An analysis of the permit market for electric utilities: How much does equity cost?
Abstract
The historic approach to monopoly regulation in the U.S. has been a command and control approach. With enactment of the Clean Air Act Amendments of 1990 a market based approach to utility regulation and environmental policy has been implemented through the use of marketable SO$\sb2$ permits. Environmental groups in some states are concerned that a national market for pollution permits may adversely affect the environment of their state. This may lead to regionalization of the SO$\sb2$ permit market. Addressing this issue, this study (1) estimates the cost savings of a national SO$\sb2$ permit market and (2) determines what effect regionalization of the national SO$\sb2$ permit market will have on total electric utility revenue requirements, distribution of revenue requirements, and the permit market. A mathematical programming model of the U.S. electric generating industry was developed to address the objectives. The model shows that a national market for SO$\sb2$ permits does reduce utility revenue requirements, illustrates general firm strategies under different scenarios and shows a major shift to natural gas as a primary generation fuel. The model also shows that a restriction on permit sales by a region increases revenue requirements to the region significantly more than the increase in revenue requirements to each of the other regions of the U.S.
Degree
Ph.D.
Advisors
McNamara, Purdue University.
Subject Area
Business costs|Energy
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