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The Paparazzi Take a Look at a Living Legend: The SO2 Cap-and-Trade Program for Power Plants in the United States

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  • Burtraw, Dallas

    ()
    (Resources for the Future)

  • Palmer, Karen

    ()
    (Resources for the Future)

Abstract

For years economists have urged policymakers to use market-based approaches such as cap-and-trade programs or emission taxes to control pollution. The SO2 allowance market created by Title IV of the 1990 U.S. Clean Air Act Amendments (CAAA) presents the first real test of the wisdom of economists' advice. This paper provides an overview of the origins, design, and performance of the U.S. acid rain program, and an analysis of its specific features and its adaptability as a model for addressing other pollution problems, such as control of NOx or CO2 emissions. The program also has resulted in innovation through changes in organizational technology, in the organization of markets, and through experimentation at individual boilers, much of which arguably would not have occurred under a more prescriptive approach to regulation. There is ample evidence that allowance trading has achieved substantial cost savings, and there are lessons that can guide the design of future policies.

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Bibliographic Info

Paper provided by Resources For the Future in its series Discussion Papers with number dp-03-15.

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Date of creation: 01 Apr 2003
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Handle: RePEc:rff:dpaper:dp-03-15

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Related research

Keywords: emission trading; cap and trade; air pollution; cost-benefit analysis; electricity; particulates; sulfur dioxide; SO2; health benefits; acid rain;

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References

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  1. 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.
  2. Roberton C. Williams, 2000. "Environmental Tax Interactions When Pollution Affects Health or Productivity," NBER Working Papers 8049, National Bureau of Economic Research, Inc.
  3. 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.
  4. Cronshaw, Mark B & Brown-Kruse, Jamie, 1996. "Regulated Firms in Pollution Permit Markets with Banking," Journal of Regulatory Economics, Springer, vol. 9(2), pages 179-89, March.
  5. Don Fullerton & Shaun P. McDermott & Jonathan P. Caulkins, 1996. "Sulfur Dioxide Compliance of a Regulated Utility," NBER Working Papers 5542, National Bureau of Economic Research, Inc.
  6. Nelson, Randy A & Tietenberg, Tom & Donihue, Michael R, 1993. "Differential Environmental Regulation: Effects on Electric Utility Capital Turnover and Emissions," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 368-73, May.
  7. Denny Ellerman, 1998. "Note on The Seemingly Indefinite Extension of Power Plant Lives, A Panel Contribution," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
  8. Spencer Banzhaf, H. & Burtraw, Dallas & Palmer, Karen, 2004. "Efficient emission fees in the US electricity sector," Resource and Energy Economics, Elsevier, vol. 26(3), pages 317-341, September.
  9. Lawrence H. Goulder & Ian W. H. Parry & Dallas Burtraw, 1996. "Revenue-Raising vs. Other Approaches to Environmental Protection: The Critical Significance of Pre-Existing Tax Distortions," NBER Working Papers 5641, National Bureau of Economic Research, Inc.
  10. 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.
  11. Portney, Paul R, 1990. "Economics and the Clean Air Act," Journal of Economic Perspectives, American Economic Association, vol. 4(4), pages 173-81, Fall.
  12. Karl Hausker, 1992. "The politics and economics of auction design in the market for sulfur dioxide pollution," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 11(4), pages 553-572.
  13. Winebrake, James J. & Bernstein, Mark A. & Farrell, Alex E., 1995. "Estimating the impacts of restrictions on utility participation in the SO2 allowance market," The Electricity Journal, Elsevier, vol. 8(4), pages 50-54, May.
  14. Rubin, Jonathan D., 1996. "A Model of Intertemporal Emission Trading, Banking, and Borrowing," Journal of Environmental Economics and Management, Elsevier, vol. 31(3), pages 269-286, November.
  15. Burtraw, Dallas & Krupnick, Alan & Austin, David & Farrell, Deirdre & Mansur, Erin, 1997. "The Costs and Benefits of Reducing Acid Rain," Discussion Papers dp-97-31-rev, Resources For the Future.
  16. 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.
  17. Burtraw, Dallas & Lile, Ron, 1998. "State-Level Policies and Regulatory Guidance for Compliance in the Early Years of the SO2 Emission Allowance Trading Program," Discussion Papers dp-98-35, Resources For the Future.
  18. Bohi, Douglas R. & Burtraw, Dallas, 1997. "SO2 allowance trading: How do expectations and experience measure up?," The Electricity Journal, Elsevier, vol. 10(7), pages 67-75.
  19. 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.
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Cited by:
  1. Coria, Jessica & Sterner, Thomas, 2008. "Tradable Permits in Developing Countries: Evidence from Air Pollution in Santiago, Chile," Discussion Papers dp-08-51, Resources For the Future.
  2. Pizer, William & Kruger, Joseph, 2004. "The EU Emissions Trading Directive: Opportunities and Potential Pitfalls," Discussion Papers dp-04-24, Resources For the Future.
  3. 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.
  4. Pizer, William, 2005. "The Case for Intensity Targets," Discussion Papers dp-05-02, Resources For the Future.
  5. Nelson, Per-Kristian, 2004. "Emissions Trading with Telecommuting Credits: Regulatory Background and Institutional Barriers," Discussion Papers dp-04-45, Resources For the Future.
  6. Margaret Walls & Peter Nelson & Elena Safirova, 2005. "Telecommuting and environmental policy - lessons from the Ecommute program," ERSA conference papers ersa05p801, European Regional Science Association.

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