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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 in that sector with pollution abatement in another sector. The government may often find it more costly to verify offset claims than to verify compliance with emissions caps. Concerns about such difficulties in enforcement may lead regulators to restrict the use of offsets. In this paper, we demonstrate that allowing offsets may increase pollution abatement and reduce illegal pollution, even if the government has a fixed enforcement budget. We explore the circumstances that may make allowing pollution offsets an attractive option when enforcement is costly.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16860.

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Date of creation: Mar 2011
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Publication status: published as 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 268-72, May.
Handle: RePEc:nbr:nberwo:16860

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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, Springer, vol. 15(4), pages 430-459, August.
  2. 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, University of Chicago Press, vol. 107(5), pages 998-1033, October.
  3. James B. Bushnell, 2010. "The Economics of Carbon Offsets," NBER Working Papers 16305, National Bureau of Economic Research, Inc.
  4. Hilary Sigman, 2010. "Monitoring and Enforcement of Climate Policy," Departmental Working Papers, Rutgers University, Department of Economics 201006, Rutgers University, Department of Economics.
  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. 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, Ifo Institute for Economic Research at the University of Munich, vol. 4(1), pages 3-32, October.
  7. Markus Ohndorf, 2010. "Optimal Monitoring for project-based Emissions Trading Systems under incomplete Enforcement," IED Working paper, IED Institute for Environmental Decisions, ETH Zurich 10-13, IED Institute for Environmental Decisions, ETH Zurich.
  8. 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.
  9. Don Fullerton & Catherine Wolfram, 2012. "The Design and Implementation of U.S. Climate Policy," NBER Books, National Bureau of Economic Research, Inc, number full10-1, 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 U.S. Climate Policy, pages 1-17 National Bureau of Economic Research, Inc.
  2. 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.
  3. Ian MacKenzie & Markus Ohndorf, 2012. "Optimal monitoring of credit-based emissions trading under asymmetric information," Journal of Regulatory Economics, Springer, Springer, vol. 42(2), pages 180-203, October.

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