all point
sources whose emission rates are below K receive a subsidy or negative charge.
The more they reduce their emissions below K, the larger is the total subsidy.
All point sources with emission rates above K are required to render a charge
payment which is simply the product of the emission rate in excess of K
and the fixed charge rate.
The emission rates at which the point source just breaks even (neither
receives a subsidy nor pays an emission charge) are plotted along the hori-
zontal axis in figure 3. The associated costs are measured along the vertical
axis. As shown there, aggregate resource costs in the region are invariant
over various values of K because changes in K will not affect the optimal
emission abatement policy—assuming that all the existing firms, and only
those firms,continue to operate in the region. This is so since the marginal
10 .
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O)
O
Q
O
0
NET PRIVATE COSTS
100
200 300 400 500 600 700
Breakeven Emission Rate, K (103 kg)
800
900
1000
Figure 3. Comparison of the allocative and distributive effects
of meeting with the St. Louis SOX air quality goal
with an emission charge-subsidy approach.
(Source: Research Triangle Institute)
charge rate, CR, remains constant. Therefore, the same charge rate, 29 cents
per kilogram, that effects the necessary emission reductions using the uniform
emission charge approach is sufficient to achieve those reductions over all
values of K. Consequently, the aggregate resource costs of the charge-subsidy
approach are the same as those associated with the uniform emission charge,
about $29 million. On the other hand, net private costs are much smaller
depending on the choice of K. As shown in figure 3, net private costs may
actually become negative for sufficiently large values of K.
Two points are critical to summarize this policy approach more com-
pletely. First, as was the case with the charge-exemption approach, aggregate
net private costs which are lower than those associated with standards, may
obscure increases in net private costs for some large emitters. Second, these
estimated responses do not account for a subtle emitter response that may be
critical in a real world application, viz., that the existence of a subsidy is
likely to increase the number of point sources claiming emitter status. Any
"potential emitter" who can convince the environmental authority that he has
11
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cleaned up all his emissions can receive a payment of CR x K. This critical
nuance, not incorporated in the estimates shown, requires that the results
be interpreted with care.
12
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Chapter 2: INTRODUCTION
2.1 Background
Under certain conditions, prices established in free markets convey
all the information necessary to producers and consumers so that resources
are allocated in such a manner as to maximize economic welfare.* One of
the most important conditions for optimal allocation of resources is the
independence of all individuals' consumption and all firms' production
decisions (ref. 3). However, when the production or consumption of one
good affects the costs of production of other goods, or the welfare of other
consumers, and when there is no accompanying compensation, Pigou observed
that resource allocation is not optimal.t Economic welfare could be im-
proved by producing more or less of the good in question, depending upon
the direction of the effects. Where there are such third party effects
externalities are said to exist.T Pigou specifically identified the poor
*This basic thesis was articulated in the "invisible hand" concept of
Adam Smith. Writing in 1776 he observed that as each individual labors to
maximize his own economic welfare, he
"...necessarily labours to render the annual revenue
of society as great as he can. He generally, indeed,
neither intends to promote the public interest, nor
knows how much he is promoting it. ...He intends only
his own gain, and he is in this, as in many other
cases, led by an invisible hand to promote an end
which was no part of his intention" (ref. 1).
In contemporary language and terminology "...under perfect competition, all
the marginal as well as the second-order conditions of a welfare maximum
are automatically satisfied by the market mechanism" (ref. 2).
t"...the essence of the matter is that one person A, in the course of
rendering some service, for which payment is made, to a second person B,
incidentally also renders services or disservices to other persons C, D, and
E, of such a sort that technical considerations prevent payment being exacted
from the benefited parties or compensation being enforced on behalf of the
injured parties" (ref 4).
rExternalities that have a beneficial effect on the cost or welfare of
others are termed external economies. Conversely, those with a detrimental
effect are external diseconomies.
13
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air quality in London* as an example of an external diseconomy, observing
that industrialists had no incentive to install "smoke-preventing appli-
ances" because of the difference between private and social costs of pro-
duction. Industrialists acted to promote their own economic welfare by
producing products, presumably employing minimum cost combinations of
resource inputs and discarding wastes in the cheapest manner. From their
viewpoint the cheapest manner was to discharge them to the atmosphere.
The result was "...a heavy uncharged loss on the community, in injury to
buildings and vegetables, expenses for washing clothes and cleaning rooms,
expenses for the provision of extra artificial light, and in many other
ways" (ref. 5).
Ayres and Kneese have argued that, rather than being curious anomalies,
external diseconomies are a great deal more common than is usually recog-
nized. In particular, they view the external diseconomies "...associated
with the disposal of residuals resulting from the consumption and production
process...a normal, indeed, inevitable part of these processes" (ref. 6).
Others have observed that the growth and geographic concentration of economic
activity which has accompanied industrialization has tended to cause an in-
crease in the incidence of external diseconomies (ref. 7).
Discharges of industrial wastes to the atmosphere quite obviously create
external diseconomies. In particular, elevated sulfur oxide concentrations
have been shown to be significantly associated with excess mortality and
morbidity, reductions in visibility, accelerated corrosion of metals, lime-
stone, marble, roofing slate and mortar, and injury to ornamental and
economic crops among other effects (ref. 8). The dollar value of the damages
associated with sulfur oxide concentrations is alleged to increase exponen-
tially with decreases in the quality of the atmosphere (increases in dis-
charges of sulfur oxides). The cost of sulfur emission abatement has been
shown to increase exponentially with increases in the quality of the atmosphere
(decreases in discharges of sulfur oxides) (ref. 9).
*According to Pigou, a researcher (J. W. Graham, The Destruction of Day-
light) had determined that "...in London owing to the smoke, there is only
12% as much sunlight as is astronomically possible, and that one fog in five
is directly caused by smoke alone, while all fogs are befouled and prolonged
by it." Pigou, A. P., Economics of Welfare, p. 160. See ref. 3.
14
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TSC
a) Total costs
MCD
Figure 4. Socially optimum emission rates.
Because abatement of sulfur discharges to the atmosphere is not cost-
less to society, the determination of the socially optimum level of air
quality is an economic problem. Improvements in air quality involve the
balancing of interests of receptors and emitters.
Assuming no transactions costs,* the socially optimum level of sulfur
emissions is that rate at which the total social costs of emissions are
minimized or at which the marginal cost to emitters of abatement is exactly
equal to the marginal damages to receptors. As an example, suppose, in
figure 4, we measure discharges of sulfur to the atmosphere per unit of
the time (say kilograms per year) along the abscissa and cost on the ordi-
nate. Abatement of sulfur emission discharges requires expenditures by
emitters. Measured on a total, basis, these expenditures are represented
by TCA in panel (a). On a per-unit basis, the marginal cost of abatement
(dC/dE or MCA) increases with decreases in emissions. In the absence of
incentives to abate emissions, emitters would choose emission rate E.J , since
for emission rates less than EI, abatement cost is positive.
*These are the informational, enforcement, and administration costs
needed to implement a policy instrument.
15
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The total and marginal dollar values of damages, TCD and MCD respectively,
decrease with decreases in emissions.*t The socially optimum emission rate whicj
minimizes total social cost (TCS), is E*. In per unit terms, it is that emissiof
rate at which the cost of the last unit of emissions abatement (MCA) is exactly
equal to the value of the last unit of damages avoided (MCD).t
In situations characterized by external diseconomies, Pigou advocated
government intervention (ref. 10). Coase (ref. 11), however, is more conserv-
ative, arguing that, regardless of property rights, private negotiation
between the damaging and damaged party will result in a Pareto-optimal solu-
tion, under certain assumptions.§
The indivisibility of air quality and the large number of receptors,
however, preclude the existence of an effective private market for "clean"
air. Using Buchanan's criteria, (ref. 12) "clean" air is a public good
because the benefits to receptors, i.e., the reduction in damages from
*For expositional simplicity, the MCA curve is shown to intercept the y
axis. However, it may be more realistic to suppose that as MCA approaches
the y axis, that is, emissions become very small, the additional per unit
cost of abatement becomes infinite.
tHow one views MCA and MCD in traditional demand and supply terms depends
on his perspective. If receptors are viewed as'owning the atmosphere, MCA
is the emitters' demand curve for the right to pollute. That is, at any emis-
sion rate (E), the curve MCA shows the maximum price emitters would be willing
to pay for the right to discharge pollutants to the atomsphere. Thus MCA
represents the demand for the rights to emit, or the demand for "dirty" air.
The curve MCD shows for any E the minimum marginal payment receptors would
have to receive to allow discharges. And MCD represents the supply of rights
to emit, or the supply of dirty air. Conversely, if ownership of the atmos-
phere is vested in emitters, then MCA shows the minimum amount emitters would
have to receive at the margin to produce reductions in emissions, and there-
fore represents the supply of clean air. The curve MCD, being the maximum
amount receptors would be willing to pay to avoid discharges represents the
demand for "clean" air.
tThis optimum level of E is called a Pareto optimum since at E* "...it is
impossible to improve anyone's welfare, in the sense of moving him to a posi-
tion that he prefers by 'transforming' goods and services through production
or exchange, without imparing someone else's welfare." M. Blaug, Economic
Theory in Retrospect, Richard D. Irwin, Inc., 1962, Homewood, Illinois,
p. 538.
§Most notably, costless operation of the price system and small numbers
of dischargers and receptors.
16
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improvements in air quality are indivisible, and therefore receptors' prefer-
ences for "clean" air will not be revealed by the market mechanism. Each
individual would maximize his own utility by letting others pay for clean
air while he enjoys a "free ride", enjoying the benefits without paying the
cost (ref. 13). . -
Assuming that the transactions costs are not so large as to make the
status quo optimal, government intervention in private markets may be
justified to promote air quality when pollution externalities are present
(ref. 14).
Baumol and Dates (ref. 15) have suggested that such government inter-
vention in private markets for the purpose of promoting improvements in
environmental quality can be classified into four general types: (1) direct
control or regulation; (2) price incentives; (3) moral suasion; and (4) public
production (ref. 15). It is very doubtful that either (3) or (4) offer sig-
nificant potential for achieving improvements in the quality of the atmos-
phere. However, both direct control and several of the alternative price
incentives under certain conditions, do appear to be potentially effective
instruments for eliciting reductions in the rate of emission discharges to
the atmosphere.
2.2 Alternative Government Policy Instruments for Pollution Abatement
Primary ambient air quality standards for criteria pollutants, including
sulfur oxides, have been established by the Administrator of EPA. These
air quality standards have been set at a level sufficient to "— protect
human health," (ref. 16) and must be attained in all regions of the Nation
by 1975, unless exceptions are granted. A second set of ambient air quality
standards, referred to as secondary standards, (currently suspended for sulfur
oxides) are to be attained within a "reasonable time" (ref. 16).
To a significant extent, therefore, identification of optimal emission
rates is of academic interest only—even if such rates could be scientif-
ically determined, which appears unlikely at this time. Determination of
the applicability of alternative types of policy instruments and structures
to the problem of implementing the ambient air quality standards is relevant,
however, since the allocative and distributive effects of candidate policy
instruments are likely to vary. Regulation, several types of price incentives,
17
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and hybrid programs that have potential applicability to the problem of pro-.
viding recommended air quality, are discussed below.
2.2.1 Direct Control
Direct control is the use of government regulatory authority to Dictate
the residuals management behavior of firms. Direct government control of
emissions through the use of emission standards is the primary approach
employed by government. Emission standards regulate maximum emissions and
are equivalent to granting emission sources a nontransferable right to emit
pollutants up to the established limits. Emission standards can be classified
into four types: (1) uniform abatement; (2) uniform emissions; (3) emissions
as a function of heat input to combustion processes; and (4) emissions as a
function of process weight (ref. 17).
Under uniform abatement each emitter is required to abate by some
proportion of the emissions at some specified time. Uniform emission stan-
dards impose a limit on the emissions of each emitter. For fuel combustion
sources, uniform emission standards may be expressed as a function of the
heat content or amount of fuels consumed. For industrial process sources of
emissions, maximum emissions for each emitter may be expressed as a function
of the weight of materials input or process output.
Although there is no universal approach to establishing emission standards,
"best technology," "reasonable cost," and "practicality" are frequently cited
as important inputs to the standards-setting process. The ability of indi-
vidual emission standards to achieve the ambient air quality standards is
occasionally projected by a complex diffusion model such as the Air Quality
Display Model (AQDM) or an equivalent.
The case for direct control in general, and emission standards in particu-
lar, usually rests on their predictability. If enforced, direct government
control of emissions can induce emission reductions with little uncertainty.*
*Each type of emission standard has its own allocative and distributive
effects. When the standard is based on some variable such as input to or output
from production processes, the emission standard is likely to encourage dis-
chargers to increase inputs or outputs, thereby raising the effective emission
limit. For steam-electric power plants in particular, it has been shown (ref.
18) that regulation of the emissions from coal-fired boilers has encouraged the
substitution of labor for other factors of production, including coal.
18
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Sometimes direct control is also supported because of the supposed
equity of the solution which it produces. .As an example, a uniform abate-
ment emission standard may require all sources to curtail emissions by an
equal percent, say 80, of their emissions in some base period. Since all
parties are treated equally with respect to the proportion of reductions
required, such a solution is regarded as equitable in some quarters.
Finally, it should be noted that if the regulatory agency has perfect
knowledge of the abatement cost functions for each source, emission standards
can be designed to achieve the desired abatement at minimum total abatement
costs. However, acquisition of this knowledge is not costless, and since abate-
ment costs vary from source to source depending, among other things, on the
particular technology employed, size and age of plant, and prices the firm faces
for the factors of production, it appears unlikely that the regulators will be
able to write regulations which will achieve the desired emission abatement at
minimum total abatement costs.
The informational and enforcement costs of direct control, which should
be added to abatement costs to determine the total cost to society are likely
to be substantial. This is because emitters have an incentive to circumvent
the intent of regulations (or any other policy instrument), due to the abate-
ment costs likely to be imposed on them. Techniques employed by emitters for
avoiding or attenuating regulations include exercise of political or economic
pressures or legal arguments to obtain exemptions, variances, or delays in apply-
ing regulations. Also, because emitting up to the standard involves no penalty,
and emitting beyond it a high penalty, emitters may be motivated to mislead the
regulatory agency when required to show that their emissions do not exceed the
specified standards.
The equity of emission standards is an illusory concept. Ordinarily, equal
treatment is regarded as the exchange of scarce resources at an equal price
which is paid by all buyers of a given quantity (ref. 19). However, emission
standards imply different values, or shadow prices, of the atmosphere to differ-
ent emitters depending on the stringency of the applicable standard and on the
firm's abatement costs. Thus the standards impose unequal (inequitable) values
on each unit of allowable emissions among firms unless the standards are devel-
oped and modified in specific consideration of abatement costs.
19
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A final drawback to emission standards is that, once stipulated emission
rates are attained, emissions standards provide no continuing incentive to
emitters to seek further abatement.
2.2.2 Price Incentives
The purpose of price incentives is to induce firms to reduce their
discharges of emissions to the atmosphere either by altering the plant's
cost of abatement or its cost of pollution discharge.
A variety of price incentives has been suggested as offering potential
for inducing firms to reduce their discharges of emissions to the atmosphere.
Among the most commonly suggested price incentives are subsidization of emis-
sion abatement (or cost sharing), sale of a fixed quantity of transferable
emission permits, and emission charges.
Because of their theoretical allocative efficiency, emission charges
have received especially serious support among the available alternative
policy instruments. That support spans over 50 years since Pigou, after
observing the existence of external diseconomies, advocated the imposition
of taxes when the social cost of production exceeds the private cost.
Today, it is generally recognized that the data needed to estimate the
social cost of pollution to society are not available. Indeed, Pigou's pre-
cise prescription of a tax equal to the difference between the social and
private costs of production is irrelevant with respect to sulfur oxide
emissions since air quality standards have been established through the
political process. Now it is incumbent upon the States to find ways to
meet the standards.
Such a condition does not obviate the possible application of emission
taxes. Baumol has argued for the imposition of taxes as a means of inducing
the reductions in emissions necessary to meet the air quality standard. He
cites the case for the use of a corrective charge instead of regulations as
a means of meeting the standard; thus: "...it promises to be operational
because it requires far less information for its implementation. It uti-
lizes global measures and avoids direct controls with all of their heavy
administrative costs and their distortions of consumer choice and ineffi-
ciencies. It does not use the police and courts as the prime instrument to
achieve the desired modification of the outputs of the economy. Its effects
are long lasting, not depending on the vigor of an enforcement agency, which
20
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all too often proves to be highly transitory. ...it need not add to the
mounting financial burdens of the state and local governments. Finally,
it can be shown that, unlike any system of direct controls, it promises,
at least in principle, to achieve decreases in pollution or other types of
damage to the environment at minimum cost to society" (ref. 20).
Several emission charge structures each having potential applicability
to air pollution are discussed below. Before examination of the selected
charge structures, some general drawbacks to the usage of charges as a means
of inducing pollution abatement should be recognized.
One of the major difficulties in the implementation of emission charges
is the need for information and enforcement. The cost of obtaining relevant
information needed to predict, to the desired level of accuracy, emission
rates, abatement cost, and charge payments attendant to an emission charge
should be considered in the selection of a policy instrument. Assuming that
for any given output level firms minimize cost, the regulatory agency con-
sidering the use of an emission charge has the burden of estimating the cost
of emitter's alternative abatement schemes as the emitters see them, and not
as they may be viewed by the agency. This is not a trivial distinction when
one recognizes that the corporate income tax system alone reduces by about
50 percent the net impact on_ profits of abatement costs and charge payments.
Other factors, such as the opportunity cost of capital, depreciation schemes,
availability of subsidized loans and the like further cloud the problem.
Assuming the ability to properly estimate costs, a second problem, compounding
the problem of predicting emitter response to an emission charge, relates to
the role that expectations regarding the future may play in current decisions.
If emitters expect that the abatement costs, the technological efficiency of
abatement techniques, or the emission charge will differ from current values
in the future, a simple comparative statics approach to projecting emitter
behavior may not be a satisfactory technique.
A second major drawback to the use of emission charges is their potential
lack of political support. Environmental groups initially opposed emission
charges, regarding them as "licenses to pollute." More recently, however, in
testimony given at Senate hearings in 1971 (ref. 21), several environmental
groups, including the Sierra Club, Friends of the Earth, and National Audubon
Society, favored emission charges.
21
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Industry has generally opposed emission charges, recognizing that the
total cost to emitters may well be higher under a charge than with a standards
approach since a charge involves payments.
One industry association, the National Association of Manufacturers, went
on record at the Senate hearings as opposing charges, arguing (ref. 22):
The NAM believes that taxes on effluents and emissions
represent an unmanageable, uneconomical, and negative
approach, and in principle would allow polluters to
continue to adversely use our environment by the pay-
ment of a tax. On the other hand, a positive approach
would involve establishment of a system of accelerated
amortization and tax credits.
and
The Joint Economic Committee should reject the concept
of a pollution tax for the following reasons:
First, taking money away from industrial companies will .
not help the cause of pollution control and will not, in
our judgement, facilitate the installation of pollution
control facilities or the conduct of pollution control
research and development.
Second, a pollution tax is inconsistent with the concept
of government by sound and impartial regulation.
Third, a pollution tax would involve major administrative
problems related to setting of the tax rates, monitoring
of emissions and effluents, and enforcement.
Fourth, contrary to repeated assertions, there is no
precedent for a pollution tax.
Fifth, a pollution tax could cause unfortunate and un-
foreseen economic dislocations, including driving some
companies out of business.
Sixth, a pollution tax could be used to achieve Govern-
ment control of industrial expansion, location, and
operation.
