Pollution Control Innovations and the Clean Air Act of 1990

Although economists cite potential gains from induced innovation as an advantage of using market-based mechanisms to protect the environment, counts of patents related to flue gas desulfurization units ('scrubbers') peaked before trading of sulfur dioxide (SO2) permits began. This paper uses plant level data to study the effect of these patents on pollution control. I find that requiring plants constructed before 1990 to install scrubbers created incentives for innovation that would lower the costs of operating scrubbers. There is little evidence that the new patents created before 1990 improved the ability of scrubbers to more effectively control pollution. However, patents granted during the 1990s, when market-based mechanisms were in place, do serve to improve the removal efficiency of scrubbers.