SULFUR-DIOXIDE EMISSIONS AND UNITED-STATES NEW REGULATION

This paper uses US national average data to estimate shadow prices of coal, natural gas, and oil consumed by the US electric power industry. It then uses these estimates to generate a delivered cost/estimated shadow price ratio for comparison between fuels. It does so on the basis of observed market prices per sulphur dioxide emission allowance; an observed cost of sulphur dioxide per tonne removed by a flue gas desulphurization system; fuels' delivered costs; and the US Clean Air Act Amendments of 1990 (CAAA). The US national average data show that coal becomes more expensive to consume than natural gas and oil under the CAAA. The results implicitly show that the new regulation will lead the electric power industry to consume more natural gas.