Knowledge versus technique in SO2-saving technological change: A comparative test using quantile regression with implications for greenhouse gas compliance

Greenhouse gas emission limits are a major source of technical and policy uncertainty for electric power industry professionals. This paper tries to reduce some of this uncertainty by investigating the main forces that were responsible for the productivity gains made by the electric power sector with respect to SO2 emissions under the US SO2 cap and trade program. The SO2 cap and trade experience has important parallels with the GHG pollution problem, in both policy design and technical response. Linear and quantile regression are used to compare the effect of new technical knowledge (R&D) on SO2 productivity, against the effect of pre-existing techniques that did not involve very much new knowledge creation. Compliance techniques that involved little new technical knowledge and which were incremental and pragmatic played the most important role in SO2-saving technological change. Implications of this finding for electric power plants’ technical response to GHG pollution limits are elaborated.