Additional market incentives for abatement: An analysis of flue-gas desulfurization by-products

Energy and environmental regulations often result in by-products that can reduce compliance costs. This research evaluates a unique case in which the marketability of gypsum by-product produced from sulfur dioxide (SO2) scrubbing operations at coal-fired electric plants has a theoretically ambiguous impact on pollution emissions. Intuitively, the ability to market flue-gas desulfurization (FGD) gypsum provides incentives for electricity generating plants to operate their scrubbers more efficiently by providing gypsum revenues, and lowering gypsum disposal costs. Gypsum marketability also creates incentives for plants to burn coal with higher sulfur content in order to increase their gypsum (CaSO4·2H2O) production. The overall impact of FGD gypsum marketability on boiler-level SO2 emissions is therefore the empirical question of interest. Electricity boiler-level fixed-effect estimations suggest annual SO2 emissions decline by 3494 tons (39%) as a result of gypsum marketing. An upper bound on the total external benefits associated with the reduced SO2 emissions is estimated at $350.6 billion (2011$), or roughly 2.1% of the total benefits of the U.S. Clean Air Act (CAA) from 1990 to 2010.