The SO 2 Allowance Trading System: The Ironic History of a Grand Policy Experiment
AbstractTwo decades have passed since the Clean Air Act Amendments of 1990 launched a grand experiment in market-based environmental policy: the SO 2 cap-and-trade system. That system performed well but created four striking ironies: First, by creating this system to reduce SO 2 emissions to curb acid rain, the government did the right thing for the wrong reason. Second, a substantial source of this system's cost-effectiveness was an unanticipated consequence of earlier railroad deregulation. Third, it is ironic that cap-and-trade has come to be demonized by conservative politicians in recent years, as this market-based, cost-effective policy innovation was initially championed and implemented by Republican administrations. Fourth, court decisions and subsequent regulatory responses have led to the collapse of the SO 2 market, demonstrating that what the government gives, the government can take away.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by American Economic Association in its journal Journal of Economic Perspectives.
Volume (Year): 27 (2013)
Issue (Month): 1 (Winter)
Find related papers by JEL classification:
- K32 - Law and Economics - - Other Substantive Areas of Law - - - Environmental, Health, and Safety Law
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
- Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Newell, Richard G & Stavins, Robert N, 2003.
"Cost Heterogeneity and the Potential Savings from Market-Based Policies,"
Journal of Regulatory Economics,
Springer, vol. 23(1), pages 43-59, January.
- Stavins, Robert & Newell, Richard, 2000. "Cost Heterogeneity and the Potential Savings from Market-Based Policies," Discussion Papers dp-00-10-rev, Resources For the Future.
- Shelby Gerking & Stephen F. Hamilton, 2008. "What Explains the Increased Utilization of Powder River Basin Coal in Electric Power Generation?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(4), pages 933-950.
- A. Denny Ellerman & Juan-Pablo Montero, 2007.
"The Efficiency and Robustness of Allowance Banking in the U.S. Acid Rain Program,"
The Energy Journal,
International Association for Energy Economics, vol. 0(Number 4), pages 47-72.
- A. Denny Ellerman & Juan-Pablo Montero, 2005. "The Efficiency and Robustness of Allowance Banking in the U.S. Acid Rain Program," Working Papers 0505, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
- Arimura, Toshi H., 2002. "An Empirical Study of the SO2 Allowance Market: Effects of PUC Regulations," Journal of Environmental Economics and Management, Elsevier, vol. 44(2), pages 271-289, September.
- H. Spencer Banzhaf & Dallas Burtraw & David Evans & Alan Krupnick, 2006. "Valuation of Natural Resource Improvements in the Adirondacks," Land Economics, University of Wisconsin Press, vol. 82(3), pages 445-464.
- Joskow, Paul L & Schmalensee, Richard, 1998. "The Political Economy of Market-Based Environmental Policy: The U.S. Acid Rain Program," Journal of Law and Economics, University of Chicago Press, vol. 41(1), pages 37-83, April.
- Gabriel Chan & Robert Stavins & Robert Stowe & Richard Sweeney, 2012.
"The SO2 Allowance Trading System and the Clean Air Act Amendments of 1990: Reflections on Twenty Years of Policy Innovation,"
NBER Working Papers
17845, National Bureau of Economic Research, Inc.
- Chan, Gabriel & Stavins, Robert & Stowe, Robert & Sweeney, Richard, 2012. "The SO2 Allowance Trading System and the Clean Air Act Amendments of 1990: Reflections on Twenty Years of Policy Innovation," Working Paper Series rwp12-003, Harvard University, John F. Kennedy School of Government.
- Gabriel Chan & Robert Stavins & Robert Stowe & Richard Sweeney, 2012. "The SO2 Allowance Trading System and the Clean Air Act Amendments of 1990: Reflections on Twenty Years of Policy Innovation," Working Papers 2012.06, Fondazione Eni Enrico Mattei.
- Stowe, Robert C & Stavins, Robert Norman & Chan, Gabriel Angelo & Sweeney, Richard Leonard, 2012. "The SO2 Allowance Trading System and the Clean Air Act Amendments of 1990: Reflections on Twenty Years of Policy Innovation," Scholarly Articles 8160721, Harvard Kennedy School of Government.
- Bellas, Allen S. & Lange, Ian, 2011. "Evidence of Innovation and Diffusion Under Tradable Permit Programs," International Review of Environmental and Resource Economics, now publishers, vol. 5(1), pages 1-22, May.
- Burtraw, Dallas & Palmer, Karen & Cropper, Maureen & Carlson, Curtis, 1998.
"Sulfur-Dioxide Control By Electric Utilities: What Are the Gains from Trade?,"
dp-98-44-rev, Resources For the Future.
- Curtis Carlson & Dallas Burtraw & Maureen Cropper & Karen L. Palmer, 2000. "Sulfur Dioxide Control by Electric Utilities: What Are the Gains from Trade?," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1292-1326, December.
- Carlson, Curtis & Burtraw, Dallas & Cropper, Maureen & Palmer, Karen L., 1998. "Sulfur dioxide control by electric utilities : what are the gains from trade?," Policy Research Working Paper Series 1966, The World Bank.
- Nicholas Z. Muller & Robert Mendelsohn, 2012. "Efficient Pollution Regulation: Getting the Prices Right: Reply," American Economic Review, American Economic Association, vol. 102(1), pages 608-12, February.
- 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.
- Ellerman, A. Denny & Montero, Juan-Pablo, 1998. "The Declining Trend in Sulfur Dioxide Emissions: Implications for Allowance Prices," Journal of Environmental Economics and Management, Elsevier, vol. 36(1), pages 26-45, July.
- Nathaniel O. Keohane, 2003. "What Did the Market Buy? Cost Savings Under the U. S. Tradeable Permits Program for Sulfur Dioxide," Yale School of Management Working Papers ysm437, Yale School of Management.
- Dallas Burtraw & Alan Krupnick & Erin Mansur & David Austin & Deirdre Farrell, 1998. "Costs And Benefits Of Reducing Air Pollutants Related To Acid Rain," Contemporary Economic Policy, Western Economic Association International, vol. 16(4), pages 379-400, October.
- Robert N. Stavins, 1998. "What Can We Learn from the Grand Policy Experiment? Lessons from SO2 Allowance Trading," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 69-88, Summer.
- David Popp, 2003. "Pollution control innovations and the Clean Air Act of 1990," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 22(4), pages 641-660.
- Stavins Robert N., 1995. "Transaction Costs and Tradeable Permits," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 133-148, September.
- Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros) or (Michael P. Albert).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.