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When to Pollute, When to Abate? Intertemporal Permit Use in the Los Angeles NOx Market

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  • Stephen P. Holland
  • Michael R. Moore

Abstract

We study intertemporal trading of nitrogen oxides permits in Southern California’s RECLAIM program. We model RECLAIM’s distinct intertemporal features: two overlapping permit cycles and two overlapping compliance cycles. In the model, competitive equilibrium is cost-effective, and firms have an incentive to delay abatement. From 1994 to 2006, RECLAIM facilities traded intertemporally by using permits of the opposite cycle. We test two theoretical propositions—delayed abatement and trading across cycles—with a difference-in-differences estimator and show weak, though inconclusive, support of the theory. The theoretical and empirical results are relevant to cap-and-trade programs with potential for overlapping permit cycles.

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  • Stephen P. Holland & Michael R. Moore, 2012. "When to Pollute, When to Abate? Intertemporal Permit Use in the Los Angeles NOx Market," Land Economics, University of Wisconsin Press, vol. 88(2), pages 275-299.
  • Handle: RePEc:uwp:landec:v:88:y:2012:ii:1:p:275-299
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    Cited by:

    1. Holland, Stephen P. & Moore, Michael R., 2013. "Market design in cap and trade programs: Permit validity and compliance timing," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 671-687.
    2. Burtraw, Dallas & Szambelan, Sarah Jo, 2009. "U.S. Emissions Trading Markets for SO2 and NOx," Discussion Papers dp-09-40, Resources For the Future.
    3. Meredith Fowlie & Stephen P. Holland & Erin T. Mansur, 2012. "What Do Emissions Markets Deliver and to Whom? Evidence from Southern California's NOx Trading Program," American Economic Review, American Economic Association, vol. 102(2), pages 965-993, April.
    4. Moore, Michael R. & Lewis, Geoffrey McD. & Cepela, Daniel J., 2010. "Markets for renewable energy and pollution emissions: Environmental claims, emission-reduction accounting, and product decoupling," Energy Policy, Elsevier, vol. 38(10), pages 5956-5966, October.
    5. Makoto Hasegawa & Stephen Salant, 2015. "The Dynamics of Pollution Permits," Annual Review of Resource Economics, Annual Reviews, vol. 7(1), pages 61-79, October.
    6. Gabriel E. Lade & C.Y. Cynthia Lin Lawell & Aaron Smith, 2016. "Policy Shocks and Market-Based Regulations: Evidence from the Renewable Fuel Standard," Center for Agricultural and Rural Development (CARD) Publications 16-wp565, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    7. Thijs Jong & Oscar Couwenberg & Edwin Woerdman, 2013. "Does the EU ETS Bite? The Impact of Allowance Over-Allocation on Share Prices," RSCAS Working Papers 2013/54, European University Institute.
    8. Jong, Thijs & Couwenberg, Oscar & Woerdman, Edwin, 2014. "Does EU emissions trading bite? An event study," Energy Policy, Elsevier, vol. 69(C), pages 510-519.
    9. Beat Hintermann, 2017. "Market Power in Emission Permit Markets: Theory and Evidence from the EU ETS," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 66(1), pages 89-112, January.

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    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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