The impact of environmental regulations on the optimal allocation of coal in the United States

The purpose of this study is to model the impact of air pollution controls on the optimal allocation of coal among regions in the United States. In order to meet this purpose, an objective but efficient model, which will minimize the total cost of transporting coal among regions and controlling sulfur pollution from sources, is formulated. In the process, a per-unit tax which is equal to the marginal damage cost of SO;The mainland United States is divided into five regions and the demand and supply of coal in each region is estimated. The freight rate functions estimated for each region are used to calculate the costs of transportation among regions. The tax rate is calculated by dividing the total annual cost associated with SO;In order to evaluate the effects of acid rain controls on the regional distribution of coal, the optimal equilibrium coal flow with the sulfur emissions tax is compared with the optimal trade pattern with no sulfur tax. Afterward, using the empirical result of the comparative static analysis, sensitivity analysis is provided to calculate the effect of the change of the policy parameter on the interregional movements of coal and the delivered price of coal. Furthermore, in order to incorporate technological aspects of environmental regulations into the analysis, two underlying assumptions of our methodology are changed. With these new assumptions, the impact of acid rain controls on the regional distribution of coal is reevaluated.