2.2.2.1 Emission Charge. The most commonly proposed emission tax is
a uniform charge on each unit of emissions. Firms faced with an emission
charge are assumed to maximize profits or, at any given level of product
output, to minimize costs. The emission charge exploits this behavioral
characteristic by encouraging the emitter to minimize the sum of his payments
22
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TC,
TCP,
TCP
T,,ACR,
MCR=ACR
a) Total costs
b) Per unit costs
Figure 5. Emission charge.
for abatement practices and emission charges. The cost minimizing emitter
will increase his abatement practices until the cost of removing the last
unit of potential emissions just equals the emission charge rate.
In figure 5, the emitter's cost-minimizing behavior is illustrated
from both total and per unit perspectives. Costs are scaled along the
ordinate, and emission rates along the abscissa for a single discharger.
Without an emission charge, or other form of government intervention, the
firm has no incentive to control emissions and hence discharges amount E,
annually. Emissions can be reduced from E, to lesser rates by expenditures
on abatement (TCA, total cost of abatement; MCA, marginal cost of abatement).
If an emission charge rate of T, dollars per kilogram is imposed, the cost of
emissions is shown by TCP in panel (a). The discharger has a cost incentive
to reduce emissions, as long as the reductions can be obtained for less
cost than the charge. In panel (a) TC is the vertical summation of the two
cost curves (TCA & TCP). The firm would abate emissions until TC reached
a minimum (TC^), or from a per unit perspective, until the cost of abating
the last kilogram of emissions (MCA) equals the charge rate (T,). Emissions
after imposing the charge would be E2 annually. The gross cost to the
23
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discharger of an emission charge (TC,) is the sum of the annual abatement
costs (TCA1 or E-jE-C) and the charge payment (TCP1 or ACR] - EZ).*
The emission charge payment may be regarded as payment for the waste
assimilative services of a common property resource, the ambient air. The
continued presence of the payment provides dischargers with a perpetual
incentive to reduce discharges still further by developing lower-cost abate-
ment techniques.
Besides providing dischargers with an incentive to abate their waste dis-
charges to the atmosphere, emission charges can induce abatement from all dis-
chargers at minimum total resource cost to society. For any desired reduction
in emissions from uncontrolled levels, the total resource cost to societyt
is minimized when the abatement costs of the last kilogram of emission reduc-
tions are equated for all sources. In theory, a charge on emissions automa-
tically induces this outcome. Assume two emitters (A and B) with marginal
cost of abatement functions MCA., MCAg, as shown in figure 6, and a goal of
reducing emissions from the current rate, nine units annually, to say four.
This objective is met at minimum cost to society when discharger A is
emitting 1 unit and discharger B, 3 units per year. At these emission
rates, the marginal costs of abatement for two dischargers is equated at
2 cents per unit of emissions.
Since an emission charge will induce abatement to the point where the
charge equals the marginal cost of abatement, a charge of 2 cents in this
example would induce the desired behavior at minimum cost to society.?
*ACR] is the average charge rate paid on emissions E£. Since the charge
rate is constant over all emission rates, the average (ACR) and marginal (MCR)
charge rates are equal.
tAlthough the emission charge payments are a cost to emitters, they are .
not a cost to society since their opportunity cost to society is zero. They
represent only a redistribution of income from emitters to government.
rStrictly speaking, since the charge is on emissions and not air quality,
an emission charge minimizes the cost of achieving a desired reduction in
emissions and not improvement in air quality. To the extent that emissions
from all dischargers and air quality at all receptor locations are propor-
tionally related then an emission charge will achieve a desired level of
air quality at minimum cost. However, if air quality varies from location-
to-location, depending on the spatial distribution of emissions, then a
charge on each discharger's marginal contribution to air quality is optimum.
24
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§5
C»
Cl
c
aj
o
o
O
MCA,
IMCA
B
Emissions
(kilograms per year)
Emissions
(kilograms per year)
Figure 6. Per unit cost of emission abatement.
Given knowledge of the relationship between ambient air quality and emis-
sions, and between emissions and abatement cost, it is possible to compute the
emission charge necessary to meet the Ambient Air Quality Standards. For
example, assume one emitter and one receptor location. Further, assume a
linear relationship between emissions and air quality as shown in figure 7.
Before government intervention, the emitter is discharging E, kilograms of
the pollutant to the atmosphere annually resulting in ambient pollutant con-
centrations of A,.
If an air quality standard is established, it is possible to identify
the emission charge necessary to induce the emission reductions necessary to
meet the standard. Suppose in figure 7, a reduction in pollutant concen-
trations from A.J to Ap is desired. Using the air quality transformation
function, we find that emissions cannot exceed £„ to achieve air quality A?.
To reduce discharges to rate E2 annually (a reduction of E,E2) the discharger
25
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Emissions - Air Quality
Transformation
Function
Resource Cost
A2 A,
Ambient Air Quality
Figure 7. Resource cost and air quality.
incurs a cost of C2 on the last kilogram of pollutant abated. A charge of C2
will induce the necessary reduction in emissions.
2.2.2.2 Emission Charge with an Exemption. Recognition that the abate-
ment incentive provided by an emission charge is determined by the marginal
charge rate provides scope for consideration of a number of emission charge
structures. Since it can be argued that the purpose of emission charges is no~
to raise revenues but to provide a cost-effective economic incentive to abate
emissions, ways of reducing the charge payments while maintaining the marginal
charge rate at a sufficient level to induce abatement may merit consideration.
One approach is simply to exempt some emissions from charge payments.
As shown in figure 8, the effect of permitting emissions of amount J
without any requirement to pay charge payments reduces TC and ACR. As long
as J < E2 there is no difference in the resulting emissions rate E^ and
that which would obtain with the emission charge discussed above. However,
26
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TC2
TCA,
TCP,
0
b) Per unit costs
Figure 8. Emission charge with an exemption.
charge payments (TCP,, or ACR^ • E^) are less under an exemption policy than
under a standard uniform emission charge.
An exemption program has been suggested for application to problems of
water quality; it requires variable exemption levels to equalize the per capita
charge burden across municipalities (ref. 23). A similar rationale is diffi-
cult to apply to problems of air pollution since the incidence of abatement
cost and payments is more likely to be on stockholders and customers who are
likely to be geographically dispersed rather than on the immediate population
in the area. Nevertheless, such a charge may be attractive since it reduces
the charge payments.
The exemption proposal is mainly intended to insure minimal redistribu-
tions of financial resources away from emitters and concurrently to preserve
the allocative efficiency of uniform emission charges. It should be noted,
however, that the exemption program implies some tradeoffs between those two
policy goals. It does so for the following reason: small emitters whose
abatement cost curves (total and marginal) intersect the horizontal axis in
27
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figure 8 at emission rates less than the exemption level, J, face a marginal
charge rate (MCR) which differs by the full amount of the nominal charge rate
(since in these cases the MCR suddenly drops to zero) from the MCR faced by
other, larger emitters. These differentials alone imply that, unless E2 exceeds
the value of J for all emitters in the region, the aggregate resource cost of
achieving any given level of emission reductions under an emission charge-
exemption approach will always exceed that which is incurred under a simple
uniform emission charge.
However, despite the allocative inefficiencies that occur when completely
unaffected by the emission charge, offsetting resource savings are possible.
Specifically, it is at least arguable that there would be reductions in trans-
actions costs with fewer small emitters to monitor. ':
2.2.2.3 Emission Charge with a Subsidy. A second type of emission charge ^
structure which reduces the charge payments burden is to combine emission charges
and subsidies. While most commonly proposed subsidies have undesirable proper-
ties, one recent melding of charges and subsidies has received considerable sup-
port on both theoretical and practical grounds. This is the negative income tax.*
A similar approach has been suggested (ref. 24) for application to problems of
environmental quality. However, under this scheme the emitter is paid at the rate
of T, per unit of emission reductions in excess of E-, - K (see figure 9).
In figure 9; using the same charge rate (T-,) as above and the same value
for the x-axis intercept (here labeled K and called the breakeven emission rate),
the emitter would also select Ep as the cost-minimizing emission rate. In this
example, charge payments are the same as with the exemption. However, charge
payments may become negative. This is shown in figure 10 where all the curves
from figure 9, panel (b) are reproduced along with representations of the two
conditions under which charge payments may become negative: 1) for higher charge
rates, panel (a), or 2) for higher values of K, panel (b).
2.2.3 Hybrid Programs
As has been suggested by Dates and Baumol (ref. 25) as well as others, a
combination of policy instruments may be employed. One such approach would be
to combine emission standards and emission charges. Presumably, the predicta-
bility of emission standards could be used to constrain emissions to some
*Under this scheme, individuals are charged at a negative tax rate if
their incomes are below some standard level.
28
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TCt
TCAj
TCP,'
0
K E,
TCP
ACR,
E 0
a) Total costs
b) Per unit costs
Figure 9. Emission charge with a subsidy.
MCA
ACR1
a) Shifts in charge rates
b) Shifts in constant
Figure 10. Shifts in emission charge rates and subsidy constant.
29
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critical level (E). Charges could then be imposed on the remaining emissions
to induce emitters to exceed the minimum abatement requirements.
Alternatively, because current emission standards frequently embody
"best technology," relaxing the emission standards (by some proportion, 3)
in conjunction with an emission charge may be an administratively simple
way of adjusting the constraint and providing emitters more flexibility.
30
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REFERENCES
1. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of
Nations (Modern Library edition), 1776, p. 423.
2. M. Blaug, Economic Theory in Retrospect. Richard D. Irwin, Inc.,
Homewood, Illinois, 1962, p. 544.
3. Scitovosky, Welfare and Competition, p. 268.
4. A. C. Pigou, Economics of Welfare. MacMillan & Co., 1920, p. 159.
5. A. C. Pigou, pp. 160-161.
6. Robert U. Ayres and Allen V. Kneese, "Production, Consumption, and
Externalities," The American Economic Review. June 1969, Vol. LIX,
No. 3, p. 282.
7. See for example:
a. K.W. Kapp, The Social Costs of Private Enterprise, Schocken Books,
Inc., New York, 1971. '
b. James M. Buchanan and S. Craig Stubblebine, "External Effects,"
American Economic Review, Sept., 1961, pp. 594-613.
c. B. Commoner, The Closing Circle, Alfred A. Knopf, Inc., New
York, 1971.
8. Air Quality Criteria for Sulfur Oxides, National Air Pollution Control
Administration Publication No. AP-50, Washington, D.C., January 1969.
9. Tayler H. Bingham et al. A Projection of the Effectiveness and Costs
of a National Tax on Sulfur Emissions, Nov. 1973, Environmental Pro-
tection Agency, Washington, D. C.
10. A. C. Pigou, "Divergences Between Marginal Social Net Product and
Marginal Trade Net Product," Economics of Welfare, Chapter VI, 1920,
pp. 149-179.
11. R. H. Coase, "The Problem of Social Cost," The Journal of Law & Economics,
Vol. Ill, Oct. 1960, pp. 1-44.
12. James M. Buchanan, The Demand and Supply of Public Goods, pp. 174-175.
13. Ibid., p. 87.
14. Richard 0. Zerbe, "Theoretical Efficiency in Pollution Control,"
Western Economic Journal, Vol 3, No. 4 (December 1970), pp. 364-376.
15. William E. Baumol and E. Wallace Oates, Instruments for Environmental
Policy, November 1972, Unpublished manuscript.
16. Clean Air Act PL 91-604.
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17. William D. Montgomery, III, Market Systems for the Control of Air
Pollution, doctoral dissertation, May 1971, p. 28.
18. Allen K. Miedema, "Factor Demands and Participate Emission Control
Regulations: The Case of Steam-Electric Power Plants," doctoral
dissertation, North Carolina State University, 1974.
19. Hugh H. Macaulay, Uses of Taxes Subsidies and Regulations for Pollution
Abatement. June 1970 Water Resources Research Institute, Clemson Uni-
versity, Clemson, S.C., p. 17.
20. W. J. Baumol , "On Taxation and the Control of Externalities," American
Economic Review. LXII (June 1972), p. 219.
21. Economic Incentives to Control Pollution, Hearings Before the Senate
Subcommittee on Priorities and Economy in Government, 1971.
22. Ibid., pp. 1255-6.
23. Meta Systems, Inc., Effluent Charges: Is the Price Right? for the En-
vironmental Protection Agency, September 1973, p. 66.
24. Robert J. Anderson and Terry A. Ferrar, "Residuals Charges and Profits,"
Center for the Study of Environmental Policy, the Pennsylvania State
University, November 12, 1973.
25. Wallace E. Dates and William T. Baumol, The Instruments for Environ-
mental Polic.y, forthcoming Papers of the Conferences on Economics
of the Environment, p. 13.
32
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Chapter 3: METHODOLOGY FOR EVALUATING SELECTED
POLICY INSTRUMENTS
3.1 Introduction
Comparison of the selected policy instruments requires the use of criteria
and a means to generate estimates, preferably quantitative, of the values of
each criterion for the alternative policy instruments. This chapter sets forth
evaluative criteria, discusses the model of emitter behavior employed, and
identifies selected regions for quantitative analysis.
3.2 Evaluative Criteria
In applied welfare economics, it is common to separate the allocative
and distributional effects of policy instruments (ref. 1). Allocative effects
are those that affect the aggregate level of real income, assuming a full-
employmen economy. A policy that increases the level of real income is, ceteris
paribus, unambiguously preferred. For example, to the extent that the benefits
of government intervention in private markets for the purpose of reducing the
social costs associated with residual discharges to the atmosphere are greater
than the costs, such intervention is socially desirable since it increases
real income.
Inclusion of considerations relating to the distribution of the benefits
and costs of alternative policy instruments, however, significantly reduces
the degree of unanimity of agreement regarding the desirability of alternative
policy instruments. With discussion of the distributive effects of a policy
instrument, the arguments take on an emotive flavor, with each interest group
advocating a particular distribution of costs and benefits. The advocacy
positions are likely to be based in part on the implied size distribution of
private policy costs and in part on the norms of the interest group.
3.2.1 Allocative Effects
Measurement of the allocative efficiency of alternative policy instruments
for improving air quality would, ideally, be based on a comparison of the costs
and benefits of the policy. Lack of quantitative benefit functions, however,
preclude such a comparison. In any event ambient air quality standards for.
sulfur oxides have been established by the Administrator. Therefore, the rele-
vant measure of the allocative efficiency of the alternative policy instruments
33
-------
is the degree to which each produces improvements in air quality at a minimum
total resource (i.e., abatement) cost to society. It is assumed herein that
air quality in a given region is unaffected by the spatial distribution of
emission sources, and accordingly emission rates can serve as a proxy for
air quality.
3.2.2 Distributive Effects
Since there is no single value system by which society can be generally
characterized, this study simply provides estimates of the gross and net pri-
vate costs to emitters of each policy instrument. Gross private costs
(i.e., cost to emitters before allowing for the effects of the corporate
income tax and depreciation) include: (1) additional payments for factors of
production and (2) transfers between emitters and government. Transfers
include emission charge payments and emission-reduction subsidies.
Net private costs are the costs actually borne by emitters. They must
either be shifted to consumers or absorbed by shareholders. The difference
between the gross and net private costs of a policy instrument represents
imputed transfers of the cost of a policy instrument from emitters to govern-
ment through reductions in Federal and State income tax payments.
3.3 Emitter Response Model
A meaningful quantification of projected emitter responses to alterna-
tive emission-reduction policies requires a valid theoretical structure.
The model which is discussed in this section and which was employed in this
study attempts to provide such a structure. The model basically provides a
microsimulation framework within which a finite number of emission-reduction
policy options are analyzed. The pivotal component in projecting emitter
responses is the assumption that emitters attempt to maximize the present
value of their operations in the long run or, equivalently, that they minimize
the present value of their costs for given output levels.
It is further assumed that the emitters have abatement reduction options
which are functionally separable from other parts of their production process.
The only source of interdependence is assumed to be the effluent air stream—
its flow rate and sulfur concentrations.
The iT'odel that was developed in this study abstracts from many factors
that may be more or less important to individual emitters. Hence, a few
34
-------
caveats are in order. One important simplification disregards potential
improvements in sulfur-removal technology and the effect of these improve-
ments on deferring the application of existing abatement strategies (ref. 2).
Another is the presumed absence of uncertainty in output levels, emission
charge levels, capacity utilization, etc. Indeed, the model assumes that all
policy and cost parameters are constant over the emitter's planning horizon. .
Several other nuances, such as local property and income tax structures and
refined engineering constraints, were necessarily not included. Nonetheless,
the microsimulation model presented here yields a theoretically sound basis
for aggregate comparisons of alternative policy instruments, in addition to
providing a good basis for further modeling extentions which relax some of the
constraints of the present model.
Figure 11 outlines the general conceptual framework of the microsimula-
tion model. The schematic is subdivided in three general components—inputs,
structure, outputs—which are more fully discussed in sections 3.3.1 through
3.3.3.
3.3.1 Model Inputs
The model employs three general sets of input parameters: (1) process
and engineering parameters, (2) economic parameters, and (3) policy parameters.
The process and engineering parameters are primarily composed of
emission-point source inventory data and abatement-cost function estimates
based on engineering and economic analyses. The emission inventory data
include individual emitter parameters such as capacities, heat input require-
ments, and emission factors. These data consist largely of the National Emis-
sion Data System Point Source inventory data, augmented with other primary and
secondary data. The engineering cost functions are used to estimate investment
and variable costs associated with both abatement and boiler conversion. These
functions are discussed in further detail in Appendix A.
The economic parameters incorporated as inputs to the model include
several important cost factors. One of the most obvious is the fuel price
structure, by fuel type and sulfur content (discussed more fully in Appendix A).
Another is the corporate income tax structure and the amortization status of
the depreciable investment. Others include the length of the firm's planning
horizon, the unit value of recovered sulfur, and the opportunity cost of capital
35
-------
to
cr>
Inputs
Process and Engineering
Parameters:
* Individual Point Source Parameters: heat
input requirement, capacity, acceptable fuel
inputs, capacity utilization, etc.
* Abatement Investment and variable cost functions
for alternative control options with associated
control efficiencies.
* Process Fuel Conversion cost functions.
* Process Emission Factors.
Economic parameters:
1Fual Price Structure (by fuel type, sulfur
content, and heat content).
Corporate Income tax rate.
Opportunity cost of capital.
Value per ton of recovered sulfur.
Length of the firm's planning horizon.
Rapid amortization period.
Policy parameters:
* SO Emission Control Regulation (ECR)
* UnTform Emission Charge (EC)
* EC with an Emission Exemption
* EC with a Subsidy
* ECR with an EC on emissions in excess of ECR
Computer Abatement
Investment and
Variable Costs
Compute Fuel
Premium
Compute Emission
Charge, if any
Compute Sulfur Emissions
and Emission Reductions
Compute Proceeds
of Recovered Sulfur
Sales
Compute before and after
Tax Discounted
Present Value of Emission
Reduction Strategy
Compute Annualizcd
Cost of Strategy
Choose the Cost
Minimizing Strategy
Output
I
Aggregate Results as
Required by Industry,
Region, etc.
Sulfur [missions before and
after Abatement and Percent
Emission Reduction
Annualizcd Cost of Abatement
before and after Corporate
Income Tax^.—
Equipment Operation of
Costs and Sulfur Salcs_
Capital Outlays:
SO Abatement and '•
Fuel Conversion Outlays.
Average Cost of Abatement
per Unit Mass of Emission
Reduction
Policy type. Level of
Application, and Net
Emission
Fuel Type,
Characteristics,
and Fuel Cost
Premium
INPUTS
STRUCTURE
OUTPUT
Figure 11. General flow diagram of emitter response model,
-------
Finally, the model provides a framework for the analysis of five alterna-
tive sulfur emission reduction policies. These include:
1. Sulfur oxide emission standards,
2. A charge per kilogram of sulfur emissions,
3. A charge per kilogram of sulfur emissions with an emission
exemption,
4. A charge per kilogram of sulfur emissions with a subsidy,
5. Sulfur oxide emission standards with a charge per kilogram of
sulfur emission on emissions in excess of the standard (or some
proportion of the standard).
