Environmental Violations in the Power Sector: Accountability and Community Welfare

This study examines how U.S. power sector firms respond to environmental regulation violations, focusing on facilities flagged by the EPA for non-compliance. In response, these plants implement various strategies to reduce air pollution and prevent future violations, including cutting electricity generation, improving fuel quality, reducing coal use, installing scrubbers, enhancing pollution controls, and investing in energy-efficient generators. Organizational efficiencies and government subsidies further strengthen these efforts. While these actions aid environmental recovery, the costs of compliance are often passed on to local communities through higher electricity prices, raising concerns about social equity. Following a violation, firms generally experience increases in assets, capital expenditures, debt, revenues, and electricity prices, yet operating income remains unaffected. Our findings highlight that while market competition and government subsidies can help alleviate some of the financial burden on consumers, these subsidies often fall short in promoting the long-term investments in advanced technologies necessary for sustained environmental progress.