While the retirement delay effect retards innovation directly by keeping existing equipment in operation, the BAT effect discourages innovation by preventing firms from introducing lower cost, innovative pollution control equipment or processes. Thus, EPA regulations, implemented through BAT medallions, can be more accurately described as specifying the means than the end of pollution control. The response of firms to liberalized trade in BAT medallions would vary. Over time, as transfers occurred, emission permits allowed by the national air quality standards would tend to flow to firms with lower control costs. Meanwhile, liberalized trading would produce a transparent system that would help reveal the cost of pollution control and reduction.
Regulation often allows existing firms to limit entry and thereby to prevent new competition.
Hence, inefficient regulatory limits on innovation typically are instituted to advance the interests of coalitions that benefit from restrictions on competition. Bureaucrats want to retain the current complex system because they are needed to manage it. Environmentalists want to retain the current system so that they can pursue desired outcomes through litigation, lobbying, and public education. Firms that have political capital in the BAT medallion system want to retain the existing system because it enables them to disadvantage potential competitors and to limit new entrants. These firms, joined by organized labor, will have more political influence than the groups that are most harmed by the BAT medallion regime-the operators of potential facilities and the workers that might someday be employed in these as yet unbuilt plants.