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Stock prices and the cost of environmental regulation

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Show simple item record Linn, Joshua en_US
dc.contributor.other Massachusetts Institute of Technology. Center for Energy and Environmental Policy Research. en_US 2009-04-03T17:07:23Z 2009-04-03T17:07:23Z 2006 en_US
dc.identifier 2006-011 en_US
dc.description.abstract Recent environmental regulations have used market incentives to reduce compliance costs and improve efficiency. In most cases, the Environmental Protection Agency (EPA) selects an emissions cap using the predicted costs of reducing pollution. The EPA and other economists have used a "bottom-up" approach to predict the costs of such regulations, which forecast how every affected firm will respond. It is uncertain whether firms rely on the same predictions in making their compliance decisions. This paper uses stock prices to compare the predictions of the bottom-up studies with those of the affected firms. I focus on a recent tradable permit program, the Nitrogen Oxides Budget Trading Program (NBP). Started in 2004, the NBP requires electric generators in the Midwest and East to reduce their emissions or purchase permits from other firms. I compare utilities' stock prices with the prices that would have occurred in the absence of the new regulation. I make this comparison by exploiting variation in the location of generators owned by utilities; the control group consists of utilities without any generators in the NBP. en_US
dc.description.abstract (cont.) I estimate that investors expected the program to reduce profits by about $2 billion per year (2000 dollars). Investors expected the NBP to primarily affect coal generators, which have larger baseline emission rates than other fossil fuel generators. These results agree with previous studies that used the bottom-up approach. en_US
dc.format.extent 25, [9] en_US
dc.publisher MIT Center for Energy and Environmental Policy Research en_US
dc.relation.ispartofseries MIT-CEEPR (Series) ; 06-011WP. en_US
dc.title Stock prices and the cost of environmental regulation en_US
dc.type Working Paper en_US
dc.identifier.oclc 159938603 en_US

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