Nitrogen oxide (NO_x) is a prevalent air pollutant across the United States and a requisite precursor for tropospheric (ground-level) ozone formation. Both pollutants significantly impact human health and welfare, so National Ambient Air Quality Standards (NAAQS) have been established for each. As of 2013, over 100 million people in the U.S. lived in areas with ozone concentrations above the NAAQS.

NO_x emissions from the power sector, roughly 12% of total NO_x emissions, are and will be significant contributors to ozone concentrations in the U.S. As such, states have reduced peak ozone concentrations through technology-based standards and cap-and-trade programs on NO_x emissions from the power sector. These policies have largely treated NO_x emissions uniformly. But marginal damages from NO_x emissions are greatest on hot sunny days when meteorological conditions favor high ozone formation rates and, consequently, peak ozone concentrations.

This thesis informs what type of policy is the most efficient for reducing peak ozone concentrations on high ozone days by assessing the cost-effectiveness of three policies for reducing NO_x emissions on high ozone days. Emissions and costs under a relatively-novel differentiated policy, time-differentiated pricing, are compared for the first time to two currently-implemented undifferentiated policies, cap-and-trade and technology-based standards. Two power systems are studied, Texas and the Mid-Atlantic. A unique two-phase model is developed to capture the short- (redispatching) and long-term (control technology installation) effects of pricing schemes on power plants. The two-phase model dispatches generators with a unit commitment model, which, unlike past studies, captures real-world operational constraints of generators that may strongly influence emissions and costs under time-differentiated pricing. Technology-based standards are simulated via Monte Carlo analysis to capture the uncertain rulemaking process.

For reducing NO_x emissions on high ozone days in both power systems, time-differentiated pricing is shown to be the most cost-effective policy with regards to producer and consumer costs. Most emissions reductions are due to substitution of gas- for coal-fired generators, as control technology installations are only observed at very high time-differentiated prices. For reducing summer-wide NO_x emissions, undifferentiated pricing is the most cost-effective. In a minority of allocations, technology-based standards also achieve more cost-effective summer-wide reductions than time-differentiated pricing, but such allocations cannot be guaranteed ex ante. These results suggest that time-differentiated pricing is the most efficient policy for reducing peak ozone concentrations, depending on ozone formation rates.