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Cap-and-Trade Policy Challenges: A Tale of Three Markets

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  • Bonnie G. Colby

Abstract

Cap-and-trade policy instruments have been applied to a number of environmental problems, with varying success. This article examines cap-and-trade programs for SO2 allowances, fishery quotas, and water rights. Design and implementation of cap-and-trade mechanisms involves challenging policy tradeoffs: accommodating equity concerns, balancing use levels with resource conditions, facilitating transactions, accounting for externalities, assuring adequate monitoring, and documenting welfare gains. Efficient trading mechanisms are more readily implemented when there is a strong political or legal mandate to cap resource use and trades are perceived as a means to ease adjustment to use limits.

Suggested Citation

  • Bonnie G. Colby, 2000. "Cap-and-Trade Policy Challenges: A Tale of Three Markets," Land Economics, University of Wisconsin Press, vol. 76(4), pages 638-658.
  • Handle: RePEc:uwp:landec:v:76:y:2000:i:4:p:638-658
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Tisdell, John, 2007. "Bringing biophysical models into the economic laboratory: An experimental analysis of sediment trading in Australia," Ecological Economics, Elsevier, vol. 60(3), pages 584-595, January.
    2. James Kroes & Ravi Subramanian & Ramanath Subramanyam, 2012. "Operational Compliance Levers, Environmental Performance, and Firm Performance Under Cap and Trade Regulation," Manufacturing & Service Operations Management, INFORMS, pages 186-201.
    3. Sovacool, Benjamin K., 2011. "The policy challenges of tradable credits: A critical review of eight markets," Energy Policy, Elsevier, vol. 39(2), pages 575-585, February.
    4. Krutilla Kerry & Alexeev Alexander, 2012. "The Normative Implications of Political Decision-Making for Benefit-Cost Analysis," Journal of Benefit-Cost Analysis, De Gruyter, vol. 3(2), pages 1-36, May.
    5. Stoutenborough, James W. & Sturgess, Shelbi G. & Vedlitz, Arnold, 2013. "Knowledge, risk, and policy support: Public perceptions of nuclear power," Energy Policy, Elsevier, vol. 62(C), pages 176-184.
    6. Krutilla, Kerry & Alexeev, Alexander, 2014. "The Political Transaction Costs and Uncertainties of Establishing Environmental Rights," Ecological Economics, Elsevier, vol. 107(C), pages 299-309.
    7. Berry, David, 2002. "The market for tradable renewable energy credits," Ecological Economics, Elsevier, vol. 42(3), pages 369-379, September.
    8. McCann, Laura & Colby, Bonnie & Easter, K. William & Kasterine, Alexander & Kuperan, K.V., 2005. "Transaction cost measurement for evaluating environmental policies," Ecological Economics, Elsevier, vol. 52(4), pages 527-542, March.

    More about this item

    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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