In this paper we study the process of technical change in the case of pollution abatement from large stationary sources that have been regulated by a very forceful refunded emission payment policy.
Thanks to the high costs of emitting nitrogen oxides (NOx), considerable progress has been made in lowering aggregate emissions. This paper seeks to disaggregate average industry improvements to study how much of it is due to innovation (improvement of best practice through investments as well as learning by doing) and how much is due to the spread and adoption of technology. We find both factors very important. Innovation has been rapid: the best firms have cut emissions on the order of 70 percent. Nevertheless, reductions have been even more rapid for the majority of firms, such that the disparity in emission coefficients has also been reduced significantly as the median firms have caught up with best practice.
