The benefits and costs of reducing emissions from the electricity sector

Recent federal policy proposals to reduce emissions of sulfur dioxide (SO2), nitrogen oxides (NOx), and mercury from the US electricity sector promise important improvements in air quality and reductions in acid deposition. The cost of achieving these reductions depends on the form and stringency of the regulation. In this research, we analyze the economic benefits and costs of the US Environmental Protection Agency's (EPA's) Clean Air Interstate Rule (CAIR) as characterized in the supplemental rule proposed in June 2004, and the Clean Air Mercury Rule (CAMR) as proposed in February 2004. The assessment integrates a model of the electricity sector, two models of atmospheric transport of air pollutants, and a model of environmental and public health endpoints affected by pollution. We model explicitly the emissions of SO2, NOx, mercury and carbon dioxide (CO2) and the effects of changes in emissions of SO2 and NOx on environmental and public health. The manner in which mercury emissions are regulated will have important implications not only for the cost of the regulation, but also for emission levels for SO2 and NOx and where those emissions are located. We find the economic benefits of CAIR and CAMR are far greater than the costs. Recent estimates of benefits of reductions in mercury and acidification indicate that our model captures the lion's share of quantifiable benefits. We also find that the EPA would have been justified on economic grounds in pursuing additional SO2 emissions reductions beyond the requirements of CAIR.