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The Political Economy of Market-Based Environmental Policy: The U.S. Acid Rain Program

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  • Joskow, Paul L
  • Schmalensee, Richard

Abstract

The U.S. acid rain program enacted in 1990 gave valuable tradable sulfur dioxide emissions permits--called "allowances"--to electric utilities. We examine the political economy of this allocation. Though no Senate or House votes were ever taken, hypothetical votes suggest that the actual allocation would have beaten plausible alternatives. While rent-seeking behavior is apparent, statistical analysis of differences between actual and benchmark allocations indicates that the legislative process was more complex than simple models suggest. The coalition of states that produced and burned high-sulfur coal both failed to block acid rain legislation in 1990 and received fewer allowances than in plausible benchmark allocations. Some of these states may have received additional allowances to cover 1995-99 emissions by giving up allowances in later years, and some major coal-producing states seem to have focused on benefits for miners and on sustaining demand for high-sulfur coal. Copyright 1998 by the University of Chicago.

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  • 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.
  • Handle: RePEc:ucp:jlawec:v:41:y:1998:i:1:p:37-83
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    File URL: http://dx.doi.org/10.1086/467384
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    1. Peltzman, Sam, 1990. "How Efficient Is the Voting Market?," Journal of Law and Economics, University of Chicago Press, vol. 33(1), pages 27-63, April.
    2. Pashigian, B Peter, 1985. "Environmental Regulation: Whose Self-interests Are Being Protected?," Economic Inquiry, Western Economic Association International, vol. 23(4), pages 551-584, October.
    3. Lisa Kiel & Richard McKenzie, 1983. "The impact of tenure on the flow of federal benefits to SMSA's," Public Choice, Springer, vol. 41(2), pages 285-293, January.
    4. Weingast, Barry R & Marshall, William J, 1988. "The Industrial Organization of Congress; or, Why Legislatures, Like Firms, Are Not Organized as Markets," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 132-163, February.
    5. Weingast, Barry R & Moran, Mark J, 1983. "Bureaucratic Discretion or Congressional Control? Regulatory Policymaking by the Federal Trade Commission," Journal of Political Economy, University of Chicago Press, vol. 91(5), pages 765-800, October.
    6. Stavins Robert N., 1995. "Transaction Costs and Tradeable Permits," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 133-148, September.
    7. 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.
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