3.3.2 Model Outputs
The computerized model provides a full array of outputs that are consis-
tent with the general conceptual design discussed below and shown in figure 11.
Besides providing the capability to aggregate all results by source type, by
geographic region, etc., the computerized model can provide the following major
output parameters for each point emission source:
1. Industry and locational characteristics,
2. Sulfur emissions before and after abatement and percent emission
reduction,
3. Annualized private costs of the policy instrument before and after
corporate income taxes and annual ized resource costs of abatement,
4. Policy type, level of application, and emission charge payments,
5. Abatement equipment operating costs and sulfur sales,
6. Capital outlays for sulfur abatement and boiler fuel conversion,
if applicable,
7. Average abatement cost per unit mass of emission reduction,
8. Fuel type and characteristics and fuel-cost premium.
The input flexibility of this model and the disaggregations that can be
developed in the output list above render an effective vehicle for analyzing
the relative efficiency and distributive characteristics of alternative, least-
cost, emission-reduction strategies, despite the constraints imposed by simpli-
fication of the dynamic setting and uncertainties surrounding individual
emitters.
37
-------
3.3.3 Model Structure
The emission source is assumed to pursue the emission reduction strategy
which minimizes the net present value of the costs associated with a policy
instrument, given an output level. The present value of costs is net of
corporate income taxes, depreciation, and sales of recovered byproducts.
Specifically, the model approximates each emitter's strategy by calculating
the present value associated with all control options and selecting that
strategy with the lowest present value of costs.
Although the functional speci "ication of the discounted present value
of net abatement costs varies according to the type of policy instrument
that is applied, this decision equation, which is the core of the model struc-
ture, can be shown here in general terms.
Both emissions and the net emission charge proceeds under the j emis-
sion reduction strategy can be regarded as functions of an array, Z., of
th ^
policy parameters associated with the j policy. This array may include the
emission charge rate, the subsidy level, the emission control regulation, etc.
E. = E-;(Z,-) = Sulfur emission t-
J J ^ rate under the j strategy.
(3-1)
IT. = TT.(E.) = Total emission charge payments
J 3 J under the jtn strategy.
The aggregate resource cost of the j abatement strategy is calculated
as the total gross private resource cost less transfers. Since all corporate
income tax payments and emission charge payments are transfers, the total
discounted present value of the reso
sion reduction strategy is shown as:
discounted present value of the resource costs associated with the j emis-
j (aggregate cost) = K.. + 2^ MTF/ (Vj + Fj " ^
t=l
(3-2)
PV. (aggregate cost) = Present value of the resource costs associated with
th
the j abatement strategy.
K. = Investment cost of the j strategy.
0
n = Planning horizon, in years.
r = Cost of capital, assumed to be the opportunity cost of
funds.
38
-------
V. = Annual variable cost under the j strategy.
th
F. = Annual fuel cost premium associated with the j strategy.
J
(J> = Unit value of recovered sulfur.
S. = Annual flow volume of sulfur recovery using the j
J
strategy.
Because all variable costs, including emission charges and depreciation,
can be deducted from taxable income, the emitter actually incurs a net expense
after income taxes that is much lower than gross abatement expenditures. The
private cost of the j strategy can therefore be generally represented as:
L
PV. (private cost) = K. - —-j E
*rr1 \ /
(3-3)
(1 -
F. + . (E ) - «Sj)
PV . (private cost) = Aggregate present value of private costs associated with
J th
the j abatement strategy.
8 = Corporate income tax rate, (0<0<1).
L = Number of years over which capital is depreciated on a
straight-line basis.
The abatement strategy which minimizes the value of equation 3-3 is the
one which is selected in the emitter response model, since it is presumed to
approximate the emitter's strategy decision function.
The amortization scheme assumed for pollution control facilities in this
study was the 60-month straight-line amortization deduction allowed by Federal
tax laws for certified pollution control facilities (ref. 3). Therefore the
value of L in the preceding equation was set equal to five and held constant.
The use of the 60-month amortization deduction is an alternative to the com-
bined use of the investment tax credit and a standard rapid amortization scheme
such as double-declining balance (ref. 4). Since the choice of amortization
39
-------
scheme is highly dependent on an individual plant's financial circumstances,
the model used the simpler 60-month amortization scheme (ref. 5).
The annualized cost of the j strategy, AC., is regarded as that con-
\j
stant annual payment over the emitter's planning horizon whose discounted
present value equals the computed present value of the cost associated with
the strategy. The "before tax" (gross private) and "after tax" (net private)
annualized costs facing the emitter are computed using equation 3-3 and two
alternative values for 0: zero and its actual value, respectively.
AC. (private cost) = PV^(private cost)
n / \ t
(3-4)
t=l
1-t-r I
A.L.
AC.(*) = Annualized cost of the j strategy.
J
Private costs are defined as gross private costs when calculated for a
zero tax rate (0 = 0); and as net private when calculated for an assumed
actual tax rate.
The annualized aggregate cost is computed by subtracting emission charge
payments from "before tax" (gross private) costs. Equivalently it follows
from equation 3-2 that:
AC. (aggregate cost) = PV .(aggregate cost) (3-5)
j J.;
The equations (3-1) through (3-5) are highly simplified versions of their
detailed counterparts in the computer model, which tailors the logic for each
emission source type. Nonetheless, these equations provide the basic concep-
tual underpinnings of the simulated emitter responses that are reported in
this study.
3.4 Selected Air Quality Control Regions
To provide for the " abatement prevention, and control of air pollution
on a regional basis," (ref. 6) 247 Air Quality Control Regions (AQCR) have been
established. The regional boundaries of the AQCRs were to be based on
40
-------
11 jurisdictional boundaries, urban-industrial concentrations, and other
factors, including atmospheric areas necessary to provide adequate implemen-
tation of air quality standards" (ref. 7).
Sulfur emitters in two of these AQCR's were selected for analysis in
this study. The AQCR's are: the Metropolitan St. Louis Interstate and the
Greater Metropolitan Cleveland Intrastate regions. The abatement actions of
each emitter in each region in the face of the alternative policy instruments
were then projected through the emitter's response model.
As table 1 shows, the land area of the St. Louis AQCR is almost twice
(187 percent) that of the Cleveland AQCR, although it has only about three-
quarters (73 percent) of the population. However, sulfur emission rates in
the two AQCR's are fairly similar.
3.4.1 Major Point Sources of Emissions
For the purposes of this study, it was deemed sufficient to identify the
costs and effectiveness of the alternative policy instruments for the major
point sources of sulfur emissions. From the National Emissions Data System
(NEDS), all steam-electric power plants, industrial, commercial and institu-
tional boilers (point sources only), petroleum refineries, primary nonferrous
smelters, and sulfuric acid plants in the two AQCR's were identified. The
NEDS data base provided basic data regarding the operating variables of the
identified point sources. This data base was supplemented as discussed below:
1. Steam electric power plants—Data from Federal Power Commission
(FPC) Form 67 was. obtained to provide additional data on the in-
stalled generating capacity, net generation, heat rate, fuel con-
sumption by type and sulfur content, and boiler-design fuel types
for each group of boilers breeched to a common stack.
2. Industrial , commercial, and institutional boilers — No additional
data were used.
3. Petroleum refineries—Data on capacity and processing operations
were obtained from The Oil and Gas Journal. Refineries with Claus
sulfur plants were identified by EPA.
4. Primary nonferrous smelters--Data on capacity and processing opera-
tions were provided by EPA.
41
-------
Table 1. Characteristics of selected Air Quality
Control Regions
Land area (square kilometers)§
Population, 1970§
Personal income, 1970 (103 1967 $)§
Per capita income, 1970 (1967 $)§
Sulfur emissions (106 kilograms per year)
Fuel combustion
Steam-electric power plants *
Industrial, commercial and
institutional boilers *
Other fuel combustion sources t
Industrial process t
Petroleum refineries *
Sulfuric acid plants *
Primary nonferrous smelters *
Other industrial process sources
Solid waste disposal t
Transportation t
St. Louis
AQCR
16,771
2,476,757
$9,089,950
$3,670
376.103
(286.917)
248.083
21.174
17.660
(85.273)
17.811
0.863
9.466
t 57.133
(0.332)
(3.581)
Cleveland
AQCR
8,961
3,383,879
$12,707,912
$3,755
307.986
(280.058)
171.937
37.768
70.353
(24.026)
9.712
0.207
14.107
(0.626)
(3.276)
* Research Triangle Institute.
t 1972 National Emissions Report, U.S. Environmental Protection Agency,
Research Triangle Park, N.C., June 1974.
§ U.S. Department of Commerce, Bureau of Economic Analysis
Projections of Economic Activity for Air Quality Control Regions,
Washington, D.C., p. 17.
Note: All units of weight presented in this study, unless specifically identi-
fied otherwise, are in metric measures. Defined as the Systeme International
d'Unites (SI), the basic unit of mass (weight) is the kilogram. All
other units of weight are officially described as multiples or fractions of a
kilogram. The factors for conversion are:
To convert from: To: Multiply by:
kilogram pound 2.205
pound kilogram 0.454
103 kilogram ton (short; 2,000
pounds) 1.102
ton 103 kilograms 0.907
42
-------
5. Sulfuric acid plants—Data on capacity and processing operations
were obtained from the Directory of Chemical Producers, Stanford
. Research Institute.
In some cases, the data for the operating variables in the sources listed
above differed from the data provided in the NEDS file. Where feasible, pos-
sible sources of these discrepencies were investigated. In most cases, how-
ever, data from the above listed sources were used when there was a conflict
with the NEDS data.
The emission rates shown in table 1 for the major point sources may differ
somewhat from those employed by EPA field personnel in gathering the NEDS data.
They are, however, reasonably accurate and provide a benchwork for comparing
the impacts of the alternative policy instruments.
For the St. Louis AQCR, 87 plants with 194 emission points were incor-
porated in the analysis. In the Cleveland AQCR, 113 plants and 238 emission
points were included (table 2). Most of the emission points in each AQCR
Table 2. Summary of emission points
Emission source
Fuel combustion
Steam-electric power plants
Industrial, commercial, and
institutional boilers
Industrial processes
Petroleum refineries
Sulfuric acid plants
Primary nonferrous
smelters
Totals
St.
Number of
Plants
(83)
9
74
(4)
2
1
1
87
Louis AQCR
Number of
Emission Points
(185)
30 *
155
0)
6
2
1
194
Clevel
Number of
and AQCR
Number of
Plants Emission Points
(109)
7
102
(4)
2
2
0
113
(228)
26 *
202
(10)
6
4
0
238
* Represents the number of groups of boilers breeched to a common stack.
43
-------
are associated with fuel combustion. Selected steam-electric power plant
characteristics are shown in table 3. For both AQCR's, a similar number of
steam-electric power plants and boiler groups are represented in the inventory.
The plants in the St. Louis AQCR tend to be larger than those in the Cleveland
AQ.CR. Coal, mainly from the Ohio district, is the only fuel used in the
Cleveland region (although small quantities of oil may be used for starting
boilers). In the St. Louis AQCR, coal (from the Illinois and Southern Number
2 Districts) is the dominant power-plant fuel, although some residual oil and
gas is used.
44
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Table 3. Steam-electric power plant characteristics, 1971
Company
Plant
Installed
generating
capacity
(103 kW)
Net
generation
(106 kWh)
Fuel
designed
for
(C=coal
0=oil .
G=gas )
Distribution of
Btu consumption
(percent)
Coal
Oil Gas
St. Louis AQCR
Union
Electric
Company
Illinois
Power
Company
Totals:
Cleveland
Electric
Illuminating
Company
Ohio Edison
Company
Cleveland
Department
of Public
Utilities
Painesville
Electric
Light
Department
Totals :
Ashley
Labadie
Meramec
Sioux
Chokia
Venice 1
Venice 2
Wood River
Baldwin
Avon Lake
East Lake
Lake Shore
Edgewater
Gorge
Lake Road
Painesville
70.0
1,110.0
800.0
977.6
300.0
55.0
500.0
650.1
623.1
5,085.8
Clevel
1,275.0
577.0
514.0
192.9
87.5
160.0
38.0
2,844.4
22.7
3,805.1
4,660.3
4,737.5
411.0
4.1
1,960.4
4,007.3
3,394.1
23,002.5
and AQCR
6,553.5
4,071.1
2,597.3
676.6
426.7
394.4
111.4
14,831.0
CO
C
CG
C
CO
OG
CG
CG
C
C
C
C
C
C
CO
C
83
99
92
100
56
--
67
76
100
100
100
100
100
100
98
100
17 —
1
—
__
44 -
— 100
— 33
- 24
--
__
__
—
__
--
2 —
— —
Source: National Coal Association, Division of Economics and Statistics. Steam-
Electric Plant Factors, 1972, Washington, D.C., 1972.
45
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REFERENCES
1. See for example:
a. Richard A. Musgrave, "Cost-Benefit Analysis and the Theory of
Public Finance," Journal of Economic Literature, September
1969, Vol. VII, No. 3, pp. 797-806.
b. E. J. Mishan, "The Post War Literature on Externalities: An
Interpretative Essay," Journal of Economic Literature, March
1971, Vol. IX, No. 1, pp. 1-28.
c. Arnold C. Harberger, "Three Basic Postulates for Applied Welfare
Economics: An Interpretative Essay," Journal of Economic Liter-
ature, Spetember 1971, Vol. IV, No. 3, pp. 785-797.
d. Nicholas Kaldor, "Welfare Propositions of Economics and Inter-
personal Comparisions of Utility," The Economics Journal,
49(1939) pp. 549-52.
e. Tibor Scitosky, "A Note on Welfare Propositions in Economics,"
The Review of Economic Studies, 9(1941), pp. 77-88.
2. This problem is analyzed in some detail in Appendix G of Tayler H. Bingham,
et al., AProjection of the Effectiveness and Costs of a National Tax on
Sulfur Emissions. RTI Project No. 41U-757, November 1973.
3. Internal Revenue Service (1971). Amortization of Pollution Control
Facilities. Publication 577 (10-7Ty!Washington:U.S. Government
Printing Office.
4. Ibid., p. 4.
5. Private conversation with Mr. Tom Quarles, Carolina Power and Light
Company, Raleigh, North Carolina.
6. U.S. Environmental Protection Agency, Federal Air Quality Control Regions,
Rockville, Md., January 1972, p. 1.
7. 1967 Amendment to the Clean Air Act of 1963, Section 107 (a)(2).
46
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Chapter 4: ANALYSIS OF SELECTED POLICY INSTRUMENTS
4.1 Introduction
The estimated allocative and distributive effects of the selected
policy instruments as applied to the major sulfur-emission sources in the
St. Louis and Cleveland AQCR's are presented in this chapter. These estimates
are developed .using the emitter-response model described above (section 3.3)
and the emission point abatement costs presented in Appendix A. The policy
instruments examined (see section 2.2) include:
1. Emission standards,
2. Emission charge,
3. Emission charge based on effects,
4. Emission charge with an exemption,
5. Emission charge with a subsidy,
6. Hybrid programs.
The sulfur emission sources included in this analysis are:
1. Steam-electric power plants,
2. Industrial, commercial, and institutional boilers,
3. Petroleum refineries,
4. Sulfuric acid plants,
5. Primary nonferrous smelters.
The following economic variables are treated as constants in this analysis:
1. The cost of capital (r) = 15 percent,
2. The value of recovered sulfur (SU) = $10 per ton,
3. The corporate income tax rate (0) = 53 percent,
4. The firm's planning horizon (t) = 20 years,
5. The rapid depreciation period (d) = 5 years.
Each of these parameters represents a reasonable average of actual current
values. The assumed corporate income tax rate is the sum of the Federal rate,
48 percent, and an assumed average State rate, 5 percent.*
*A1though the Federal corporate income tax rate is somewhat lower for
small incorporated businesses, 48 percent is the generally prevailing rate
that would apply to the companies covered by this analysis.
47
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4.2 Emission Standards
The term "emission standards" is used to characterize the regulatory
approach employed by all States to set maximum emission rates for sources in
each AQCR consistent with the attainment of the ambient air quality standards
for sulfur oxides. In the case of the St. Louis AQCR which is an interstate
AQCR, regulatory authority is divided between the States of Illinois and
Missouri.
Table 4 presents the emission standards for existing sulfur oxide emis-
sion sources in the two AQCR's. In practice, emission standards are subject
to modification, local interpretation, variances, and varying degrees of
enforcement. For these reasons and for purposes of providing a computationally
feasible specification of the standards for estimating abatement costs, the
standarcs shown in table 4 and our interpretation of them may not represent
the precise emission standards for the two AQCR's. However, they are reason-
able approximations of the emission standards and will serve for the purposes
of this analysis.
The emission standards for fuel-combust'; on sources are based on heat
inputs for both the Illinois portion of the St. Louis AQCR and the Cleveland
AQCR, and on process weight for the Missouri portion of the St. Louis AQCR.
For the purpose of this analysis, all fuel-combustion-source emission stan-
dards have been converted to a process weight (i.e., maximum sulfur content) .
base. It should be noted that the standard based on heat content can be
expected to encourage the consumption of relatively higher heat content fuel;
the standard based on weight would encourage the consumption of relatively
heavier fuels as combustion sources seek to minimize the costs associated with
the emission standards. However, neither of these responses is simulated in
this analysis because the marked increases in associated data and modeling
requirements appeared more costly than anticipated improvements in the predic-
t'i ons.
By using average fuel heat contents,* heat input emission standards were
converted to the process weight rate standards shown in table 5.
*The heat content of a barrel of residual oil used in this analysis is
6,287,000 Btu, with the fuel weight of 336 pounds per barrel (8 pounds per
gallon); for coal, 11,670 Btu per pound has been used.
48
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Table 4. Existing source emission standards
Emission Source
Fuel combustion
Residual Oil (maximum
Ib S02/106 Btu)
Distillate Oil (maximum
Ib S02/106 Btu)
Coal (maximum Ib SOo/10
Btu)
Oil (maximum percent
Sulfur)
Coal (maximum percent
Sulfur)
Industrial processes
Sulfuric acid plants:
mist (Ib Sulfur/ton
100 percent acid)
S02(lb S02/ton 100
percent acid)
Sulfur recovery plants
(Ib Sulfur/lb input)
Primary nonferrous smelters
(Ib S02/hr)
Copper
Lead
Zinc
St. Louis AQCR
Illinois
Portion
1.0
0.3
1.8
0.15
none*
none*
none*
none*
none*
Missouri
Portion
2.0
2.0
3
3
none*
none*
none*
Cleveland AQCR
1.0
1.0
1.0
0.5
6.5
0.01
0.02x
0.98x
0.77
0.564x
0.85
*No emission standards established,
x = total sulfur feed to smelter (Ib/hr),
Source: The Mitre Corporation, Analysis of Final State Implementation Plans-Rules
Regulations, Environmental Protection Agency, Research Triangle Park, N. C.,
July 1972.
Table 5. Implied process weight rate emission standards for fuel
combustion sources (effective maximum sulfur content, percent)
Fuel
Residual Oil
Coal
St. Louis AQCR
Illinois Missouri
portion portion
0.9 2.0
1.1 2.0
Cleveland AQCR
0.9
0.6
Source: Research Triangle Institute.
49
-------
For the industrial processes, emission standards are based on process
or product weights. To provide a computationally feasible specification of the
costs of meeting the industrial process emission standards, specific abatement
technologies are assumed. These technologies represent the highest level of
control for the industries, or processes within industries, for which emission
standards have been promulgated. To meet the sulfur-mist emission standards,
sulfuric acid plants are assumed to employ tubular fiber demisters. For
gaseous emissions, sodium sulfite scrubbing is assumed. Petroleum refineries
are assumed to install four-stage Claus plants with a tail gas unit. A lime-
stone scrubber on the lean steam is assumed for smelters.
