*Names in bold indicate Presenter
Analyzing Power Plants’ Allowance Trading Behaviors Under the Acid Rain Program
This paper aims to study whether the national SO2 trading program - Acid Rain Program (ARP) provides convenient tools for businesses to abate pollutions without physical relocation, and as a result, counteracts state regulatory efforts to attract businesses. In the federalism literature, some scholars and policy makers argue that states are incentivized to engage in regulatory competition to attract business and investment, assuming firms are mobile and vote with their feet. However, previous empirical research has suggested that companies rarely relocate in response to policy variations. Estimating a gravity model, this study shows that the nationwide SO2 emission trading system is utilized by power plants to mitigate cross-states regulatory differences. We find that firms in states with more stringent environmental regulations (higher levels of inspections and sanctions) purchase more allowances from firms in states with relatively lax regulations. The allowance marketplace allows firms to continue production without relocating capital. Consequently, the regulatory competition is unlikely to result in new jobs and businesses because of the existence of a national trading program.