Grandfathering and coal plant emissions: the cost of cleaning up the Clean Air Act

The Clean Air Act imposes much stricter emission Limits on new coal-burning power plants than on older ones - a practice that has no obvious theoretical justification. Elimination of "grandfather rules", i.e., applying new plant standards to the US electric industry as a whole, would eliminate 40% of nationwide SO2 emissions and 15% of NOx emissions, while raising average retail electricity rates by only 4%. Under this scenario, 94% or more of existing coal plants would remain economically competitive with new gas-fired power plants. Policy options for elimination of grandfathering include: an explicit requirement that each existing plant meet new-plant standards; a "cap and trade" system of emission allowances similar to the current SO2 trading system; and a generation performance standard, an interesting new variant on emissions trading which incorporates a more equitable and flexible allocation of allowances. (C) 2000 Elsevier Science Ltd. All rights reserved.