Green technology adoption: An empirical study of the Southern California garment cleaning industry

Green technology adoption may be limited by a variety of factors including a lack of sufficient private incentives, long equipment replacement cycles, or lack of information regarding the green alternatives. In California, multiple policy tools including financial incentives, command-and-control regulation, and information and training were used to overcome these obstacles in order to reduce the use of the polluting technology used in traditional dry cleaning. Exploiting the changing regulatory environment, I evaluate the effectiveness of the different policy tools by estimating a dynamic, durable goods replacement model with entry and exit. Because the strict regulations affect future years only, identifying the discount rate is crucial, which I estimate to be 0.94. Using counterfactual simulations under alternative policy regimes, I find that the provision of information and training offered through demonstrations increased adoption of that technology (wet cleaning) by over 200 %. Price incentives (via fees and grants) would have been ineffective at achieving widespread adoption of green technologies but were effective at accelerating adoption when combined with a future ban on polluting technologies. Using this combination of policy instruments led to a net welfare gain of $71 million (NPV) in 2002 when the policies were implemented.