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This Article explores the feasibility of adding flexibility to mandates for existing power plants in order to foster technology innovation and reduce compliance costs and emissions.

Under new and proposed EPA rules a significant portion of the coal-fired electricity generating capacity will require multi-billion dollar investments to retrofit and comply with emissions standards on SO2, NOx, PM, mercury, toxic metals, acid gases, coal combustion residuals, and cooling water intake rules. A number of plant owners may find preferable to replace these plants with new units that run with today's low cost natural gas. Massive retrofit or replacement of the current coal-fired power generation fleet with today’s solutions will harm the conditions for research and development of path-breaking fossil-fired power generation technologies. This would not be a serious problem if the current retrofit and replacement technologies were in fact a solution to the many environmental externalities posed by the coal-fired power plants that are now candidates for expensive retrofitting or retirement. But the technologies available today are far from being a solution commensurate with the climate and environmental risks that fossil-fired generation poses in the United States and the world. This Article finds that a policy with a flexible compliance payment that allows investors to delay the decision of retrofitting or replacing and hence, maintains incentives for innovation in retrofit and new plant technologies, can outperform an inflexible mandate by reducing compliance costs and improving environmental performance.

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