For fuel-combustion sources, the emission standards are assumed to repre-
sent maximum allowable emission rates for each point source. The point
source is assumed to select the minimum cost combination of stack-gas desul-
furization and fuel switching consistent with the emission standard.
In trie St. Louis AQCR, coal-fired steam-electric boilers meet the emis-
sion standards primarily by application of stack-gas desulfurization systems
(double alkali scrubbers). As shown in table 6, the weighted average sulfur
Table 6. Fuel sulfur content before and after emission standards
(percent)
St. Louis AQCR Cleveland AQCR
Coal Residual Average Coal Residual Average
oil oil
Steam-electric power plants
Before emission standards
After emission standards
Industrial, Commercial, and
Institutional Boilers
Before emission standards
After emission standards
Totals
Before emission standards
After emission standards
2.73
2.82
3.31
2.62
2.75
2.82
2.22
0.72
1.92
0.88
1.97
0.85
2.73
2.80
2.47
1.65
2.70
2.71
2.58
0.59
2.99
0.63
2.65
0.60
0.16
0.16
1.08
0.71
1.06
0.70
2.58
0.59
2.88
0.63
2.63
0.60
Source: Research Triangle Institute
50
-------
content for steam-electric power plants in the St. Louis region is virtually
unaffected by the emission standards, since several large boilers offset the
cost of stack-gas dusulfurization by burning higher sulfur-content and hence,
lower-cost coal.
Emission standards are projected to reduce the combined emissions from
the sulfur emission sources included in this analysis by 55 and 78 percent in
the St. Louis and Cleveland AQCR's respectively (table 7). The largest abso-
lute reductions in sulfur emission are for steam-electric power plants.
4.2.1 Allocative Effects
The annualized aggregate resource costs of complying with emission standards
are $50 million in the St. Louis AQCR and $46 million in the Cleveland AQCR
(table 8). In both regions, steam-electric power plants have the highest
total resource (i.e., abatement) costs.
The average resource costs, which are dominated by fuel-combustion
sources, are $304 per 10 kilograms of emission reductions in the St. Louis
region and $265 in the Cleveland AQCR. Within each region, large variations
in these per unit costs are shown.
A larger average percentage reduction at a lower average cost is estimated
for Cleveland, because the price of coal for any given sulfur content is lower
in Cleveland than in St. Louis (see Appendix A). In St. Louis, four of the
larger steam-electric boilers are projected to control emissions employing
stack-gas desulfurization systems (double alkali scrubbing). Although the
marginal costs (i.e., the addition to total cost attributable to the removal
q
of the last 10 kilograms of sulfur emissions) of emission standards are not
directly measurable, they are greater than average costs and would exhibit
similar, or more likely even greater, variability across sources.
4.2.2 Distributive Effects
Net private cost, that is the cost to emitters after Federal corporate
income tax and depreciation allowances, is about half of the gross private
costs (table 9). Since emission standards do not require financial transfers
such as emission charges, the total gross costs to emitters, gross private
costs, are equal to the total cost of abatement practices, aggregate resource
costs. All of the remaining policies to be analyzed in this study do involve
transfers of financial resources. Therefore it is important to observe-the
distinction between these two aggregate cost measures.
51
-------
Table 7. , Sulfur emission estimates under emission standards
Sulfur emissions Reductions in
after abatement sulfur emissions
(106 kilograms/
/ 6
Emission source year) (10 kilograms) (percent)
St. Louis AQCR
Fuel combustion
Steam-electric power plants 124.101 123.982 49.98
Industrial, commercial and
institutional boilers 7.728 13.446 63.50
Industrial processes
Petroleum refineries 0.447 17.364 97.53
Sulfuric acid plants 0.044 0.819 94.90
Primary nonferrous smelters 2.272 7.194 .76.00
Total 134.591 163.065 54.78
Cleveland AQCR
Fuel combustion
Steam-electric power plants
Industrial, commercial and
institutional boilers
Industrial , processes
Petroleum refineries
Sulfuric acid plants
Primary nonferrous smelters
Total
39.302
7.603
0.624
0.012
—
47.450
132.635
30.164
9.088
0.195
172.083
77.14
79.87
93.57
94.36
78.35
Source: Research Triangle Institute
52
-------
Table 8. AT locative effects of emission standards
Resource costs
Emission source
Reductions in
sulfur emissions
(percent)
Total cost
of abate-
ment (106
dollars/
year)
Average
cost of
abatement
(dollars/
103 kilo-
grams of
reductions
in sulfur
emissions)
St. Louis AQCR
Fuel combustion
Stearn-electric power plants
Industrial, commercial and
institutional boilers
49.98
63.50
$31.689
6.485
$255.59
482.31
Industrial processes
Petroleum refineries
Sulfuric acid plants
Primary- nonferrous smelters
Total
97.53
94.90
76.00
54.78
10.600
0.134
0.604
$49.511
601.09
164.12
83.91
$303.63
Cleveland AQCR
Fuel combustion
Steam-electric power plants
Industrial, commercial and
institutional boilers
77.14
79.87
$31.682 $2J8.86
6.307 209.10
Industrial processes
Petr)leuin refineries
Sulfjric acid plants
Primary nonferrous smelters
Total
Source: Research Triangle Institute.
93.57
94.36
78.35
7.369
0.158
810.94
811.42
$45.516 $264.50
53
-------
Table 9. Distributive effects of emission standards
Gross private cost
Annualized cost (TO6 dollars/year)
Reductions in
sulfur . Net private
emissions cost
Emission source (percent) (106 dollars/year) Total
Fuel combustion
Steam-electric power plants
Industrial, commercial and
institutional boilers
Industrial processes
Petroleum refineries
Sulfuric acid plants
Primary nonferrous smelters
Total
Fuel combustion
Steam-electric power plants
Industrial, commercial and
institutional boilers
Industrial processes
Petroleum refineries
Sulfuric acid plants
Primary nonferrous smelters
Total
49.98
63.50
97.53
94.90
76.00
54.78
77.14
79.87
93.57
94.36
78.35
$15.494
3.097
5.090
0.086
0.387
$25.154
$14.890
6.370
7.369
0.100
$21.477
St. Louis AQCR
$31.689
6.485
10.600
0.134
0.604
$49.511
Cleveland AQCR
$31.682
2.970
3.518
0.158
$45.516
Variable cost
Abatement
Fuel equipment
cost operating
premium cost
$10.111 $12.415
5.197 1.005
10.172
0.014 .
0.091
$15.308 $23.697
$31.682 0
6.225 0.050
7.160
— . 0.015
$37.906 $7.225
Credit
for sulfur Fixed
sales cost
$ 0 $ 9.163
0 0.283
0.194 0.622
0.009 0.129
0.079 0.592
$0.283 $10.789
0 0
0 0.033
0.100 0.309
0.002 0.145
$0.102 $0.487
Capital outlays
for
abatement
equipment
(106 dollars)
$57.353
1.769
3.894
0.809
3.705
$67.529
0
0.207
1.937
0.908
$3.051
Source: Research Triangle Institute.
-------
However, in the Cleveland region where the steam-electric boilers are
smaller than those in St. Louis and where the cost of coal is lower, the
emission standards are met entirely by burning low-sulfur coal. Therefore,
the application of emission standards in Cleveland induces a reduction in the
average sulfur content of power plant fuels from 2.58 to .59 percent (table 6).
4.3 Emission Charge
An emission charge on all emitters is the most commonly proposed price
incentive for inducing emission reductions. The emission charge analyzed here
is based on the estimated weight of sulfur emissions from each point source
identified in the two AQCR's. The charge is assumed to be uniformly applied
to all sources in each AQCR, regardless of their location. Specific emission
charge rates have been selected for tabular presentation in Appendix B.
In the graphical data that are presented, the reader is cautioned that the
continuous curves simply connect coordinate points that were estimated. Because
of the discrete nature of the abatement cost functions coordinate values on
those connecting curves are only approximations of model output values.
The combined response of all sulfur emitters in the two AQCR's to selected
emission charge rates (expressed in cents per kilogram) are shown in figure 12
(see Appendix B, table B-l for tabular data). In both regions emitters are
most responsive to the charge up to a rate of 40 cents per kilogram of emis-
sions. Above that rate the percentage emission reductions elicited by a fixed
percentage increase in the charge rate fall dramatically. This illustrates
empirically the exponentially rising marginal cost of abatement function.
(Note that the right panels of both figures 12a) and b) can be interpreted
as the regional MCA curves such as that shown in figure 6.)
4.3.1 Allocative Effects
An emission charge induces emission reductions at a minimum total cost
of abatement, after allowing for depreciation and the corporate income tax.
This cost minimization property follows from the theoretical properties of
the emission charge discussed in section 2.2.2.1. The two panel graphs
(figure 12) show the aggregate resource costs and emissions induced by various
charge rates. Both total and per-unit costs of abatement for the selected
emission charge rates are shown in Appendix B, table B-2.
4.3.2 Distributive Effects
Both the net and gross private costs of an emission charge increase at
55
-------
70 60
50 40 30 '20
Resource Cost
(I06 dollars per year)
10
10 20
40 50' 60 70
Charge Rate
(cents per kilogram)
80 90 100
a) St. Louis AQCfi
220
200 -
55 50 45 40 35 30 25 20 15 10 5
10 20 30 40 50 60 70 80 90 100
Resource Cost
(106 dollars pei year)
Charge Rate- --•
(cents per kilogram}
b) Cleveland AQCR
Figure 12. Resource cost and effectiveness of an emission charge.
(Source: Research Triangle Institute)
56
-------
a decreasing rate over all charge rates, since emission reductions are induced
by the tax (figure 13). The gross private costs are larger than the total
resource costs because of financial transfers (i.e., charge payments) to
government. In both regions, charge payments have an inverted-U shape with
respect to the charge rate, reaching a maximum at a rate, of about 24 cents
per kilogram of emissions as shown in figure 13. •
The horizontal distance between charge payments and gross private costs
in figure 13 represents the aggregate resource costs of emission reductions.
These horizontal distances measure the identical aggregate resource costs that
are shown in the left panels of figure 12. These costs include expenditures
for purchase, installation, and operation of abatement equipment and fuel-cost
premiums, all measured on an annualized basis, net of credits for sales of
recovered sulfur.
In the St. Louis region, steam-electric power plants burn somewhat lower
sulfur-content coal at low emission charge rates. Beginning with rates of
20 cents, however, stack-gas desulfurization using double alkali scrubbers
becomes economical for large boilers. Since these scrubbers are projected to
be 95 percent efficient in removing sulfur from stack gases, it is cost
minimizing for boilers on which such systems are installed to burn higher
sulfur-content (and cheaper) coal. This fuel choice offsets some of the
scrubber equipment costs. Industrial, commercial, and institutional boilers
are not generally large enough to exploit the pronounced economies of scale
associated with stack-gas desulfurization systems. As a result, except for
a few large boilers, emission control is achieved by burning low-sulfur fuels.
In the Cleveland AQCR, steam-electric boilers tend to be smaller and
coal cheaper than in the St. Louis AQCR. Therefore, substitution of low-sulfur
coals is the only control strategy employed over most charge rates examined.
4.4 .Emission Charge Based on Effects
A number of studies have been completed which provide evidence of a
relationship between air quality and human health. Given a policy goal of
providing improvements in health by improving air quality, emission charges
\
could be tailored across regions, given sufficient cost and benefit informa-
tion, to induce the necessary reductions in emissions at a minimum total
resource cost to society. Such an approach would imply that air quality
57
-------
>•
k.
.e
100 90 80 70 60 50 40 30 20 10 0' 10 20 30 40 50 60 70 80 90 100
Private Costs
(106 dollars per year)
Charge Rate
(cents per kilogram)
a) St. Louis AQCR
220
70
60 50
40
30 20
Private Costs
(106 dollars per year)
0 10 20 30 40 50 60 70 80 90 100
Charge Rate
(cents per kilogram)
b) Cleveland AQCR
Figure 13.
Private costs and effectiveness of an emission charge.
(Source: Research Triangle Institute)
58
-------
across regions would vary in response to regional differences in abatement
costs and health effects.
To relate resource costs to health benefits ideally would require infor-
mation regarding the relationships between: emissions and air quality, air
quality and health effects, health effects and their dollar valuation, and
emissions and abatement costs. All this information, of course, is not
available at present. However, there is enough information to develop some
preliminary indications of the regional differences in emission charges under
several assumptions.
The relationships between emission charges, resource costs, and sulfur
emissions for the St. Louis and Cleveland AQCR's were presented above
(figure 12). By assuming a proportional model of emission dispersion—a
unit of emissions affects air quality identically regardless of source, loca-
tion, etc.--these emissions can be related to air quality.
The research of Lave and Seskin (ref. 1) provides a preliminary indication
of the health effects of air pollution. Specifically, they analyzed the rela-
tionships between mortality rates and various contributory factors, including
air pollution, using cross-sectional data from 117 Standard Metropolitan Sta-
tistical Areas in 1960. The resulting estimated relationship was (values of
the t-statistic are shown in parentheses):
MR = 19.607 + 0.0413, + 0.071a2 + 0.008a3 + 0.041a4 + 0.687a5 + e
R2 = 0.827
(2.53) (3.18) (1.67) (5.81) (18.94)
where
MR = annual mortality rate of per 10,000 population,
3
a-. = arithmetic mean of 26 suspended particulate readings in yg/m ,
I 3
a~ = smallest of 26 biweekly sulfate, SO,, readings in yg/m ,
a., = population per square mile,
a, = percent of population who are nonwhite,
a,- = percent of population 65 and older,
e = error term.
3
Thus, if the minimum sulfate level (a2) were lowered by 1 yg/m , the
annual total number of deaths would fall by 0.071 persons per 10,000 population.
59
-------
TablelO. Emissions, air quality,
and population estimates
Emi
Air
ssions
quali
Popul
(10 kilograms/year)
2
ty (yg/m SO^, annual
arithmetic mean) *
ation (104)
St. Louis
AQCR
376.103
100
247.676
Cleveland
.-.AQCR
307
157
338
.986
.388
*Monitoring and-Reports Branch, Environmental Protection
Agency working files, December 8, 1973.
Table 10 presents data on sulfur emissions, air quality, and the popula-
tion at risk in each AQCR. Because the above equation employs sulfation (SO.)
levels, it was necessary to convert estimated SOp levels to a corresponding
measure of SO. concentrations. Therefore, it was assumed that the conversion
of S0~ to SO. follows the simple equation:
so2 + o2 = so4.
Under this assumption 1.5 units of SO* is formed for each unit mass of SO^.* By
using a proportional model of air quality, and ignoring background concentra-
tions, it was estimated that a reduction in sulfur emissions of 1 x 10 kilograms
would lower average ambient SO. concentrations by 0.399 and 0.765 yg/m in
.the St. Louis and Cleveland regions, respectively.
By assuming that the average concentrations approximate the smallest of
the 26 biweekly sulfate readings, the Lave and Seskin equation was used, along
with the population values reported in table 10, to estimate mortality rate
differentials. In St. Louis and Cleveland a reduction in sulfur emissions of
*The relationship between S02 and S04 in the atmosphere is a very complex
one and not presently fully understood. The presence of other pollutants,
humidity, temperature, and photochemical activity, however, are all believed
to influence the relationship.
60
-------
1 x 10 kilograms was estimated to reduce'the annual number of deaths by 7.02
and 18.38, respectively.
The data presented in Appendix B, table B-2, were used to compute the
marginal costs per unit reduction in the mortality rate. These were computed
by dividing the units-adjusted charge rates, marginal costs per kilogram, by
7.02 and 18.38, marginal deaths avoided per 10 kilogram for St. Louis and
Cleveland, respectively. The resulting marginal costs per death avoided are
measured on the vertical axis of figure 14. The emissions reductions corre-
sponding to each charge rate in the numerator of those calculations (from
Appendix B, table B-l) were multiplied by 7.02 and 18.38 to get the corre-
sponding reductions in mortality in St. Louis and Cleveland, respectively;
these are measured on the horizontal axis in the right panel of figure 14.
Overall, the right panel of figure 14 shows the marginal cost per death
avoided for each AQCR. Also shown is horizontal summation of the two regional
marginal costs curves (EMC). Given a policy goal of reducing the total mor-
tality rate in both AQCR's by the lowest total cost, the EMC curve shows the
lowest marginal cost of achieving the goal.
The left panel of figure 14 shows the linear relationship between emis-
sion charge rates (marginal costs per kilogram) and marginal costs per death
avoided. This linear relationship is evident because of the way the latter
variable is computed.
4.4.1 Allocative Effects
The upper half of table 11 presents data on the number of deaths avoided
and the associated costs under the assumptions stated above as well as the
assumption that the emission standards are applied in both St. Louis and
Cleveland. The data indicate that the number of deaths avoided by the appli-
cation of standards in those two cities would be 1163 and 3230, respectively,
or a total of 4393. At the resource cost levels implied by the standards,
the average resource cost per death avoided is $42,562 in St. Louis and
$14,087 in Cleveland; the average for both regions is $21,625 per death
avoided.
Assume now that alternative least cost policies are considered for
reducing the numbers of deaths by the same amount, 4393, that is implied by
the emission standards, i.e. assume that the alternatives are based on effects
61
-------
100
Charge Rate
(cents per kilogram)'
Reduction in Mortality
(103 deaths per year)
Figure 14. Resource cost of reductions in mortality.
(Source: Research Triangle Institute)
Table 11. Al'Iocative and distributive effects of an emission charge
based on effects compared to emission standards*
Emission
" reduction
Percent 106 kg
Deaths avoided
Per 106 kg
reduction total
Total costs
(106 dollars
per yr.)
Aggregate Net
resource private
Average costs
(per death
avoided)
Aggregate Net
resource private
Marginal
costs
(per death
avoided)
Resource
Charge
rate
(cents
per kg)t
Emission standards:
St. Louis
Cleveland
Total
Emission charge:
54.8 163.0 - 7.02 1,163 49.5 25.2 $42,562 $21,668 n.a.
73.4 172.1 18.38 3,230 45.5 21.5 14,087 6,656 n.a.
64.8 335.1 — 4,393 95.0 46.7 21,625 10,630 n.a.
St. Louis
Cleveland
Total
41
87
60
.4
.3
.9
123.3
191.7
315.0
7.02
18.38
869
3,524
4,393
19.9
42.7
62.6
32.0
30.5
62.5
22,900
12,117
14,250
36,823
8,655
14,227
36,482
36,482
36,482
- 26
67
*These data are based on linear interpolations of the data in Appendix 8.
tThe emission charge in each region is chosen to meet two conditions: (a) that the marginal cost per death avoided
is identical in both regions and (b) that the total number of deaths avoided is the same as estimated when the
emission standards apply.
62
-------
which are denominated in terms of the number of deaths avoided. For example,
what are the comparable costs of meeting that policy objective using an emission
charge approach? Figure 14 shows the charge rates that are required in each
city to equalize the marginal cost per death avoided. The curve EMC shows that
this objective would be achieved when the marginal cost per death avoided is
approximately $36,500. The corresponding number of deaths avoided in St. Louis
and Cleveland would be 869 and 3524, respectively. As the left quadrant shows,
the desired emission abatement in each city would be induced by emission charge
rates of 26 cents per kilogram in St. Louis and 67 cents per kilogram in Cleveland.
The lower half of table 11 shows the corresponding aggregate cost and
emission detail for the effects-based emission charge approach. The first
thing to notice is that the aggregate resource cost of meeting the same policy
objective--4393 deaths avoided—is $32.4 million per year (or 34 percent) lower
when an emission charge approach is used instead of emission standards. Overall,
the average resource cost is reduced from $21,625 to $14,250 per death avoided.
