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The Effect of Allowing Pollution Offsets with Imperfect Enforcement

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  • 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.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.3.268
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 101 (2011)
Issue (Month): 3 (May)
Pages: 268-72

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Handle: RePEc:aea:aecrev:v:101:y:2011:i:3:p:268-72

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References

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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, vol. 15(4), pages 430-459, August.
  2. Hilary Sigman, 2010. "Monitoring and Enforcement of Climate Policy," Departmental Working Papers 201006, Rutgers University, Department of Economics.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. A. Denny Ellerman & Nick Johnstone & Friedrich Schneider & Alexander F. Wagner & Juan-Pablo Montero & Johann Wackerbauer, 2003. "Tradable Permits," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 4(1), pages 3-32, October.
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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. 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.

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