Technology Diffusion and Environmental Regulation: The Adoption of Natural Gas-Fired Combined Cycle Generating Units

Even though environmental policy can greatly affect the path of technology diffusion, the economics literature contains limited empirical evidence of this relationship. This research will provide additional insight into the technology adoption decisions of electric generating firms. Specifically, I explore the diffusion of combined cycle (CC) generating units, which are natural gas-fired generating units that are cleaner and more efficient than alternative generating units. I model the decision to consider adoption of a CC generating unit and the extent to which the technology is adopted in response to environmental regulations imposed on new sources of pollutants. To accomplish this, I use a zero-inflated Poisson model and focus on both the decision to adopt a CC unit at an existing power plant as well as the firm-level decision to adopt a CC unit in either a new or an existing power plant. Evidence from this empirical investigation shows that environmental regulation does have a significant effect on technology adoption decisions in this industry. 1 This research has been funded in part by the U.S. EPA, National Center for Environmental Economics. Opinions expressed in this paper are solely those of the author and do not necessarily represent those of the U.S. EPA. I would like to thank Arun Malik, Frederick Joutz, Wallace Mullin, Anthony Yezer, Kevin Forbes and members of the GWU Microeconomics Seminar for useful comments and suggestions for this paper. I would also like to thank A. Denny Ellerman and Nathaniel Keohane for providing data.