The corresponding reduction in St. Louis is from $42,562 to $22,900 per death
avoided, and in Cleveland the average cost per death avoided is reduced from
$14,087 to $12,117.
4.4.2 Distributive Effects
Three distributive factors are important when this effects-based emission
charge is compared to an emission standard. These include the distribution of
emissions, deaths avoided, and costs.
First, because of the equalization of marginal costs per death avoided in
both cities, the overall percentage emission reduction under the effects-based
emission charge falls from 64.8 percent to 60.9 percent. However, this overall
decline aggregates the effects of a large decline in St. Louis, from 54.8 to 41.4
percent, a substantial increase in Cleveland, from 78.4 to 87.3 percent. The .
obvious implication, under the assumption that the application of emission
standards just meets the air quality standards, is that air quality would be
worse than the standards in St. Louis and better in Cleveland when a least cost
approach is used to achieve the same aggregate reduction in the mortality rate
implied by the application of the emission standards.
This alteration in regional emission rates also naturally implies mor-
tality rate changes. It is cost effective, assuming an equal value is placed
on a death avoided regardless of geographic location, to avoid more deaths in
63
-------
Cleveland (3524 instead of 3230) and fewer in St. Louis (869 instead of 1163)
if the policy goal of 4393 deaths avoided is held constant.
It is important to point out, however, that if policymakers v/ere willing
to commit the same aggregate level of resources under the effects-based emis-
sion charge as under the standards, i.e. $95 million/annually, at least as many
deaths, 1163, could be avoided in St. Louis and more than 3524 could still be
avoided in Cleveland.
Unfortunately the final negative distributional feature of the emission
charge remains. Because of the emission charge transfers net private costs are
higher than under the emission standards. Overall, the average net prfvate
cost rises from $10,630 to $14,227 per death avoided. This problem can be
solved, however, with the novel emission charge approaches discussed in the
following sections.
The reader is cautioned that the above analysis contains a number of
simplifying assumptions. Further, the effects of sulfur emissions are not
limited to health, nor are the health effects limited to mortality. However,
the approach is illustrative of the application of cost arid effects data and
use of a policy instrument to achieve a given policy objective.
4.5 Emission Charge with an Exemption
Emission charges are sometimes critized because the charge payments would
result in income redistributions from emitters to the government. If the
purpose of an emission charge were only to induce emission reductions then
exempting some emissions would reduce the charge payments.
For this analysis, several exemption levels (J) are simulated between 0
and 5,000 x (10 ) kilograms for three charge rates--20, 40, and 60 cents per
kilogram. These exemption levels are applied on a point-by-point basis.
As shown in figure 15 (and in Appendix C, table C-l), these exemption
levels have only a minimal impact on the effectiveness of the emission charge
in inducing emission reductions. Larger exemption levels, however,, would
significantly erode the effectiveness of the.emission charge.
4.5.1 Allocative Effects
As shown ~'n figure 15 an increase in the exemption level, holding the
charge rate constant, effectively relaxes the emission constraint and accounts
for the accompanying emission rate increases. Specifically, this relaxation
64
-------
270
240
£210
„ 180
E
CO
|" 150
o 120
CO
| 90
E
uj 60
30
0
CR=20
CR=40 ^
:r.rrn^>—•*
CR=60
1000
2000 3000
Exemption Level (103 kilograms)
a) St. Louis AQCR
4000
5000
160
140
-o-e~a-
E100
CO
^_
en
_0
5 80
o
- 60
trt
O
» 40
E
LU
20 -
CR=20
CR=40
*- ,o»»
CR=60
O"'©
1000
2000
3000
4000
5000
Exemption Level (103 kilograms)
b) Cleveland AQCR
Figure 15. Effectiveness of an emission charge with an exemption.
(Source: Research Triangle Institute)
65
-------
of the emission constraint results because increases in the exemption level
allow more small emitters to avoid all emission constraints. (In terms of
figure 8 the intersections of the abatement cost curves and the horizontal
axis for small emitters occurs at emission rates which are less than the exemp-
tion level, J.) Exemption level increases are likely to drop the effective
marginal charge rate to zero for small emitters and, hence, to increase regional
emissions since the marginal charge rate does not change for other, larger
emitters.
Figure 16 shows the resource costs and emission rates associated with the
two extreme exemption levels—zero and 5 x 10 kilograms per year—at various
charge rates. An increase in the exemption level at a constant charge rate
obviously decreases aggregate resource costs as emissions rise. For example,
in figure 16a), at a charge rate of 40 cents per kilogram, emissions are about
66 and 46 x 10 kilograms per year at exemption levels of zero and 5x10
kilograms, respectively, in St. Louis. The corresponding aggregate resource
costs fall from about $47 to $31 x 10 per year, respectively.
However, at. a constant emission rate, the average resource cost per kilo-
gram of emission reductions increases with the exemption level. For example,
resource costs would fall from about $31 to $29 x 10 dollars per year if an
annual emission rate of 131 x 10 kilograms were achieved with a 29 cent tax
and no exemption rather than with a 40 cent tax with a 5 x 10 kilogram per
year reduction (see figure 16a).
4.5.2 Distributive Effects
As expected, the private costs of an emission charge are significantly
affected by the exemption (table C-3, figures 17 through 19). In particular,
.charge payments are reduced (figure 19) since some sources are exempted outright
while all others would have lower payments for any charge rate.
As an illustration of the magnitude of the trade-off between the resource
cost penalty and the savings in net-private costs, it is interesting to observe
that, "at a 29 cent tax without an exemption, net private costs are about
r c
$34.4 x 10 per year while at a 40 cent tax with a 5 x 10 kilogram exemption
they are about $21.9 x 10 per year. This represents a 36 percent decrease in
net private costs at the same emission level. However, the corresponding
increase in resource costs from $29 to $31 x 10 per year is only about seven
percent.
66
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to
O)
L.
o>
a
vt
ns
cn
1 125
to
O
c
O
01
300
275
250
225 _
200 -
175 -
150 -
100 |-
75
50
25
0
• 70
60 -50 40 30 20 10 0 10 20 30 40 50 60 70 80 90 100
Resource Cost
(106 dollars per year)
Charge Rate
(cents per kilogram)
a) St. Louis AQCR
CO
a>
_
cn
O
je
o
c
O
55 50 45 40 35 30 25 20 15. 10 5 0 10 20 30 40 " 50 60 70 80 90 100
Resource Cost
(106 dollars per year)
Charge Rate
(cents per kilogram)
b) Cleveland AQCR
Figure 16. Resource cost and effectiveness of an emission charge
with an exemption.
(Source: Research Triangle Institute)
67
-------
0)
a..
o
•a
o
O
a>
+-*
ro
50
40
= 30
20
•g no
CR=60
X
«e t»-*
v
CR=40
CR=20
I
I
1000
20CO 3000
Exemption Level (103 kilograms)
a) St. Louis AQCR
4000
5000
30
25
0>
>.
o
T3
o
CJ
1
ik
~Y%
\X. CR=60
-2 20
15
10
\>^'6*s>..
•*..«....
""--^i,...
•"*».
'*® ..^
CR=20
8 _
•®—.
•t
JL
J_
_L
^000 2000 3000 : 4000 5000
Exemption Level (103 kilograms)
b) Cleveland AQCR
Figure 17. Net private costs of an emission charge with an exemption.
(Source: Research Triangle Institute)
68
-------
o
•a
-o
O
o
O
90
80
70
60
50
40
30
20
10
0
CR=60
CR=20
1000
I
I
J_
_L
2000 3000
Exemption Level (103 kilograms)
a) St. Louis AQCR
4000
5000
60
50
=5 40
o
O
o
a
30
20
10
0
®. CR=60
CR=20
J_
J_
1000
2000 3000 4000
Exemption Level (103 kilograms)
b) Cleveland AQCR
5000
Figure 18. Gross private costs of an emission charge with an exemption,
(Source: Research Triangle Institute)
69
-------
CJ
>•
o
TO
50
40
30
E 20
>-
o
10
CR=20
CR=40
CR=60
1000
2000
3000
4000
5000
Exemption Level (103 kilograms)
a) St. Louis AQCR
30
25-
a.
JO
~o
c
tu
a
S
o
O
15
10
CR = 20
:&>> CR = 40
•....©_ —J CR
1000
2000 3000
Exemption Level (103 kilograms)
b) Cleveland AQCR
4000
5000
Figure 19. Charge payments of an emission charge with an exemption.
(Source: Research Triangle Institute)
70
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4.6 Emission Charge with a Subsidy
The emission charge with a subsidy is a novel emission abatement approach
that either charges or subsidizes emitters depending on their emission rates.
Charge payments, TCP, are computed with the formula TCP = CR(E-K), where CR is
the charge rate, E is the emission rate, and K is the breakeven parameter.
Thus, sources emitting less than K annually would receive a subsidy equal to
CR(K-E). Sources emitting more than K annually would have a charge payment
to CP(E-K).
Selection of the appropriate value for K is a distributional, hence polit-
3
ical, issue. For this analysis, four values, expressed in 10 kilograms of
sulfur emissions, have been chosen: 50, 100, 150, and 200.
4.6.1 Allocative Effects
Since, for any given emissions charge rate, changes in the parameter K
cause only vertical shifts in the minimum total cost function, the emissions
and the allocative efficiency associated with the uniform emission charge
(discussed in section 4.3 above) are not affected by the incorporation of a
subsidy. The distributive effects, however, are altered by the subsidy.
4.6.2 Distributive Effects
Incorporation of the subsidy reduces the charge payments for all sources
with emissions greater than K. Sources with emissions less than K would receive
a payment from the government. The result is that charge payments, hence total
private costs, are reduced below those projected with the emission charge.
Judicious selection of the value for K could reduce net transfers between the
aggregate of all sources combined and the government to zero. However, redis-
tributions among sources would still occur.
As shown in figures 20 through 22 (and in Appendix D, table D-l), increases
in the value of K reduce the private costs of an emission charge. For high
values of K and emission charge rates, the net charge payments even become
negative.
4.7 Hybrid Program
Combining price incentives with direct controls could provide a ceiling
on emission rates as well as a continued incentive for emitters to reduce
their emissions still further. A large number of potential combinations of
direct control and price incentives are conceivable. Here one possibility is
examined—combining emission standards and charges.
71
-------
100
o
•a
o
O
a.
4-*
-------
100
20
30
40
50 60
Charge Rate
(cents per kilogram)
a) St. Louis AQCR
70
80 90 100
Figure 21
50 60 70 - 80 SO 100
Charge Rate
(cents per kilogram)
b) Cleveland AQCR
Gross private costs of an emission charge with a subsidy.
(Source: Research Triangle Institute)
73
-------
30
20
10
03
CL.
§
-10
-20
-30
-40
K=0
*»••••
-f-
K=100
_L
10 20 30 40 50 60
Charge Rate
(cents per kilogram)
b) Cleveland AQCR
70
80
... K=200
90 100
10 20 30 30 50 60
Charge Rate
(cents per kilogram)
a) St. Louis AQCR
70
80
90
100
Figure 22. Charge payments of an emission charge with a subsidy.
(Source: Research Triangle Institute)
74
-------
Emission charges could be imposed along with existing emission standards.
Or, because the standards may already incorporate the requirement for a high
level of emissions control, the standards may be relaxed by some proportion (3).
Below, the effects of three values for 3 are simulated—1.0, 0.8, and 0.6--and
compared against the emission charge along (3=0). Because of the limited
number and high efficiencies of the abatement alternatives included in the
model, the industrial process sources are not affected by the values of 3
chosen for analysis. Fuel combustion sources, however, are affected.
As can be seen in figure 23, lowering the value of 3 requires higher
emission charge rates to induce the same level of abatement. For example, at
a 3 value of 0.6, a charge of 28 and 40 cents per kilogram would be required
in the St. Louis and Cleveland AQCR's, respectively, to achieve the emission
rate of the standards.
4.7.1 Allocative Effects
Since emission standards are estimated to impose some extra resource
costs on society, lowering 6 and raising the charge rate to the point where
the emission rates under the emission standards are obtained results in reduc-
tions in the resouce costs. Again, using the above example (3 = 0.6, charge
rates of 28 and 40 cents) the savings in resource costs by relaxing the stan-
dards and imposing a charge would amount to $8 and $4 x 10 annually in the
St. Louis and Cleveland AQCR's respectively (figure 24). These savings are
roughly 16 and 9 percent of the cost of emission standards in St. Louis and
Cleveland as discussed in section 4.2 above.
4.7.2 Distributive Effects
Figure 24 can be used to illustrate the effect of changes in 3 and the
charge rate on net private costs. For example, assume the policymaker wishes
to relax the standards by 40 percent, i.e., B = .6. From figure 23 it was
apparent that the charge rates in St. Louis and Cleveland will have to be 29
cents and 40 cents, respectively, to achieve the same emission reductions as
the standards alone. In figure 24 it is clear that this policy raises net
private costs by about $14 and $8 x 10 (28 and 17 percent) annually. In fact,
when 3 = .6 net private costs are above those of standards alone for all charge
rates above 12 cents in St. Louis and 19 cents in Cleveland (see figure 24).
In general, relaxing the emission standards and imposing emission charges
increases private costs over those for emission standards alone. For example,
75
-------
300
275 -
Q.
t/>
CO
1_
01
O
c
O
LU
SO 80 70 60 50 40 30 20 10 0 10 20 30 40 50 60 70 80 90 100
Resource Costs
(106 dollars per year)
Charge Rate
(cents per kilogram)
a) St. Louis AQCR
220
200 -
10 20 30 40 50 60 70 80 90 100
Resource Costs
(106 dollars per year)
Charge Rate
(cents per kilogram)
b) Cleveland AQCR
Figure 23. Resource costs and effectiveness of emission standards
and charges combined.
(Source: Research Triangle Institute)
76
-------
70
•p
*o
O
C 40 -
v*
8
&
i
*u
0.
30 -
20 -
10
100
Charge Rate
(cents per kilogram)
a) St. Louis AQCR
80
90
100
Charge Rate
(cents per kilogram)
b) Cleveland AQCR
Figure 24. Net private costs of emission standards and charges combined.
(Source: Research Triangle Institute)
77
-------
as shown in figure 25, the gross private costs of a uniform tax alone (3 = 0)
exceed those of emission standards alone (3=1) for any charge rate above 20
cents in the St. Louis region and above 29 cents in the Cleveland region. Yet
the emission rate reductions implied by the standards are not achieved until
the charge rate is raised to 29 cents and 42 cents for 3 = 0 in St. Louis and
Cleveland respectively. The portion of gross private costs represented by
charge payments are shown in figure 26.
78
-------
o
TJ
•o
O
O
U
O
i_
O
40
50
60
70
80
90
100
Charge Rate
(cents per kilogram)
a) St. Louis AQCR
_ {>...« ^•••"-® «•»«.
40
50
60
70
80
90
100
Charge Rate
(cents per kilogram)
b) Cleveland AQCR
Figure 25. Gross private costs of emission standards and charges combined.
(Source: Research Triangle Institute)
79
-------
10
20
30
40
50
60
70
80
90
100
Charge Rate
(cents per kilogram)
a) St. Louis AQCR
40
35
30
25
20
15
10
5
o
•a
o
<0
O
o
t_
a
(3=0
10 20 30 40 50 60
Charge Rate
(cents per kilogram)
b) Cleveland AQCR
70
80
90
100
Figure 26. Charqe payments of emission standards and charges combined.
(Source: Research Triangle Institute)
80
-------
Appendix A: SULFUR EMISSION ABATEMENT COSTS
81
-------
Appendix A: SULFUR EMISSION ABATEMENT COSTS
A.} Introduction
For purposes of estimating the behavior of sulfur emitters under alterna-
tive policy instruments abatement cost functions are needed. This appendix
sets forth the abatement costs and efficiencies associated with the various
abatement options available, or projected to be available in the late 1970's,
to fuel combustion sources and the major industrial process sources of sulfur
emitters.
Abatement costs are divided into two broad components-initial capital
outlays and annually recurring variable cost.
A.2 Fuel Combustion
Sulfur emissions from fossil fuel combustion—principally coal and oil--
can be abated by substitution of low sulfur fuels and by desulfurization
of stack gases emitted to the atmosphere.
A.2.1 Fuel Substitution
Sulfur is a naturally occuring constituent of fossil fuels. Sulfur
emissions from fossil fuel combustion are in direct proportion to the sulfur
content of the fuels (usually expressed as a percent by weight). Distillate
and residual oils are assumed to weigh 0.82 and 0.96 kilograms per liter
(6.83 and 8.00 pounds per gallon) respectively. The sulfur content of gas
is negligible, however, both coal and oil combustion typically result in
the emission of large quantities of sulfur oxides to the atmosphere.
The sulfur content of coal and oil varies due to the geologic circum-
stances of their formation and when the fuels are processed. Most coal is
"cleaned" prior to being marketed. This process results in the removal of the
inorganic (pyritic) sulfur. Currently there is no economically feasible way
of removing the organic sulfur which usually represents about 50 percent of
the total sulfur content. The supply of low-sulfur coals is, therefore,
currently highly dependent upon the natural availability of low-sulfur coals.
Oil, however, can be desulfurized, although refinery capacity is limited.
Most low-sulfur eastern coal reserves are coking coals owned by the steel
industry. These coals carry a price premium over other coals. Large reserves
of low-sulfur coals are available in the western United States. However,
low extraction costs (since they are subject to strip-mining) are more than
82
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offset by the high transportation costs required to deliver these coals to
markets in the more populous East. These transportation costs are high due not
only to the long distances involved but also because Western coals have lower
heat contents (Btu's per pound) than coals found in the East.
The result of these supply conditions plus probable outward shifts in
the demand for low sulfur: fuels due to emission regulations has resulted
in a structure of delivered prices for coal and oil where price (in dollars
per Btu) is inversely related to the fuel sulfur content (in percent).
By using FPC form 423 data, an equation of the following form was fitted
to 1972-73 coal and oil fuel purchase data for steam electric power-plants:
where
P = eaSb (A-l)
P = delivered fuel price in cents per 10 Btu,
S = sulfur content of the fuel,
a, b = parameters.
The result provided one statistically significant equation for both the
St. Louis and Cleveland AQCRs, combined in the case of residual oil, and for
each AQCR for coal. Because of the successful cartelization of Mideast oil-
producing nations, however, the historical (i.e., 1972-73) data used to fit
the equations was not considered to be an accurate representation of postcar-
telization fuel prices. Since some incomplete postcartelization price data
was available, it was decided to use that data to shift the entire price
schedules. Accordingly, the intercept of the coal price equation was increased
using the percentage change in the wholesale price index for coal from the
1972-73 period to the first quarter of 1974. The midcontinent, first quarter
1974 price of 0.3 percent residual oil, as reported in the Oil and Gas Journal,
was used to shift the oil price equation until it intersected with the
reported value. It is recognized that the resulting equations provide only a
rough first approximation of the actual prices fuel combustion sources face
in the two AQCRs. Further, these exogenously introduced price schedules are
relevant only if we assume all emission sources are price-takers. A priori,
this assumption does not seem unreasonable given the national character of the
fuels market, and the small share of that market which the fuel combustion
sources in the two AQCRs represent.
83
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The resulting equations used in the model were:
for residual oil
P1 = (66.954)S~°-216 (A-2)
for coal in the St. Louis AQCR
P2 = (47.276)S~°-392 (A-3)
for coal in the Cleveland AQCR
P3 = (48.279)S~°*134. (A-4)
For utility boilers designed to burn both coal and residual oil, the
only costs associated with interfuel substitution are those associated with
the delivered prices of the fuels. In the case of boilers configured to burn
only coal or residual oil, boiler conversion costs would be incurred to switch
across fuels.
