Balancing Environmental Protection and Energy Production in the Federal Hydropower Licensing Process

Abstract

The U.S. Federal Energy Regulatory Commission (FERC) must balance environmental protection of riverine resources with the nation’s growing demand for power production every time it issues a hydroelectric license. This paper models the bureaucratic agency’s decision-making process in issuing these licenses. Data on nearly 500 hydropower licenses issued from 1983 to 2005 are utilized. It is discovered that legislative and institutional constraints are, by far, the largest influences on FERC’s regulatory decisions, implying that if the current allocation of surface water in the United States is considered inefficient, the most effective way to alter this allocation is by passing new legislation, or by implementing institutional reform at FERC. (JEL Q25, Q42)