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An Interim Evaluation of Sulfur Dioxide Emissions Trading

  • Richard Schmalensee
  • Paul L. Joskow
  • A. Denny Ellerman
  • Juan Pablo Montero
  • Elizabeth M. Bailey

This paper summarizes recent empirical research on compliance costs and strategies and on permit market performance under the U.S. acid rain program, the first large-scale, long-term program to use tradeable emissions permits to control pollution. An efficient market for emissions permits developed in a few years, and this program more than achieved its early goals on time, and it cost less than had been projected. Because of expectation errors, however, investment was excessive, and permit prices substantially understate abatement costs. The tradeable permits approach has worked well, but it is not a miracle cure for environmental problems. Coauthors are Paul L. Joskow, A. Denny Ellerman, Juan Pablo Montero, and Elizabeth M. Bailey.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.12.3.53
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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 12 (1998)
Issue (Month): 3 (Summer)
Pages: 53-68

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Handle: RePEc:aea:jecper:v:12:y:1998:i:3:p:53-68
Note: DOI: 10.1257/jep.12.3.53
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  1. Oates, Wallace E & Portney, Paul R & McGartland, Albert M, 1989. "The Net Benefits of Incentive-Based Regulation: A Case Study of Environmental Standard Setting," American Economic Review, American Economic Association, vol. 79(5), pages 1233-42, December.
  2. Cason, Timothy N, 1995. "An Experimental Investigation of the Seller Incentives in the EPA's Emission Trading Auction," American Economic Review, American Economic Association, vol. 85(4), pages 905-22, September.
  3. 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.
  4. Cason, Timothy N. & Plott, Charles R., 1996. "EPA's New Emissions Trading Mechanism: A Laboratory Evaluation," Journal of Environmental Economics and Management, Elsevier, vol. 30(2), pages 133-160, March.
  5. Cason Timothy N., 1993. "Seller Incentive Properties of EPA's Emission Trading Auction," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 177-195, September.
  6. Montero, Juan-Pablo, 2000. "Optimal design of a phase-in emissions trading program," Journal of Public Economics, Elsevier, vol. 75(2), pages 273-291, February.
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