Environmental and Resource Economics

, Volume 74, Issue 4, pp 1453–1496 | Cite as

Waiting for the Courts: Effects of Policy Uncertainty on Pollution and Investment

  • Jackson DorseyEmail author


Legal challenges and transitions of political power cause the future of regulatory policies to be uncertain. In this article, I investigate how uncertainty about environmental policy affects investment and emissions at coal-fired power plants. I exploit a legal challenge to the Clean Air Interstate Rule (CAIR) that created variation in the probability that individual plants would need to comply with the new policy. I use a difference-in-differences approach to compare pollution reductions at power plants located in states subject to more uncertainty to plants in states that that were not. I find that plants with a lower probability of being regulated invested in fewer capital-intensive pollution controls and reduced pollution by 13% less on average. Many of these plants did switch to capital-intensive pollution controls after the court upheld CAIR. Policy uncertainty increased compliance costs by $124 million by delaying efficient investments.


Policy uncertainty Investment Environmental regulation Air pollution Electricity 

JEL Classification

Q40 Q52 D22 D92 L94 



I thank Derek Lemoine, Ashley Langer, Ian Lange, Meredith Fowlie, Stan Reynolds, Steven Davis, Nicholas Bloom, Gisle Natvik, Eric Rasmusen, two anonymous referees, as well as seminar participants at the CU Environmental Economics Workshop, the University of Arizona, the WEAI Summer Conference, the AERE Summer Conference, and the Stanford SITE Workshop for helpful comments and suggestions.

Supplementary material


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Copyright information

© Springer Nature B.V. 2019

Authors and Affiliations

  1. 1.Department of Business Economics and Public Policy, Kelley School of BusinessIndiana UniversityBloomingtonUSA

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