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The SO2 Allowance Trading System: The Ironic History of a Grand Policy Experiment

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  • Schmalensee, Richard

    (MIT)

  • Stavins, Robert N.

    (Harvard University and Resources for the Future)

Abstract

Two decades have passed since the Clean Air Act Amendments of 1990 launched a grand experiment in market-based environmental policy: the SO2 cap-and-trade system. That system performed well but created four striking ironies. First, by creating this system to reduce SO2 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, since 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 SO2 market, demonstrating that what the government gives, the government can take away.

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Bibliographic Info

Paper provided by Harvard University, John F. Kennedy School of Government in its series Working Paper Series with number rwp12-030.

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Date of creation: Aug 2012
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Handle: RePEc:ecl:harjfk:rwp12-030

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  1. Stavins Robert N., 1995. "Transaction Costs and Tradeable Permits," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 133-148, September.
  2. Chan, Gabriel & Stavins, Robert & Stowe, Robert & Sweeney, Richard, 2012. "The So2 Allowance-Trading System And The Clean Air Act Amendments Of 1990: Reflections On 20 Years Of Policy Innovation," National Tax Journal, National Tax Association, vol. 65(2), pages 419-52, June.
  3. 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.
  4. 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.
  5. Stavins, Robert, 2000. "Experience with Market-Based Environmental Policy Instruments," Working Paper Series rwp00-004, Harvard University, John F. Kennedy School of Government.
  6. 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.
  7. 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.
  8. Richard Schmalensee & Paul L. Joskow & A. Denny Ellerman & Juan Pablo Montero & Elizabeth M. Bailey, 1998. "An Interim Evaluation of Sulfur Dioxide Emissions Trading," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 53-68, Summer.
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  13. Hahn, Robert W. & Stavins, Robert N., 2010. "The Effect of Allowance Allocations on Cap-and-Trade System Performance," Working paper 47, Regulation2point0.
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  21. 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.
  22. 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.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. What Happened to the US Sulfur Emissions Market?
    by David Stern in Stochastic Trend on 2012-08-25 01:19:00
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Cited by:
  1. Chan, Hei Sing (Ron) & Li, Shanjun & Zhang, Fan, 2013. "Firm competitiveness and the European Union emissions trading scheme," Energy Policy, Elsevier, vol. 63(C), pages 1056-1064.
  2. Oskar Lecuyer & Philippe Quirion, 2012. "Can Uncertainty Justify Overlapping Policy Instruments to Mitigate Emissions?," Post-Print hal-00801927, HAL.
  3. Burtraw, Dallas & Woerman, Matt, 2013. "Economic ideas for a complex climate policy regime," Energy Economics, Elsevier, vol. 40(S1), pages S24-S31.

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