Environmental Violations in the Power Sector: Accountability and Community Welfare

This study investigates how U.S. power sector firms respond to environmental violations identified by the EPA. Following a violation, affected plants adopt mitigation strategies such as reducing electricity generation, improving fuel quality, lowering coal use, installing scrubbers, upgrading pollution controls, and investing in energy-efficient generators. These actions are supported by economies of scale and public subsidies. At the firm level, violations are associated with increases in assets, capital expenditures, long-term debt, operating revenue, and electricity prices. However, operating and net income remain stable, suggesting that firms pass much of the compliance cost to consumers. While these responses contribute to environmental improvement, the accompanying rise in electricity prices raises concerns about social equity, particularly for households least able to absorb higher energy costs. Overall, the findings highlight a broader ethical and policy dilemma: efforts to enforce environmental accountability may disproportionately burden vulnerable populations.