CSEM WP 181 Sacred Cars? Optimal Regulation of Stationary and Non-stationary Pollution Sources

For political and practical reasons, environmental regulations sometimes treat point source polluters, such as power plants, di¤erently from mobile source polluters, such as vehicles. This paper measures the extent of this regulatory asymmetry in the case of nitrogen oxides (NOx), the criteria air pollutant that has proven to be the most recalcitrant in the United States. We …nd signi…cant di¤erences in marginal abatement costs across source types with the marginal cost of reducing NOx from cars less than half of the marginal cost of reducing NOx from power plants. Our …ndings have important implications for the e¢ ciency of NOx emissions reductions and, more broadly, the bene…ts from increasing the sectoral scope of environmental regulation. We estimate that the costs of achieving the desired emissions reductions could have been reduced by nearly $2 billion, or 9 percent of program costs, had marginal abatement costs been equated across source types. We would like to thank Leigh Linden, Erin Mansur and seminar participants at Columbia University, UC Davis, UC San Diego, UC Santa Barbara and the National Bureau of Economic Research for valuable comments. Justin Gallagher, Rob Seamans and Orie Shelef provided excellent research assistance. Fowlie: The Ford School of Public Policy, University of Michigan at Ann Arbor and NBER. Email: [email protected]. Knittel: Department of Economics, University of California, Davis; University of California Energy Institute and NBER. Email: [email protected]. Wolfram: Haas School of Business, University of California, Berkeley; University of California Energy Institute and NBER. Email: [email protected].