Policy Uncertainty in the Market for Coal Electricity: The Case of Air Toxics Standards

Ashley Langer
University of Arizona
March 21, 2022 – 05:00 – 06:15 PM (CET)
Live virtual event: please register for this talk via Zoom

Speaker Bio
Ashley Langer is Associate Professor of Economics at the University of Arizona. She uses frontier economic methods to evaluate the impact of environmental and energy policies. Professor Langer’s interest in environmental economics stems from an observation that – because individual choices have environmental repercussions – policies such as subsidies, regulations, and standards are often crucial for improving environmental outcomes. Building on this observation, her research evaluates how alternative policy approaches will change environmental outcomes by merging theoretical insights with econometric modelling that allows her to recover the drivers of individuals’ and firms’ behavior. Before coming to the University of Arizona in 2012, Professor Langer worked at the University of Michigan and the Brookings Institution, and she earned degrees from the University of California-Berkeley and Northwestern University.

Seminar Abstract
Policy uncertainty affects many important irreversible decisions such as investment, technology adoption, and exit. This is particularly true for environmental policy in the U.S., where Environmental Protection Agency (EPA) rule-making is subject to uncertainty due to judicial challenge and executive turnover. In this paper, we estimate a dynamic oligopoly model where merchant coal generators face uncertainty over whether the Mercury and Air Toxics Standard (MATS) will be enforced in the future. In order to estimate annual profits, a key input into our model, we develop new approaches to estimating ramping and operation and maintenance costs. We estimate generators' beliefs regarding the probability of future enforcement and simulate how policy uncertainty affects generator exit, equilibrium costs, and pollution. We find that generators subject to MATS had substantial uncertainty over whether the policy would be enforced, with the implied probabilities of enforcement of 70% in 2013 and 36% in 2014. This uncertainty led to significant delays in both exit and the adoption of abatement technologies and increased generator compliance costs by $1.6 billion.

Admission information
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