The available utility boiler conversion cost data is very incomplete.
Further, the cost of boiler conversion for any particulate boiler is likely
to vary significantly from that estimated using a generalized engineering
equation, as plant and boiler parameters which affect conversion costs vary
widely. Where boilers were previously converted from coal to oil! or oil to
coal, and where the previous fuels' storage and handling equipment are still
available, conversion costs would be negligible. Converting boilers which have
never previously burned the alternative fuel is likely to be substantially more
expensive. Two simple boiler conversion equations have been developed for use
in this analysis:
coal to oil: C = 51,800 (kW)0'65 (A-5)
oil to coal: C = 20,000 (kW)°'65 (A-6)
where
C = the capital investment,
kW = the rated capacity of the boiler in kilowatts.
Cost of industrial, commercial and institutional boiler conversion data
is even less readily available. Again, a simple equation reflecting scale
economics has been employed. In this case one equation for coal to oil and oil
to coal conversion has been employed.
84
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C = 12,000 (EC)0'60 (A-7)
where
BC = boiler design capacity, 10 Btu/hr.
A. 2. 2 Stack-Gas Desulfurization
There are several candidate processes for removing sulfur oxides from
stack gases in various stages of development and/or demonstration. Most pro-
cesses are applicable to large (i.e., utility) boilers, however, and not small
industrial, commercial or institutional boilers.
Three stack-gas desulfurization processes have been selected and costed
for this analysis for utility boilers (table A-l). These processes represent
both demonstrated technology and probable full-scale acceptance within the
next 5 years.
The general form of the initial capital investment (C) and annually recur-
ring variable (V) costs for all three processes applicable to steam-electric
power plants is:
r K m D c . . HR-S-R-kW-P f ,. 0,
C = a b kW^P + d HV.1000 (A-8)
HJh « P
V = g(FOS-R-P) + H + iC + j(kW-P) + k (A-9)
where
a, b, c, d, f, g, h, i, j, k = parameters of the processes,
kW = rated capacity, kW,
P = proportion of total stack-gas treated by the processes (always
assumed to be 1 ) ,
HR = heat rate, Btu/kWh,
S = sulfur content of the fuel, decimal proportion,
r - removal efficiency of the processes, decimal proportion,
HV = heating values of the fuel, Btu/lb,
FC - fuel consumption, tons/year,
kWh = power generation, kWh/year.
The cost equations for each abatement alternative were developed from EPA
cost studies (ref. 1), specific process cost estimates made by Catalytic, Inc.
85
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(ref. 2) and by the Tennessee Valley Authority (ref. 3). The resulting equa-
tions apply to retrofit (i.e., existing) plants only.
The capital cost component of all three technologies represents economies
of scale. That is, capital cost increase at a decreasing rate with respect to
increases in boiler size. Table A-l provides the parameter estimates for each
abatement alternative.
Cost data for stack-gas desulfurization of industrial, commercial and
institutional boilers is less available than for utility boilers although a
number of processes are receiving attention. Because of its modular approach,
which offers potential economies in shop fabrication of system elements, and
the availability of data based on operating experience already gained in
Europe and Japan, the Research Cottrell Bahco throwaway lime scrubbing system
was selected and costed for this study.
The capital and variable cost equations developed are:
C = H,600(BC)0>8° (A-10)
V = BC(8760) 0.0613 + 32,040(^) + 0.06 c (A-ll)
wnere
BC = boiler capacity, 106Btu/hr.
Table A-l. Sulfur emission abatement cost for steam-electric utilities
Emission Abatement Alternative
source description efficiency Abatement cost parameters
(R) abed fghij k
limestone
scrubbing 0.85 1.7 51,700 0.85 950,000 0.67 24.16 2.08 0.06 0.20 60,000
all coal-
or magnesia
oil-fired slurry 0.90 1.7 51,700 0.85 1,195,000 0.67 21.59 2.15 0.06 0.16200,000
-boilers scrubbing
double-
alkali 0.95 1.7 28,000 0.85 880,000 0.67 51.64 1.84 0.06 0.09 45,000
Source: Research Triangle Institute.
86
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A.3 Industrial Processes
On a national basis, petroleum refineries, sulfuric acid plants and pri-
mary nonferrous smelters are significant sources of sulfur oxide emissions.
Engineering cost estimates as developed for an earlier study (ref. 4) were
used herein for these sources. In all cases, the resulting cost equations,
tables A-2 through A-4, indicate significant scale economies.
87
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Table A-2. Sulfur emission abatement cost for petroleum refineries
Emission source
oo
CO
Sulfur emission
factor (pounds of
sulfur per year)
Abatement alternative
Description
Efficiency
Recovered sulfur
(proportion of
abated emission)
Abatement cost (10 dollars)
Investment
Variable
catalyst regenerator
fluid cat cracker
thermofor and
houdriflow
cat cracker
fuel oil combustion
refineries without
Claus plant
refineries with
two- stage
Claus plant
E, = 105(CCC*)
1
E, = 12(CCC*)
C.
E, = 24(CC*)
•3
E4 = 260(CC*)
E, = 26(CC*)
3
hydrodesul f ur i zation
of cat cracker
feedstock
hydrodesul furization
of cat cracker
feedstock
hydrodesul furization
of residual fuel oil
two-stage Claus plant
four-stage Claus plant
four-stage Claus plant
with tail gas unit
add two stages
add two stages- with
tail gas unit
0.900
0.900
0.900
0.900
0.950
0.995
0.950
0.995
7.57
70.34
1.00
1.00
1.00
1.00
1.00
1.00
I, = 1123.0(CCC*)°'6471
\
I2 = 1123.0(CCC*)°'6471
I, = 105.9(CC*)'°'6224
O
I, = 2777.5(CC*)°'4669
*T^
I, = 1989.9(CC*)°'5117
2
I4 = 3924.5(CC*)°'5117
I53=11.9(CC*)°-8010
I,1 = 1598.7(CC*)0'5441
S2
V, = 365.HCCC*)0'9283
1
V, = 365.HCCC*)0'9283
L.
V, = 19.4(CC*)°'9216
J
V4 = 88.2(CC*)°'6275
V. = 93.2(CC*)°'6328
2
V4 = 49.7(CC*)°'7178
V53 = 8.0(CC*)°'6546
V, = 3.7(CC*)°'8365
S2
*where: CC = crude capacity, barrels per day; CCC = cat cracker capacity, barrels per day.
Source: Developed by Research Triangle Institute from data presented in:
1. Research Triangle Institute, Control Technology for Sulfur Oxide Pollutants. 2nd ed., November 20, 1972.
2. L. Aalund, "Hydrodesulfurization Technology Takes on the Sulfur Challenge," Oil and Gas Journal, September 11, 1972, p. 79.
3. B. B. Barry, "Reduce Claus Sulfur Emission," Hydrocarbon Processing, April 1972, p. 102.
4. "Characterization of Claus Plant Emissions," Preliminary draft of final report prepared for the Environmental Protection Agency by
Process Research, Inc., Cincinnati, Ohio, September 1972.
5. Environmental Protection Agency, Compilation of Air Pollutant Emission Factors, Research Triangle Park, N.C., February 1972,
pp. 9-1, 9-2.
-------
Table A-3. Sulfur emission abatement cost for sulfuric acid plsnts
Emission source Sulfur emission
«* . /
Abatement alternative
Abatement cost (10 dollars)
00
gaseous,
all plants
mist,
normal plants
mist,
oleum plants
factor (pounds of
sulfur per year)
E, = [249,295-2493
1 (CE*)][PC*]
E, = 3069(PC*)
E, = 918(PC*)
0
Description
dual absorption
sodium sulfite
scrubbing
dual mesh
pad demister
tabular fiber
dual mesh
pad demister
tabular fiber
demister
Efficiency Recovered sulfur Investment
(proportion of
abated emission)
0.900
. 0.950
0.900
0.995
0.750
0.995
1.00
1.00
1.00
1.00
1.00
1.00
I, = 23,129.7(PC*)0'6002
^ = 28,189(PC*)°-6003
I2 = 816.4(PC*)°'7336
I2 = 3253.9(PC*)°'6528
I3 = 816.4(PC*)°'7336
I3 = 3253.9(PC*)°'6528
2
Vl =
'l
Vl =
'2
Vo =
V2] =
^2
V3 =
31
V3 =
2
Variable
949.9(PC*)°-7509
1106.9(PC*)°-8264
82.3(PC*)°'7759
165.3(PC*)°'7581
82.3(PC*)°'7759
165.3(PC*)°'7581
*Where: PC = plant capacity, tons of sulfuric acid processed per day; CE = conversion efficiency, in percent.
Source: Developed by Research Triangle Institute from data presented in:
1. Background Information for Proposed New Source Performance Standards, APTD-0711, Environmental Protection Agency, August 1971.
2. Chemico Construction Corporation, Engineering Analysis of Emissions Control Technology for Sulfuric Acid Manufacturing Processes,
NAPCA, March 1970 (NTIS No. PB-190 393).
3. Paul A. Boys, Environmental Protection Agency (private communication), November 1972.
4. D. B. Buckhardt, VonBree, Inc. (private communication), October 1972.
5. R. Walsh, Environmental Protection Agency (private communication), September 1972.
6. D. Carey, Environmental Protection Agency (private communication), September 1972.
7. Compilation of Air Pollutant Emission Factors, U.S. Environmental Protection Agency, Research Triangle Park, N.C., February 1972,
pp. 5-18.
-------
Table A-4. Sulfur emission abatement cost for lead smelters
Emission source
Sulfur emission
factor (pounds of
sulfur per year)
Abatement alternative
Description
Efficiency
Recovered sulfur
(proportion of
abated emission)
Investment
Abatement cost (10 dollars)
Variable
plants with updraft
sintering machines E, = 25,450(SC*) limestone scrubber
with an acid plant on lean stream
only on the strong
off-gas stream
0.760
= 54,443.2(SC*)
0.6290
= 13392.5(SC*)°-6290
*Where: SC = smelter capacity, tons of lead processed per day.
Source: Developed by Research Triangle Institute from data presented in:
1. Arthur G. McKee and Co., Systems Study for Control of Emissions, Primary Nonferrous Smelting Industry, VII, Final.report to National
Air Pollution Control Administration, Contract PH86-65-85, June, 1969.
2. Arthur D. Little, Inc., Economic Impact of Anticipated Pollution Abatement Costs on the Primary Lead Industry, September .1962.
3. U.S. Environmental Protection Agency, Compilation of Air Pollutant Emission Factors, Research Triangle Park, N.C., February 1972,
pp. 5-18.
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Appendix B: TABLES FOR AN EMISSION CHARGE
.91
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Table B-1. Sulfur emission estimates under an emission charge
Policy instrument
parameters
Charge rate
(cents/kg)
4
8
12
16
20
24
28
29*
32
36
40
60
80
100
200
4
8
12
16
20
24
28
32
36
40
42*
60
80
100
200
Sulfur emissions
after abatement
(106 kg/year)
St. Louis AQCR
284.078
. 283.568.
276.168
276.168
228.126
193.926
145.184
132.033
. 122.226
72.253
66.217
45.886
36.116
30.494
22.015
Cleveland AQCR
213.269
210.823
179.488
160.931
116.423
116.422
94.449
69.261
69.160
48.361
43.881
30.542 .
23.031
16.904
11.134
Reductions
sulfur emiss
(106 kg)
13.578
14.088
21.448
21.448
69.530
103.730
152.472
165.623
175.430
225.403
231.439
251.770
261.540
267.161
275.641
6.354
8.800
40.135
58.632
103.199
103.201
125.173
150.361
150.463
171.261
175.742
189.081
196.592
202.719
208.489
in
ions
(percent)
4.56
4.73
7.22
7.22
23.36
34.85
51.22
55.64
58.94
75.73
77.75
84.58
87.87
89.76
92.60
2.89
4.01
18.27
26.70
46.99
46.99
57.00
68.46
68.51
77.98
80.02
86.09
89.51
92.30
94.93
*Approximate emission charge necessary to induce same total reduc-
tions as emission standards.
Source: Research Triangle Institute.
92
-------
Table B-2. Allocative effects of an emission charge
Resource costs
Policy instrument
parameters
Charge rate
(cents/kg)
i
4
8
12
16
20
24
28
29*
32
36
40
60
80
100
200
4
8
12
16
20
24
28
32
36
40
42*
60
80
100
200
Reductions in
sulfur emissions
(percent)
St. Louis
4.56
4.73
7.22
7.22
23.36
34.85
51.22
55.64
58.94
75.73
77.75
84.58
87.87
89.76
92.60
Cleveland
2.89
4.01
18.27
26.70
46.99
46.99
57.00
68.46
68.51
77.98
80.02
86.09
89.51
92.30
94.93
Total cost
of abate-
ment (106
dollars/
year)
AQCR
$ 0.562
0.587
1.204
1.204
9.087
15.597
26.301
29.119
31.386
44.436
46.685
55.495
61.634
66.264
78.158
AQCR
$ 0.095
0.252
3.791
6.419
14.557
14.557
20.059
26.673
26.695
34.241
35.432
41.185
45.645
50.359
57.806
Average cost of
abatement
(dollars/103 kg of
reductions in sul-
fur emissions)
$ 41.40
41.68
56.05
56.05
130.69
150.36
172.49
175.82
178.91
197.14
201.72
220.42
235.66
248.03
283.55
$ 14.89
28.65
94.40
109.49
141.05
141.05
160.25
177.39
177.42
199.93
201.62
217.82
232.18
248.42
277.26
*Approximate emission charge necessary to induce the same total re-
ductions as emission standards.
Source: Research Triangle Institute.
93
-------
Table B-3. Distributive effects of an emission charge
Gross private cost
Annuali zed cost (106 dollars/year)
Variable cost
Policy instrument
parameters
•charge rate
(cents/kilogram)
4
8
12
16
20
24
28
29*
32
36
40
60
80
100
200
Reductions
in sulfur
emissions
(percent)
4.56
4.73
7.22
7.22
23.36
34.85
51.22
55.64
58.94
75.73
77.75
84.58
87.87
89.76
92.60
Net private. .
cost
(106 dollars/year)
$ 5
10
16
21
26
30
33
34
36
37
39
44
48
51
63
.630
.965
.273
.464
.597
.787
.884
.427
.339
.904
.227
.550
.322
.398
.371
Total
$ 11
• 23
34
45
54
62
66
67
70
70
73
83
90
96
122
St.
.924
.269
.339
.384
.703
.129
.944
.137
.491
.441
.166
.021
.521
.753
.180
Charge
payments
Louis AQCR
$11.361
22.681
33.134
44.179
45.616
46.533
40.643
38.018
39.104
26.006
26.481
27.526
28.887
30.489
44.021
Fuel
cost
premium
$ 0.383
0.383
0.383
0.383
-2.628
-4.311
-4.292
-6.960
-8.631
-13.171
-11.871
-10.377
-6.085
-4.187
10.235
Abatement
equipment
operating
cost
$ 0.173
0.187
0.285
0.285
6.863
11.060
16.973
19.867
21.888
30.381
31.086
34.454
34.889
36.791
34.139
Credit
for sulfur
sales
$0.142
0.148
0.229
0.229
. 0.229
0.238
0.238
0.238
0.238
0.238
0.238
0.245
0.245
0.259
0.259
Fixed
cost
$ 0.148
0.166
0.766
0.766
5.081
9.086
13.857
16.451
18.368
27.464
27.708
31.663
33.075 •
33.919
34.043
Capital outlays
for
abatement
equipment
(106 dollars)
$ 0.928
1.036
4.794
4.794
31.805
56.871
86.738
102.973
114.972
171.907
173.431
198.186
207.030
212.309
213.084
Cleveland AQCR
4
8
12
16
20
24
28
32
36
40
42*
60
80
100
200
2.89
4.01
18.27
26.70
46.99
46.99
57.00
68.46
68.51
77.98
80.02
86.09
89.51
92.30
94.93
$ 4
8
11
15
17
19
21
23
24
26
26
29
32
33
40
.068
.061
.920
.138
.799
.988
.871
.540
.840
.031
.475
,595
.087
.890
.080
$ 8
17
25
32
37
42
46
48
51
53
53
59
64
67
80
.624
.114
.325
.172
.836
.492
.499
.831
.587
.581
.859
.507
.066
.260
.068
$ 8.529
16.862
21.533
25.753
23.280
27.935 •
26.440
22.159
24.892
19.341
18.426
18.322
18.422
16.901
22.263
$ 0
0.133
3.672
6.300
14.437
14.438
19.940
18.577
18.525
22.971
20.352
21.196
22.034
22.987
29.576
$ 0.083
0.096
0.096
0.096
0.096
0.096
0.095
4.794
4.838
6.486
8.500
10.752
12.374
14.401
14.301
$0.069
0.073
0.073
0.073
0.073
0.073
0.073
0.073
0.073
0.073
0.073
0.077
.0.077
0.088
0.088
$ 0.083
0.096
0.096
0.096
0.096
0.096
0.096
3.374
3.405
4.857
6.653
9.314
11.313
13.060
14.017
$ 0.517
0.604
0.604
0.604 .
0.604
0.604
0.604
21.119
21.314
30.400
41.646
58.301
70.815
81.747
87.738
*Approximate emission charge necessary to induce the same total reductions as emission standards.
Source: Research Triangle Institute.
-------
Appendix C: TABLES FOR AN EMISSION CHARGE WITH AN EXEMPTION
95
-------
Table C-l. Sulfur emission estimates under
emission charges with an exemption
Policy instrument
parameters
Charge rate
(cents/kg)
Exemption level
(103 kg)
Sulfur emission
after abatement
(106 kg/year)
Reductions in
sulfur emissions
HO6 kg)
(percent)
20
40
60
St. Louis AQCR
0
1,000
2,000
3,000
4,000
5,000
0
1,000
2,000
3,000
4,000
5,000
0
1,000
2,000
3,000
4,000
5,000
228.
229,
230,
230,
234,
270.
66,
73.
.90.
94,
102.
131,
45,
66.
76.
91.
101.
126
536
100
100
608
619
217
060
783
676
346
108
886
293
206
108
375
103.860
69.530
68.120
67.556
67.556
63.048
27.037
231.439
224.596
206.873
202.980
195.310
166.548
251.770
231.363
221.450
206.548
196.281
193.796
23.36
22.88
22.70
22.70
21.18
9.08
77.75
75.46
69.50
68.19
65.62
55.95
84.58
77.73
74.40
69.39
65.94
65.11
Cleveland AQCR
20
40
60
1,
2,
3,
4,
5,
1,
2,
3,
4,
5,
1,
2,
3,
4,
0
000
000
000
000
000
0
000
000
000
000
000
0
000
000
000
000
116,
132,
139.
146,
152.
157.
48,
75,
91.
104.
115.
127.
30.
61.
84.
100.
113.
423
467
053
893
875
979
361
640
718
160
730
718
542
417
429
400
905
5,000
103,
87,
80,
72,
66,
61,
171,
143.
127,
115,
103,
91,
189,
158,
135,
119,
105,
199
156
570
730
748
644
261
983
905
463
892
904
081
205
193
223
717
127.718
91.904
46.99
39.68
36.69
33.12
30.39
28.07
77.98
65.56
58.24
52.57
47.30
41.85
86.09
72.04
61.56
54.28
48.14
41.85
96
-------
Table C-2. Allocative effects of an emission charge with an exemption
Resource costs
Pol
icy instrument
parameters
Charge rate Exemption level
(cents/kg) (103 kg)
Reductions in
sulfur emissions
(percent)
Total cost
of abate-
ment (105
dollars/
year)
Average cost of
abatement
(dollars/103 kg of
reductions in sul-
fur emissions)
20
40
60
20
40
60
0
1,000
2,000
,000
,000
,000
0
,000
,000
,000
,000
,000
0
,000
,000
,000
4,000
5,000
3.
