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The SO 2 Allowance Trading System: The Ironic History of a Grand Policy Experiment

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  • Richard Schmalensee
  • Robert N. Stavins

Abstract

Two 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.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.27.1.103
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 27 (2013)
Issue (Month): 1 (Winter)
Pages: 103-22

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Handle: RePEc:aea:jecper:v:27:y:2013:i:1:p:103-22

Note: DOI: 10.1257/jep.27.1.103
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