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The Effect of Allowing Pollution Offsets with Imperfect Enforcement

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Listed:
  • Hilary Sigman
  • Howard F. Chang

Abstract

Public policies for pollution control, including climate change policies, sometimes allow polluters in one sector subject to an emissions cap to offset excessive emissions with pollution abatement in another sector. The government may find it more costly to verify offset claims than to verify compliance with emissions caps. Concerns about such enforcement difficulties may lead regulators to restrict the use of offsets. We demonstrate that allowing offsets may increase pollution abatement and reduce illegal pollution, even if the government has a fixed enforcement budget. We explore circumstances that may make allowing pollution offsets an attractive option when enforcement is costly.

Suggested Citation

  • Hilary Sigman & Howard F. Chang, 2011. "The Effect of Allowing Pollution Offsets with Imperfect Enforcement," American Economic Review, American Economic Association, vol. 101(3), pages 268-272, May.
    • Handle: RePEc:aea:aecrev:v:101:y:2011:i:3:p:268-72
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    References listed on IDEAS

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    1. Emilson Silva & Xie Zhu, 2008. "Global trading of carbon dioxide permits with noncompliant polluters," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(4), pages 430-459, August.
    2. Stranlund, John K. & Dhanda, Kanwalroop Kathy, 1999. "Endogenous Monitoring and Enforcement of a Transferable Emissions Permit System," Journal of Environmental Economics and Management, Elsevier, vol. 38(3), pages 267-282, November.
    3. James B. Bushnell, 2011. "The Economics of Carbon Offsets," NBER Chapters, in: The Design and Implementation of US Climate Policy, pages 197-209, National Bureau of Economic Research, Inc.
    4. Hilary Sigman, 2011. "Monitoring and Enforcement of Climate Policy," NBER Chapters, in: The Design and Implementation of US Climate Policy, pages 213-225, National Bureau of Economic Research, Inc.
    5. Juan-Pablo Montero, 1999. "Voluntary Compliance with Market-Based Environmental Policy: Evidence from the U.S. Acid Rain Program," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 998-1033, October.
    6. A. Denny Ellerman & Nick Johnstone & Friedrich Schneider & Alexander F. Wagner & Juan-Pablo Montero & Johann Wackerbauer, 2003. "Tradable Permits," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 4(01), pages 3-32, October.
    7. Don Fullerton & Catherine Wolfram, 2012. "The Design and Implementation of US Climate Policy," NBER Books, National Bureau of Economic Research, Inc, number full10-1, March.
    8. Markus Ohndorf, 2010. "Optimal Monitoring for project-based Emissions Trading Systems under incomplete Enforcement," IED Working paper 10-13, IED Institute for Environmental Decisions, ETH Zurich.
    9. Malik, Arun S., 1990. "Markets for pollution control when firms are noncompliant," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages 97-106, March.
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    Cited by:

    1. Don Fullerton & Catherine Wolfram, 2011. "Introduction and Summary to "The Design and Implementation of U.S. Climate Policy"," NBER Chapters, in: The Design and Implementation of US Climate Policy, pages 1-17, National Bureau of Economic Research, Inc.
    2. Ian MacKenzie & Markus Ohndorf, 2012. "Optimal monitoring of credit-based emissions trading under asymmetric information," Journal of Regulatory Economics, Springer, vol. 42(2), pages 180-203, October.
    3. Calel, Raphael & Dechezlepretre, Antoine & Venmans, Frank, 2023. "Policing carbon markets," LSE Research Online Documents on Economics 120565, London School of Economics and Political Science, LSE Library.
    4. Don Fullerton & Catherine Wolfram, 2011. "The Design and Implementation of U.S. Climate Policy: An Introduction," NBER Working Papers 17499, National Bureau of Economic Research, Inc.
    5. Jongmin Yu & Mindy L. Mallory, 2020. "Carbon price interaction between allocated permits and generated offsets," Operational Research, Springer, vol. 20(2), pages 671-700, June.

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    More about this item

    JEL classification:

    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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