Dam Spillovers: The Direct and Indirect Costs from Environmental Constraints on Hydroelectric Generation

52 Pages Posted: 1 Oct 2017 Last revised: 9 Sep 2022

See all articles by James Archsmith

James Archsmith

University of Maryland, Department of Agricultural and Resource Economics

Date Written: August 1, 2022

Abstract

Environmental regulations often cause a subset of affected firms to reallocate production in space
or time. The resulting supply responses by rivals in the same market can raise costs even for
those unconstrained by the regulation. Policy analysis, however, often fails to account for these
spillover effects. This research considers an environmental policy forcing hydroelectric dams
to inefficiently allocate electricity generation over time. Combining quasi-random variation in
regulatory stringency and a regression discontinuity design, I estimate direct costs of regulation
and spillovers to other producers in the same market. These regulations increase market-wide
costs as much as 19.8% and generate millions of dollars per year in pollution externalities.
Spillover effects are substantial, accounting for over 50% of the true policy costs. Decomposition
of spillover channels show implications for optimal policy, including allowing flexibility in the
timing of regulatory compliance, as climate change continues to exacerbate water scarcity.

Keywords: Regulation, Spillovers, Electricity, Environment

JEL Classification: L51, Q25, Q51, Q52, Q53

Suggested Citation

Archsmith, James, Dam Spillovers: The Direct and Indirect Costs from Environmental Constraints on Hydroelectric Generation (August 1, 2022). Available at SSRN: https://ssrn.com/abstract=3046246 or http://dx.doi.org/10.2139/ssrn.3046246

James Archsmith (Contact Author)

University of Maryland, Department of Agricultural and Resource Economics ( email )

College Park
College Park, MD 20742
United States

HOME PAGE: http://https://econjim.com

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