4,
5,
1
2,
3.
4,
5,
1
2.
3,
0
000
000
000
000
000
0
000
000
000
000
5,000
0
000
000
000
000
1,
2,
3,
4,
5,000
St. Louis AQCR
23.36 9.087
22.88 8.913
22.70 8.804
22.70 8.804
21.18 8.569
9.08 3.027
77.75 46.685
75.46 44.811
69.50 40.362
68.19 39.206
65.62 37.896
55.95 31.520
84.58 55.495
77.73 48.081
74.40 44.066
69.39 40.972
65.94 38.377
65.11 37.301
Cleveland AQCR
46.99 14.557
39.68 12.345
36.69 11.391
33.12 10.155
30.39 9.322
28.07 8.592
77.98 34.241
65.56 28.282
58.24 24.592
52.57 21.575
47.30 19.133
41.85 16.012
86.09 41.185
72.04 33.262
61.56 27.212
54.28 23.323
48.14 19.754
41.85 16.012
.94
.72
130.69
130.85
130.32
130.32
135.91
111
201
199.52
195.11
193.15
194.03
189.25
220.42
207;81
198.99
198.37
195.52
192.48
141.05
141.64
141.38
139.62
139.67
139.39
199.93
196.42
192.27
186.86
184.16
174.22
217.82
210.25
201.28
195.63
186.85
174.23
97
-------
Table C-3. Distributive effects of an emission charge with an exemption
00
Gross private cost
Annualized cost (106 dollars/year)
Policy instrument
parameters
Charge rate
(cents/kg)
Exemption
level
(103 kg)
i\cuuv» \f i Vila
in sulfur. Net private
emissions
(percent) (106
cost
dollars/year)
Total
Charge
payments
Fuel
cost
premium
Variable
Abatement
equipment
operating
cost
cost
Credit
for sulfur
sales
Fixed
Cost
Capital outlays
f rtv.
tor
abatement
equipment
(10G dollars)
St. Louis AQCR
20
40
60
0
1,000
2,000
3,000
4,000
5,000
0
1,000
2,000
3,000
4,000
5,000
0
1,000
2,000
3,000
4,000
5,000
23.36
22.88
22.70
22.70
21.18
9.08
77.75
75.46
69.50
68.19
65.62
55.95
84.58
77.73
74.40
69.39
65.94 .
65.11
26.597
21.947
19.465
17.829
16.492
15.422
39.227
30.493
26.312
24.141
22.803
21.910
44.550
32.473
27.255
24.603
23.011
22.090
54.703
44.817
39.537
36.055
33.232
32.559
73.166
54.705
46.624
41.918
38.818
39.509
83.021
58.904
47.465
42.900
39.262
37.301
45.616
35.904
30.733
27.252
24.663
29.532
26.481
9.894
6.251
2.712
0.923
7.990
27.52C
10.823
3.399
1.928
0.885
0.000
-2.628
-2.763
-2.873
-2.873
-3.027
2.324
-11.871
-12.784
-13.346
-15.266
-19.095
-11.391
-10.377
-10.082
-16.089
-13.499
-18.614
-19.690
6.863
6.842
6.842 '
6.842
6.780
0.202
31.086
30.441
28.744
29.275
31.075
23.964
34.454
30.970
32.057
29.275
31.075
31.075
0.229
0.221
0.221
0.221
0.181
0.181
0.238
0.221
0.221
0.221
0.181
0.181
0.245
0.221
0.221
0.221
0.181
0.181
5.081
5.055
5.055
5.055
4.997
0.681
27.708
27.376
25.186
25.418 '
26.096
19.126
31.663
27.415
28.319
25.418
26.096
26.096
31.805
31.644
31.644
31.644
31.276
4.265
173.431
171.353
157.646
159.097
163.345
119.718
198.186
171.599
177.258
159.097
163.345
163.345
Cleveland AQCR
20
40
60
0
1,000
2,000
3,000
000
,000
0
,000
000
000
000
000
0
000
000
000
000
5,000
46.99
39.68
36.69
33.12
30.39
28.07
77.98
65.56
58.24
52.57
47.30
41.85'
86.09
72.04
61.56
54.28
48.14
41.85
17.799
12.799
10.776
9.230
7.929
6.913
26.031
17.508
14.108
11.855'
10.077
8.718
'29.595
18.853
14.910
12.294
10.239
9.003
37.836
27.204
22.900
19.612
16.843
14.681
53.581
35.443
28.772
23.898
20.116
17.224
59.507
35.535
29.915
24.833
20.461
17.830
23.280
14.860
11.510-
9.457
7.521
6,089
19.341
7.161
4.180
2.323
0.984
1.212
18.322
3.272
2.704
1.510
0.707
1.818
14.437
12.254
11.300
10.064
9.232
8.501
22.971
16.906
16.525
12.623
10.180
7.060
21.196
12.018
15.836
14.371
10.801
7.060
0.096
0.082
0.082
0.082
0.082
0.082
6.486
6.575
4.781
5.451
5.451
5.451
10.752
11.678
6.575
5.451
5.451
5.451
0.073
0.063
0.063
0.063
0.063
0.063
0.073
0.063
0.063
0.063
0.063
0.063
0.077
0.063
0.063
0.063
0.063
0.063
0.096
0.072
0.072
0.072
0.072
0.072
4.857
864
349
565'
565
565
314
630
864'
565
565
3.56G
0.604
0.450
0.450
0.450
0,450
0.450
30.400
30.445
20.965
22.312
22.312
22.312
38.301
50.275
30.445
22.312
22.312
''2.312
-------
Appendix D: TABLES FOR AN EMISSION CHARGE WITH A SUBSIDY
99
-------
Table D-l. Distributive effects of an emission charge with a subsidy
o
o
Gross private cost
Annualized cost (10° dollars/year)
Policy instrument
Variable cost
parameters D«A.,~K~~,
Charge rate
(cents/kg)
4
8
12
16
20
24
28
32
36
40
60
80
100
200
4
8
12
16
20
24
28
32
36
40
60
80
100
200
Breakeven
emission rate
(103 kg)
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
50
' 50
50
50
50
50
50
1 \W X4\j\4VlWtlJ
in sulfur
emissions
(percent)
4.56
4.73
7.22
7.22
23.36
34.85
51.22
58.94
75.73
77.75
84.58
87.87
89.76
92.60
2.89
4.01
18.27
26.70
46.99
46.99
57.00 .
68.46
63.51
77.98
86.09
89.51
92.30
94.93
Net private
cost
( 103 dollars/year)
5.376
10.458
15.512
20.443
25.329
29.264
32.106
34.308
35.620
36.690
40.744
43.247
45.054
50.682
3.812
7.549
11.153
14.116
16.522
18.453
20.081
21.495
22.539
23.475
25.760
26.974
27.502
27.298
Net
charge
Total payments
$11.384
22.188
32.718
43.224
52.003
58.889
63.164
66.171
65.582
67.767
74.922
79.724
83.255
95.185
8.080
16.027
23.692
29.996
35.116
39.228
42.691
44.480
46.692
48.143
51.349
53.188
53.663
52,874
St. Louis AQCR
$10.821
21.601
31.514
42.019
42.916
43.293
36.863
34.784
21.146
21.082
19.428
18.090
15.991
17.027 •
Cleveland AQCR
7.985
15.775
19.901
23.576
20.559
. 24.671
22.632
17.807
19.997
13.902
10.164
7.544
3.304
-4.931
Fuel
cost
premium
$ 0.383
0.383
0.383
0.383
-2.628
-4.311
-4.292
-6.960
-8.631
-13.171
-11.871
-10.377 •
-6.085
-4.187
$ 0
0.133
3.672
. 6.300
14.437
14.438
19.940
18.577
18.525
22.971
20.352
21.196
22.034
22.987
Abatement
equipment
operating
cost
$ 0.173
0.187
0.285
0.285
6.863
11.060
16.973
19.867
21.888
30.381
31.086
34.454 '
34.889
36.791
S 0.083
0.096
0.096
0.096
0.096
0.096
0.095
' 4.791
4.838
6.4C6
8.500
10.752
12. .174'
14.401
Credit
for sulfur
sales
$0.142
0.148
0.229
0.229
0.?29
0.238
0.233
0.238
0.238
0.238
0.238
0.245
0.245
0.259
$0.069
0.073
0.073
0.073
0.073
0.073
0.073
0.073
0.073
0.073
0.073
0.077
0.077
0.088
Fixed
cost
$ 0.148
0.166
0.766
0.766
5.081
9.086
13.857
16.451
18.368
27.464
27.703
31.663
33.075
33.919
$ 0.083
0.096
0.096
0.096
0.096
0.096
0.096
3.374
3.405
4.857
5.653
9.314
11.313
13.060
Capital outlay
for
abatement
equipnent
(10b dollars)
$ 0.928
1.036
4.794
4.794
31.805
56.871
86.738
102.973
114.972
171.907
173.431
198.185
207.030
212.309
S 0.517
' 0.604
0.604
0.604
0.604
0.604
0.604
21.119
21.314
30.400
41.646
50.301
70.815
81.747
-------
Table D-l (continued). Distributive effects of an emission charge with a subsidy
Gross private cost
Policy instrument
parameters
Charge rate
(cents/kg)
4
8
12
16
20
24
28
32
36
40
60
80
100
200
4
8
12
16
20
24
28
32
36
40
60
80
100
200
Breakeven
emission rate
(TO3 kg)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Reductions
in sulfur
emissions
(percent)
4.56
4.73
7.22
7.22
23.36
34.85
51.22
58.94
75.73
77.75
84.58
87.87
89.76
92.60
2.89
4.01
18.27
26.70
46.99
46.99
57.00
68.46
68.51
77.98
86.09
89.51
92.30
94.93
Annual ized
cost (10r'
dollars/year)
Variable cost
Capital outlays
Net private
cost
(103 dollars/year)
5.122
9.950
14.751
19.434
24.060
27.742
30.330
32.278
33.336
34.152
36.937
38.172
38.710
37.995
3.556
7.038
10.386
13.093
15.244
16.919
18.292
19.449
20.239
20,919
21.926 .
21.861
21.111
14.517
Net
charge
Total payments
$10.844
21.108
31.099
41.064
49.303
55.650
59.385
61.852
60.724
62.369
66.824
68.926
69.759
68.191
7.536
14.939
22.061
27.820
32.396
35.965
38.884
40.130
41.797
42.704
43.190
42.311
40.066
25.681
St. Louis AQCR
$ 10.282
20.521
29.984
39.860
40.216
40.053
33.084
30.466
16.288
15.684
11.330
7.292
3.495
-9.968
Cleveland AQCR
7.441
14.687
18.270
21.401
• 17.840
21.408
18.825
13.457
15.102
8.463
2.006
-3.334
-10.294
-32.125
Fuel
cost
premium
S 0.383
0.383
0.383
0.383
-2.628
-4.311
-4.292
-6.960
-8.631
-13.171
-11.871
-10.377
-6.085
-4.187
S 0'
0.133
3.672
6.300
14.437
14.438
19.940
18.577
10.525
22.971
20.352
21.196
22.034
22.987
Abatement
equipment
operating
cost
S 0.173
0.187
0.285
0.285
6.863
11.060
16.973
19.867
21.888
30.331
31.086
34.454
34.839
36.791
S 0.083
0.096
0.096
0.096
0.095
0.096
0.095
4.794
4.833
6.4G6
8 . 500
10.752
12.374
14.401
Credit
for sulfur
sales
SO. 142
0.148
0.229
0.229
0.229
0.238
0.238
0.238
0.238
0.238
0.238
0.245
0.245
o.asg
SO. 069
0.073
0.073
0.073
0.073
0.073
0.073
0.073
0.073
0.073
0.073
0.077
0.077
0.088
Fixed
cost
S 0.148
0.165
0.766
0.766
5.031
9.086
13.857
16.451
18.368
27.464
27.703
31.663
33.075
33.919
3 0.083
0.096
0.096
0.096
0.096
0.096
0.096
3.374
3.405
4.857
6.653
9.314
11.313
13.060
for
abatement
equipment
(106 dollars)
5 0.928
1.036
4.794
4.794
31.805.
56.871
86.738
102.973
114.972
171.907
173.431
198.186
207.030
212.309
S 0.517
0.604
0.604
0.604
0.604
0.604
0.604
21.119
21.314
30.400
41.646
50.301
70.S15
81.747
-------
Table D-1 (continued). Distributive effects' of an emission charge with a subsidy
Gross private cost
o
ro
Annual ized cost (10°
' dollars/year)
Variable cost
Policy instrument
parameters
Charge rate
(cents/kg)
4
8
12
16
20
24
28
32
36
40
60
80
100
200
Breakeven
emission rate
(103 kg)
150
150 '
150
150
150
150
150
150
150
150
150
150
150
150
Reductions
in sulfur
emissions
(percent)
4.06
4.73
7.22
7.22
23.36
34.85
51.22
58.94
75.73
77.75
84.58
87.87
89.76
92.60
Net private
cost
(103 dollars/year)
4.
9.
13.
18.
22.
26.
28.
30.
31.
31.
33.
33.
32.
25.
869
443
990
418
791
220
554
248
053
615
131
096
366
308
Total
St.
$10.304
20.028
29.479
38.905
46.604
52.411
55.606
27.532
55.865
56.970
58.726
58.123
56.261
41.196
Net
charge
payments
Louis AQCR
$ 9.742
19.441
28.275
37.700
37.517
36.814
29.305
26.146
11.429
10.285
3.231
-3.505
-10.003
-36.962
Cleveland AOCR
4
8
12
16
20
24
28
32
36
40
60
80
100
200 '
150
150
150
150
150
150
150
150
150
150
150
150
150
150
2.89
4.01
18.27
26.70
46.99
46.99
57.00
68.46
68.51
77.98
86.09
89.51
92.30
94.93
3.
6.
9.
12.
13.
15.
16.
17.
17.
18.
18.
16.
14,
1.
301
527
619
071
966
387
502
404
938
362
091
748
720
736
6.992
13.851
20.429
25.645
29.678
32.702
35.078
35.779
36.903
37.265
35.032
31.433
26.469
-1.514
6.897
13.599
16.638
19.226
15.121
-18.145
15.019
9.106
10.208
3.024
-6.153
-14.212
-23.891
-59.320
Fuel
cost
premium
$ 0.383
0.383
0.383
0.383
-2.628
-4.311
-4.292
-6.960
-8.631
-13.171
-11.871
-10.377
-6.085
-4.187
S 0
0.133
3.672
6.300
14.437
14.438
19.940
18.577
18.525
22.971
20.352
21.196
22.034
22.987
Abatement
equipment
operating
cost
$ 0.173
0.187
0.285
0.285
6.863
11.060
16.973
19.867
. 21.888
30.381
31.086
34.454
34.889
36.791
$ 0.083
0.096
0.096
0.096
• 0.096
0.096 •
0.095
4.794
4.838
6.486
8.500
10.752
12.374.
14.101
Capital outlays
for
Credit
for sulfur
sales
' $0.142
0.148
0.229
0.229
0.229
0.238
0.238
0.238
0.238
0.238
0.238
0.245
' 0.245
0.259
$0.069
0.073
0.073
0.073
0.073
0.073
0.073
0.073
0.073
0.073
0.073
0.077
0.077
0.088
Fixed
cost J
S 0.148
0.166
0.766
0.766
5.081
9.086
13.857
16.451
18.368
27.464
27.708
31.663
33.075
33.919
$ 0.083
0.096
- 0.096
0.096
0.096
0.096
0.096
3.374
3.405
• 4.857
6.653
9.314
11.313
13,060
abatement
equipment
(10e dollars)
S 0.928
1.036
4.794
4.794
31.805
56.871
86.738
102.973
114.972
171.907
173.431
198.186
207.030
212.309
$ 0.517
0.604
0.604
0.604
0.604
0.604
0.604
21.119
21 .-31 4
30.400
41.646
53,301
70.815
81.747
-------
Table D-l (continued). Distributive effects of an emission charge with a subsidy
Gross private cost
O
CO
Annual ized cost (TO6 dollars/year)
Variable cost
Policy instrument
parameters
Charge rate
(cents/kg)
4
8
12
16
20
24
28
32
36
40
60
80
100
200
Breakeven
emission rate
(in3 kg)
200
200
200
200
200
200
200
200
. 200
200
200
200
200
200
Reductions
in sulfur
emissions
(percent)
4
4
7
7
23
34
51
58
75
77
84
87
89
92
.56
.73
.22
.22
.36
.85
.22
.94
.73
.75
.58
.87
.76
.60
Net private
cost
(103 dollars/year) Total
4.615
8.935
13.228
17.403
21.522
24.697
26.778
28.218
28.769
29.077
29.324
29.021
26.022
12.620
St.
