Targeted regulation for reducing high-ozone events

Nitrogen oxides (NO_x) are a precursor to ground-level ozone, a pernicious pollutant that is harmful to human health and ecosystems. Despite decades of regulations and a precipitous decline in NO_x emissions, episodic high-ozone events prevent many areas from attaining air quality standards. Theoretically, spatially or temporally differentiated emissions prices could be more cost effective at reducing such events than a uniform price. To test this prediction, with data from EPA and NOAA spanning 2001–2019, we use novel empirical strategies to estimate (1) the link between hourly emissions and high-ozone events and (2) hourly marginal abatement costs. These estimates form the basis for simulations that compare uniform and differentiated emissions pricing. Consistent with economic theory, differentiated pricing is substantially more cost effective at reducing high-ozone events, though this advantage depends on the accuracy of the estimated NO_x–ozone relationship. A daytime-only emissions price can achieve the same ozone-event reductions as a uniform emissions price at 42 percent lower cost; an emissions price that varies by power plant and hour of the day can achieve the same reductions at 88 percent lower cost.