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Banking on Allowances: The EPA’s Mixed Record in Managing Emissions-Market Transitions

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  • Fraas, Arthur G.

    ()
    (Resources for the Future)

  • Richardson, Nathan

    ()
    (Resources for the Future)

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    Abstract

    The history of emissions-trading markets in the United States is marked by change. Since cap-and-trade programs were first implemented on a large scale after the 1990 Amendments to the Clean Air Act, the U.S. Environmental Protection Agency (EPA) has repeatedly revised and replaced emissions-trading markets for nitrous oxides and sulfur dioxide. In each transition, the agency has had to decide what to do with emissions allowances banked in the earlier program. These banked allowances represent early reductions in emissions, with corresponding environmental benefits, but also the expectation on the part of regulated entities that they will continue to hold value in the future. Unsettling these expectations can lead to price volatility, instability in markets, and erosion of buy-in from regulated entities and the credibility of regulators. The paper discusses EPA’s mixed record regarding these transitions and implications for the future of cap and trade as a policy tool.

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    File URL: http://www.rff.org/RFF/documents/RFF-DP-10-42.pdf
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    Bibliographic Info

    Paper provided by Resources For the Future in its series Discussion Papers with number dp-10-42.pdf.

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    Date of creation: 28 Sep 2010
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    Handle: RePEc:rff:dpaper:dp-10-42.pdf

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    Related research

    Keywords: cap and trade; nitrous oxides; sulfur dioxide; banking; borrowing; CAIR; NOx SIP Call; Transport Rule; Clean Air Act; EPA;

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    Cited by:
    1. Muller, Nicholas Z., 2012. "The design of optimal climate policy with air pollution co-benefits," Resource and Energy Economics, Elsevier, vol. 34(4), pages 696-722.

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