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

The goal of environmental regulation is to protect public health by reducing the presence of certain pollutants. The health and environmental damages caused by a specific concentration of a given pollutant in a given location at a given point in time are the same regardless of its source. For political and practical reasons, however, environmental regulations have treated point source polluters, such as power plants, differently from mobile source polluters, such as vehicles. We compare existing regulations designed to reduce Nitrogen Oxide (NOx) emitted from power plants to regulations of NOx emitted from vehicles. We estimate the marginal costs of reducing NOx under these two regulatory programs. We find significant differences in marginal abatement costs across source types with the cost of reducing NOx from cars less than one half of the cost of reducing NOx from power plants. We estimate efficiency losses of over $2 billion from the current policy approach to regulating NOx emissions. ∗Fowlie: The Ford School of Public Policy, University of Michigan at Ann Arbor. 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].