Getting Incentives Wrong...

Environmental Economics tells us that Rob Stavins has concluded that EPA's New Source Review has been a huge mistake:

Environmental Economics: Stavins on new source review : Rob Stavins' seventh "Environmental Perspective" column [The Environmental Forum®, May/June 2005] weighs in on new source review. In "Regulating by Vintage: Let's Put A Cork In It." In short:

Research has demonstrated that the NSR process has driven up costs tremendously (not just for the electric companies, but for their customers and shareholders —that is for all of us) and has resulted in worse environmental quality than would have occurred if firms had not faced this disincentive [to upgrade and replace generating plants].

Tighter regulations for new plants and upgrades provides an incentive for firms to let their plants get old and dirty. This increases the cost of generating output and cleaning air. One solution, not surprising if you've hung out here for any amount of time, is marketable permits.