$ 9.764
18.949
27.860
36.745
43.905
49.171
51.826
53.213
51.006
51.571
50.628
47.330
42.764
14.202
Net
charge
payments
Louis AQCR
$ 9.202
18.362
26.655
35.541
34.818
33.574
25.525
21.827
6.570
4.886
-4.867
-14.304
-23.500
-63.956
Fuel
cost
premium
$ 0.383
0.383
0'.383
0.383
-2.628
-4.311
-4.292
-6.960
-8.631
-13.171
-11.871
-10.377
-6.085
-4.187
Abatement
equipment
operating
cost
S 0.173
0.187
0.285
0.285
6.863 •
11.060
16.973
19.867
21.888
30.381
31.086
34.454
34.889
36.791
Capital outlays
for
Credit abatement
for sulfur Fixed equipment
sales cost (10* dollars)
$0.142
0.148
0.229
0.229
0.229
0.238
0.238
0.238
0.238
0.238
0.238
0.245
0.245
0.259
$ 0.148
0.166
0.766
0.766
5.081
9.086
13.857
16.451
18.368
27.464
27.708
31.663
33.075
33.919
$ 0.928
1.036
. 4.794
4.794
31.805
56.871
86.738
102.973
114.972
171.907
173.431
198.186
207.030
212.309
Cleveland AQCR
4
8
12
16
20
24
28
32
36
40
60
80
100
200
200
200
200
200
2CO
200
200
200
200
200
200
200
200
200
2
4
18
26
46
46
57
68
68
77
86
89
92
94
.89
.01
.27
.70
.99
.99
.00
.46
.51
.98
.09
.51
.30
.93
3.045
6.016
8.852
• 11.043
12;688
13.853
14.714
15.360
15.638
15.806
14.257
11.636
8.330
-11.045
6.448
12.764
18.798
23.469
26.959
29.438
31.270
31.437
32.008 '
31.826
26.873
20.555
12.872
-28.709
6.354
12.511
15.007
17.050
12.402
•14.881
11.211
4.755
5.313
-2.415
-14.311
-25.089
-37.483
-36.514
$ 0
0.133
3.672
6.300
14.437
14.438
19.910
18.577
18.525
22.971
20.352
21.196
22.034
22.987
$ 0.083
0.096
0.096
0.096
0.096
0.096
0.095
4.794
4.838
6.48C
8.500
10.752
12.. 174
14.401
'$0.069
0.073
0.073
0.073
0.073
0.073
0.073
0.073
0.073
0.073
0.073
0.077
0.077
0.088
$ 0.083
0.096
0.096
0.096
0.096
0.096
0.096
3.374
3.405
4.857
6.653
9.314
11.313
13.060
$ 0.517
0.604
0.604
0.604
0.604
0.604
0.604
21.119
21.314
30.400
41.646
58.301
70.815
81.747
-------
Appendix E: TABLES FOR A HYBRID PROGRAM
104
-------
Table E-l. Sulfur emission estimated under hybrid programs
Policy instrument
parameters
Constraint
(proportion
Sulfur emissions
Reductions in
sulfur emissions
wiar ye ra Lt:
(cents/ kg)
0
4
8
12
16
20
24
28
32
36
40
60
80
100
200
0
4
8
12
16
20
24
28
32
36
40
60
80
100
200
u I em i sb i UM
standards)
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
ai LCI aua Lcmen u
(106 kg/year)
St. Louis AQCR
134.590
134.180
133.993
133.982
133.982
133.869
99.705
99.683
70.541
44.990
42.423
35.885
89.866
27.831
19.829
Cleveland AQCR
47.225
47.522
47.208
47.208
47.208
40.198
40.198
40.198
37.297
37.283
33.813
27.849
20.384
15.308
9.592
(TO6 kg)
163.066
163.476
163.663
163.674
163.674
163.787
197.951
197.973
227.115
252.666
255.233
261.771
267.490
269.825
277.827
172.397
172.100
172.415
172.415
172.415
179.424
179.424
179.424
182.326
182.340
185.809
191.774
199.239
204.315
210.031
(percent)
54.78
54.92
54.98
54.99
54.99
55.03
66.50
66.51
76.30
.84,89
85.75
87.94
89.87
90.65
93.34
78.50
78.36
78.51
78.51
78.51
81.70
81.70
81.70
83.02
83.02
84.60
87.32
90.72
93'.03
95.63
105
-------
Table E-l (continued). Sulfur emission estimated under hybrid programs
Policy instrument ••'
parameters
Charge rate
(cents/ kg)
0
4
8
12
16
20
24
28
32
36
40
60
80
100
200
0
4
8
12
16
20
24
28
32
36
40
60
80
100
200
Constraint
(proportion
of emission
standards)
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
Sulfur emissions
after abatement
(106 kg/year)
St. Louis AQCR
155.683
155.274
153.016
150.128
150.128
150.128
123.808
111.443
98.292
51.705
50.009
39.380
32.231
28.307
19.829
Cleveland AQCR
58.308
58.623
58.308
58.308
58.308
58.308
58.282
49.092
49.084
45.271
45.265
27.903
20.438
15.334
9.592
Reductions
sulfur emissi
(TO6 kg)
141.973
142.382
144.640
147.528
147.528
147.528
173.848
186.213
199.364
245.951
247.647
258.276
265.425
269.349
277.827
161.315
161.000
161.315
161.315
161.315
161.315
161.341
170.531
170.539
174.351
174.358
191.720
199.185
204.289
210.031
in
ons
(percent)
47.70
47.84
48.59
49.56
49.56
49.56
58.41
62.56
66.98
82.63
83.20
86.77
89.17
90.49
93.34
73.45
73.31
73.45
73.45
73.45
73.45
73.46
77.65
77.65
79.39
79.39
87.30
90.69
93.02
95.63
106
-------
Table E-l (continued). Sulfur emission estimated under hybrid programs
Policy instrument
parameters
Constraint
(proportion
Sulfur emissions
Reductions in
sulfur emissions
urmrge rcite
(cents/kg)
0
4
8
12
16
20
24
28
32
36
40
60
80
100
200
0
4
8
12
16
20
24
28
32
36
40
60
80
100
200
UT emibsion
standards)
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
dicer aua cement,
(106 kg/year)
St. Louis AQCR
221.847
221.848
221.847
221.847
200.225
200.225
154.984
126.567
109.575
62.984
60.061
42.492
32.738
28.307
19.829
Cleveland AQCR
79.585
79.900
79.585
79.585
79.585
79.585
79.584
79.581
66.185
66.092
45.311
27.949
20.454
15.334
9.592
(106 kg)
75.809
75.808
75.809
75.809
97.431
97.431
142.672
171.089
188.081
234.672
237.595
255.164
264.918
269.349
277.827
140.038
139.723
140.038
140.038
140.038
140.038
140.039
140.042
153.438.
153.531
174.312
191.674
199.169
204.289
210.031
(percent)
25.47
25.47
25.47
2.5.47
32.73
32.73
47.93
57.48
63.19
78.84
79.82
85.73
89.00
90.49
93.34
63.76
63.62
63.76
63.76
63.76
63.76
63.76
63.77
69.86
69.91
79.37
87.27
90.69
93.02
95.63
107
-------
Table E-2. Allocative effects of hybrid programs
Policy instrument
parameters
Charge rate
(cents/kg)
0
4
8
12
16
20
24
28
32
36
40
60
80
100
200
0
4
8
12
16
20
24
28
32
36
40
60
80
100
200
Constraint
(proportion
of emission
standards)
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
Reductions in
sulfur emissions
(percent)
St. Louis AQCR
54.78
54.92
54.98
54.99
54.99
55.03
66.50
66.51
76.30
84.89
85.75
87.94
89.87
90.65
93.34
Cleveland AQCR
78.50
78.36
78.51
78.51
78.51
81.70
81.70
81.70
83.02
83.02
84.60
87.32
90.72
93.03
95.63
Resource costs
Total cost
of abate-
ment (106
dollars
year)
49.521
49.606
49.629
49.630
49.630
49.616
54.808
54.814
61 ..230
67.092
67.747
70.355
73.924
75.979
87.302
45.750
45.498
45.732
45.732
45.732
45.891
45.891
45.891
46.251
46.256
46.905
48.768
53.197
56.904
64.286
Average cost of
abatement
(dollars/103 kg of
reductions in sul-
fur emissions)
303.69
303.45
303.24
303.22
303.22
302.93
276.88
276.88
269.60
265.54
265.43
268.77
276.36
281.59
314.23
265.38
264.37
265.25
265.25
265.25
255.77
255.77
255.77
253.67
253.68
252.49
254.30
267.00
278.51
306.08
108
-------
Table E-2 (continued). Allocative effects of hybrid programs
Policy instrument
parameters
Charge rate
(cents/kg)
0
4
8
12
16
20
24
28
32
36
40
60
80
100
200
0
4
8
12
16
20
24
28
32
36
40
60
80
100
200
Constraint
(proportion
of emission
standards)
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.8
.•8
.8
.8
.8
.8
.8
.8
.8
.8
.8
Reductions in
sulfur emissions
(percent)
St. Louis AQCR
47.70
47.84
48.59
49.56
49.56
49.56
58.41
62.56
66.98
82.63
83.20
86.77
89.17
90.49
93.34
Cleveland AQCR
73.45
73.31
73.45
73.45
73.45
73.45
73.46
77.65
77.65
79.39
79.39
87.30
90.69
93.02
95.63
Resource costs
Total cost
Average cost of
of abate- abatement.
ment (106 (dollars/103 kg of
dollars/
year)
42.388
42.473
42.292
42.183
42.183
42.183
46.690
48.892
51.711
63.635
64.263
67.973
72.254
75.417
87.302
39.803
39.568
39.803
39.803
39.803
39.803
39.800
41.126
41.126
41.944
41.946
48.704
53.133
56.964
64.286
reductions in sul-
fur emissions)
298.56
298.30
292.39
285.93
285.93
285.93
268.57
262.56
259.38
258.73
259.49
263.18
272.22
280.00
314.23
246.74
245.77
246.74
246.74
246.74
246.74
246.69
241.17
241.15
240.57
240.57
254.04
266.75
278.84
306. oa
109
-------
Table E-2 (continued). Allocative effects of hybrid programs
Policy instrument
parameter
Charge rate
(cents/kg)
0
4
8
12
16
20
24
28
32
36
40
60
80
100
200
0
4
8
12
16
20
24
28
32
36
40
60
80
100
200
Constraint
(proportion
of emission
standards)
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
Reductions in
sulfur emissions
(percent)
St. Louis AQCR
25.47
25.47
25.47
25.47
32.73
32.73
47.93
57.48
63.19
78.84
79.82
85.73
89.00
90.49
93.34
Cleveland AQCR
63.76
63.62
63.76
63.76
63.76
63.76
63.76
63.77
69.86
69.91
79.37
87.27
90.69
93.02
95.63
Resource costs
Total cost
of abate-
Average cost of
abatement
ment (106 (dollars/103 kg of
dollars/
year)
26.350
26.341
26.350
26.350
27.450
27.450
35.496
41.647
45.252
57.164
58.190
65.662
71.793
75.417
87.302
31.358
31.123
31.358
31.358
31.358
31.358
31.358
31.359
34.351
34.371
41.910
48.667
53.118
56.964
64.286
reductions in sul-
fur emissions)
347.59
347.47
347.59
347.59
281.74
281.74
248.80
243.42
240.60
243.59
244.91
257.33
271.00
279.99
314.23
223.93
222.75
223.93
223.93
223.93
223.93
223.93
223.93
223.88
223.87
240.43
253.91
266.70
278.84
306.08
110
-------
Table E-3. Distributive effects of hybrid programs
Gross private costs
Annualized costs (106 dollars/year)
Policy i
Variable costs
in<;-t-rijmpni-
parameters
Charge rate
(cents per
kilogram)
Constant Reductions
(proportion in sulfur
of emission emissions
standards) (percent)
Net private
cost
(106 dollars/year) Total
Charge
payments
Fuel
cost
Premium
Abatement
equipment
operating
cost
Credit
for sulfur Fixed
Sales cost
Capital outlays
for
abatement
equipment
(106 dollars)
St. Louis AQCR
0
4
.8
12
16
20
24
28
32
36
40
60
80
100
200
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
54
54
54
54
54
55
66
. 66
76
84
85
87
89
90
93
.78
.92
.98
.99
.99
.03
.50
.51
.30
.89
.75 .
.94
.87
.65
.34
25.160
27.680
30.207
32.726
35.244
37.761
39.905
41.779
43.429
44.448
45.284
48.995
52.036
54.756
65.657
49.521
54.972
60.346
65.705
71.062
76.384
78.732
82.719
83.799
83.286
84.713
91.882
98.052
103.805
126.952
0.0
5.366
10.717
16.075
21.432
26.768
23.924
27.905
22.568
16.194
16.966
21.527
24.128
27.825
39.650
15.308
16.166
16.295
16.301
16.301
15.946
8.370
8.385
1.729
-6.063
-7.558
-8.858
-5.924
-3.615
10.235
23.700
23.166
23.052
23.048
23.048 .
23.296
30.111
30.101
36.631
43.067
44.274
46.228
46.059
45.711
43.059
0.283
0.283
0.283
0.283
0.283
0.283
0.283
0.283
0.283
0.283
0.283
0.283
0.283
0.283
0.283
10.795
10.557
10.564
10.564
10.564
10.657
16.611
16.611
23.153
30.371
31.314
33.269
34.072
34.166
34.290
67.572
66.078
66.121
66.121
66.121
66.705
103.972
103.972
144.923
190.101
196.003
208.240
213.271
213.858
214.632
Cleveland AQCR . . •
0
4
8
12
16
20
24
28
32
36
40
60
80
100
200
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
78
78
78
78
78
81
81
81
83
83
'84
87
90
93
95
.50
.36
.51
.51
.51
• 7Q.
.70
.70
.02
.02
.60
.32
.72
.03
.63
21.617
22.370
• 23.392
24.279
25.167
26.042
26.798
27.553
28.287
28.988
29.656
32.469
34.710
36.266
41.724
45.750
47.398
' 49.508
51.396
53.284
53.929
05.537
57.145
58.184
59.676
60.428
65.475
69.502
72.209
83.465
0.0
1.901
3.776
5.664
7.552
8.038
9.646
11.254
11.933
13.420
13.523
16.707 •
16.304
15.305
19.179
37.906
37.752
37.752
37.752
37.752
29.935
29.935
29.935
27.330
27.338
24.178
21.297
22.114
23.051
29.576
7.291
7.312
7.378
7.378
7.378
12.076
12.076
12.076
13.638
13.635
15.648
17:865
19.484 ••
20.629
20.529
0.106
0.102
0.106
0.106
0.106 .
0.106
0.106
0.106
0.106
0.106
0.106
0.106
0.106
. 0.105,
0.105
0.660
0.536
0.708
0.708
0.708
3.986
3.986
3.986
5.389
5.389
7.185
9.712
11.706
13.330
14.287
4.129
3.355
4,433
4.433
4'. 433
24.949
' 24.949
24.949
33.730
• 33.730
44.975
60.791
73.269
83.435
•89.426
-------
Table E-3 (continued). Distributive effects of hybrid programs
IX)
Gross private costs
Annualized costs (106 dollars/year)
Policy instrument
parameters
Constant
Charge rate (proportion
(cents per of emission
kilogram) standards)
Variable costs
Reductions
in sulfur
emissions
(percent)
Net private
cost
(106 dollars/year) Total
Charge
payments
Fuel
cost
premium
Abatement
equipment
operating
cost
Credit
for sulfur Fixed
sales. cost
Capital outlays
for
abatement
equipment
(106 dollars)
St. Louis AQCR
0 .8
04 • .8
08 .8
12 .8
16 .8
20 .8
24 .8
28 .8
32 .8
36 .8
40 .8
60 .8
80' .8
100 .8
200 .8
47.
47.
48.
49.
49.
49.
58.
62.
66.
82.
83.
86.
89.
90.
93.
70
84
59
56
56
56
41
56
98
63
20
77
17
49
34
21
24
27
30
32
35
38
40
42
43
44
48
51
54
65
.430
.347
.265
.136
.958
.780
.429
.527
.422
.575
.539
.631
.903
.717
.657
42.388
48.682
. 54.531
60.195
66.199
72.202
76.397
80.090
83.158
82.245
84.262
91.596
98.034
103.719
126.952
0.0 •
6.210
12.239
18.011
24.015
30.019
29.708
31.197
31.447
18.610
• 19.999
23.623
25.780
28.301
39.650
13.272
14.130
11.852
8.855
8.855
8.855
5.294
2.805
0.136
-5.321
-5.006
-8.066
-5.624
-4.187
10.235
20.764
20.229
21.353
23.048
23.048
23.048
27.233
29.853
32.746
41.070
41.290
44.368
44.799
45.714
43.059
0.283
0.283
0.283
0.283
0.283
0.283
0.283
0.283
0.283
0.283
0.283
0.283
0.283
0.283
0.283
8.635
8.396
9.369
10.564
10.564
10.564
14.445
16.517
19.111
28.168
28.261
31.954
33.361
34.173
34.290
54.048
52.555
58.645
66.121
66.121
66.121
90.414
103.39 .
119.623
176.313
176.897
200.009
208.817
213.901
. 214.632
Cleveland AQCR
0 .8
4 .8
8 .8
12 .8
16 .8
20 .8
24 .8
28 .8
32 .8
36 .8
40 • .8
1 V • W
60 .8
v W * v
80 .8
100 ,8
200 .8
73.
73.
73.
73.
73.
73.
73.
77.
77.
79.
79.
87,
90.
93.
95.
45
31
45
45
45
45
46"
65
65
39
39
30
69
02
63
18
19
21
22
23
24
25
26
27
28
29
32
34
36
41
.817
.779
.009
.104
.200-
.296
.392
.475
.397
.313
.164
.454
.700
.322
.724
39.803
41.913
44.467
46.798
49.130
51.462
53.785
54.870
56.830
58.239
60.048
65.443
69.480
72.295
83.465
0.0
2.344
4.664
6.996 '
9.328
11.660
13.985
13.743
15.704
16.295
18.102
16.739
16.347
15.331
19.179
32.037
32,037
32.037
32.037
32.037
32.037
31.974
25.325
25.305
23.026
23.029
21.232
22.049
22.987
29.576
7.243
7.178
7.243
7.243
7. .243
7.243
7.280
11.978 .
11.939
13.635
13.634
17.865
19.484
20.663
20.529
0.106
0.102
0.10&
0.106
O.lOn
0;10S
0.105
0.106
0.106
0.106
0.106
0.106
0.106
0.106
0.105
0.628
0.456
0.628
0.628
0.628
0.628
0.652
3.929
3.937
5.389
5.389
9.712
11.706
13.420
14.287
3.934
2.856
3.934
3.934
3.934
3.934
4.080
24.595
24.644
33.730
33.730
60.791
73.269
84.002
89.426
-------
Table E-3 (continued). Distributive effects of hybrid programs
Gross private costs
Annualized costs (10° dollars/year)
Variable costs
Policy instrument
parameters
Charge rate
(cents per
kilogram)
0
4
8
12
16
20
24
28
32
36
40
60
80
100
200
0
.4
8
12
16
. 20
24
28
32
36
40
60
80
100
.200
Constant
(proportion
of emission
standards)
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6
.6 .
.6 '
.6
.6
.6 .
.6
Reductions in
sulfur emissions
(percent)
25
25
25
25
32
32
47
57
63
78
79
85
89
90
93
63
63
63
63
63
63
63
63
69
69
79
87
90
93
95
.47
.47
.47
.47
.73
.73
.93
.48
.19
.84
.82
.73
.00
.49
.34
.76
.62
.76
.76
.76
.76
.76-
.77
.86
.91
.37
.27
.69
.02
.63
Net private
cost
(10° dollars/year) Total
12.621
16.785
20.960
25.130
28.944
32.708
36.300
38.896
41.033
42.399
43.558
48.423
51.877
54.717
65.657
14.848
16.210
17.840
19.336
20.831
22.327
23.823
25.319
26.779
28.022
29.155
32.450
34.699
36.322
41.724
St.
26.350
35.213
44.094
52.966
59.479
67.487
72.684
77.078
80.309
79.834
82.209
91.152
97.978
103.719
126.952
31.358
34.319
37.724
40.906
•44.089
47.272
50.454
53.637
55.525
58.158
60.030
65.434
69.479
72.295
83.465
Charge
payments
Fuel
cost
remium
Aba'tement
equipment
operating
cost
Credit
for sulfur Fixed
sales cost
Capital outlays
for
abatement
equipment
(10lj dollars)
Louis AQCR
0.0
8.872
17.744
26.616
32.029
40.037
37.188
35.431
35.057
22.670
24.020
25.490
26.185
28.301
39.650
Cleveland
0.0
3.195
6.366
9.548
12.731
15.914
19.096
22.277
21.174
23.788
18.120
16.766
16.360
15.331
19.179
15.003
15.003
15.003
15.003
5.209
5.209
-0.795
-1.433
.-5.165
-10.843
-10.766
-10.377
-6.085
-4.187 •
10.235
23.592
23.592'
23.592
23.592
23.592
23.592
23.592
23.593
18.609
18.553
22.993
21.196
22.034
22.987
29.576
10.280
10.277
10.280
10.280
16.858
16.858
24.328
28.078
31.872
40:366
41.070
44.368
44.799
45.714
43.059
7.244
7.178
7.244
7.244
7.244
7.244
7.244
7.243
11.942
11.986
13.634
17.865
19.484
20.663
20.529
0.283
0.283
0.283
0.283
0.283
0.283
0.283
0.283
0.283
0.283
0.283
0.283
0.283
0.283
0.283
0.106
0.102
•0.106
0.106
0.106
0.106
0.106
0.106
0.106
0.106
0.106
0.106
0.106
0.106
0,105
1.350 '
1.343
1.350
1.350
5.665
5.665
12.245
15.284
18.828
27.924
28.168
31.954
33.361
34.173
34.290
0.628
0.452
0.628
0.628
0.628
0.628
0.628
0.628
3.906
3.937
5.389
9.712
11.706
13.420 .
14,287
8.450
8.407
8.450
8.450
35.461
35.461
76.646
95.668
117.854
174.789
176.313
200.009
208.817
213.901
214.632
3.934
2.856
3.934
3.934
3.934
3.934
3.934
3.934
24.449
24.644
33.730
60.791
73.269
84.002
89.426
-------
BIBLIOGRAPHY
Acker-man, Bruce A.; Ackerman, Susan R.; and Henderson, Dale W. "The
Uncertain Search for Environmental Policy: The Costs arid Benefits
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