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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.

Suggested Citation

  • Burtraw, Dallas & Palmer, Karen, 2003. "The Paparazzi Take a Look at a Living Legend: The SO2 Cap-and-Trade Program for Power Plants in the United States," RFF Working Paper Series dp-03-15, Resources for the Future.
    • Handle: RePEc:rff:dpaper:dp-03-15
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    References listed on IDEAS

    as
    1. 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).
    2. Bohi, Douglas R. & Burtraw, Dallas, 1997. "SO2 Allowance Trading: How Experience and Expectations Measure Up," Discussion Papers 10878, Resources for the Future.
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    Citations

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    Cited by:

    1. Emilson Silva & Xie Zhu, 2008. "Global trading of carbon dioxide permits with noncompliant polluters," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(4), pages 430-459, August.
    2. David Grover, 2012. "The �advancedness� of knowledge in pollutionsaving technological change with a qualitative application to SO2 cap and trade," GRI Working Papers 100, Grantham Research Institute on Climate Change and the Environment.
    3. Kruger, Joseph & Pizer, William A., 2004. "The EU Emissions Trading Directive: Opportunities and Potential Pitfalls," Discussion Papers 10679, Resources for the Future.
    4. William A. Pizer, 2005. "The case for intensity targets," Climate Policy, Taylor & Francis Journals, vol. 5(4), pages 455-462, July.
    5. Coria, Jessica & Sterner, Thomas, 2008. "Tradable Permits in Developing Countries: Evidence from air pollution in Santiago, Chile," Working Papers in Economics 326, University of Gothenburg, Department of Economics.
    6. Johnson, Kenneth C., 2007. "California's greenhouse gas law, Assembly Bill 1493: Deficiencies, alternatives, and implications for regulatory climate policy," Energy Policy, Elsevier, vol. 35(1), pages 362-372, January.
    7. Nelson, Peter, 2004. "Emissions Trading with Telecommuting Credits: Regulatory Background and Institutional Barriers," Discussion Papers 10884, Resources for the Future.
    8. Greaker, Mads, 2006. "Spillovers in the development of new pollution abatement technology: A new look at the Porter-hypothesis," Journal of Environmental Economics and Management, Elsevier, vol. 52(1), pages 411-420, July.
    9. Soleille, Sebastien, 2006. "Greenhouse gas emission trading schemes: a new tool for the environmental regulator's kit," Energy Policy, Elsevier, vol. 34(13), pages 1473-1477, September.
    10. Nelson, Per-Kristian, 2004. "Emissions Trading with Telecommuting Credits: Regulatory Background and Institutional Barriers," RFF Working Paper Series dp-04-45, Resources for the Future.
    11. Lynne Y. Lewis, 2011. "A Virtual Field Trip to the Real World of Cap and Trade: Environmental Economics and the EPA SO 2 Allowance Auction," The Journal of Economic Education, Taylor & Francis Journals, vol. 42(4), pages 354-365, October.
    12. Lynne Y. Lewis, 2011. "Environmental and Natural Resource Economics: Teaching the Non-Major and Major Simultaneously," Chapters, in: Gail M. Hoyt & KimMarie McGoldrick (ed.), International Handbook on Teaching and Learning Economics, chapter 46, Edward Elgar Publishing.
    13. Margaret Walls & Peter Nelson & Elena Safirova, 2005. "Telecommuting and environmental policy - lessons from the Ecommute program," ERSA conference papers ersa05p801, European Regional Science Association.
    14. David Grover, 2012. "Knowledge versus technique in SO2-saving technological change: A comparative test using quantile regression with implications for greenhouse gas compliance," GRI Working Papers 99, Grantham Research Institute on Climate Change and the Environment.
    15. Greaker, Mads & Rosendahl, Knut Einar, 2008. "Environmental policy with upstream pollution abatement technology firms," Journal of Environmental Economics and Management, Elsevier, vol. 56(3), pages 246-259, November.

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    More about this item

    Keywords

    emission trading; cap and trade; air pollution; cost-benefit analysis; electricity; particulates; sulfur dioxide; SO2; health benefits; acid rain;
    All these keywords.

    JEL classification:

    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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