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The politics and economics of auction design in the market for sulfur dioxide pollution

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  • Karl Hausker

Abstract

The Clean Air Act Amendments of 1990 aim to create a market in emissions of sulfur dioxide from power plants by distributing a fixed number of tradable pollution permits called “allowances,” and by providing for the auction of a small fraction of the total number of allowances. This article describes potential inefficiencies in this market and how an auction could enhance the market. It shows that the method by which allowances are “bundled together” for auction is an important efficiency-related element of auction design. The article also examines the politics of auction design and how equity goals strongly shaped the design ultimately adopted by Congress. Finally, some implications are suggested for the role of policy analysis in the legislative process.

Suggested Citation

  • 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.
  • Handle: RePEc:wly:jpamgt:v:11:y:1992:i:4:p:553-572
    DOI: 10.2307/3324955
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    References listed on IDEAS

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    1. James M. Verdier, 1984. "Advising congressional decision-makers: Guidelines for economists," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 3(3), pages 421-438.
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    Cited by:

    1. Schwarze, Reimund & Zapfel, Peter, 1998. "Sulfur allowance trading and the regional clean air incentives market: How similar are the programs really?," MPRA Paper 52751, University Library of Munich, Germany, revised 02 Nov 1999.
    2. Laffont, Jean-Jacques & Tirole, Jean, 1996. "Pollution permits and compliance strategies," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 85-125, October.
    3. Richard J. Mccann, 1996. "Environmental Commodities Markets: 'Messy' Versus 'Ideal' Worlds," Contemporary Economic Policy, Western Economic Association International, vol. 14(3), pages 85-97, July.
    4. Shobe, William & Holt, Charles & Huetteman, Thaddeus, 2014. "Elements of emission market design: An experimental analysis of California's market for greenhouse gas allowances," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PA), pages 402-420.
    5. Schaltegger, Stefan & Thomas, Tom, 1996. "Pollution added credit trading (PACT): New dimensions in emissions trading," Ecological Economics, Elsevier, vol. 19(1), pages 35-53, October.
    6. 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.
    7. Tietenberg, Tom, 1998. "Ethical influences on the evolution of the US tradable permit approach to air pollution control," Ecological Economics, Elsevier, vol. 24(2-3), pages 241-257, February.
    8. Reimund Schwarze & Peter Zapfel, 2000. "Sulfur Allowance Trading and the Regional Clean Air Incentives Market: A Comparative Design Analysis of two Major Cap-and-Trade Permit Programs?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 17(3), pages 279-298, November.
    9. Brookshire, David S & Burness, H Stuart, 2001. "The Informational Role of the EPA SO2 Permit Auction," Journal of Regulatory Economics, Springer, vol. 20(1), pages 43-60, July.
    10. Dallas Burtraw & Keneth Harrison & Paul Turner, 1998. "Improving Efficiency in Bilateral Emission Trading," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 11(1), pages 19-33, January.
    11. Ben-David, Shaul & Brookshire, David S. & Burness, Stuart & McKee, Michael & Schmidt, Christian, 1999. "Heterogeneity, Irreversible Production Choices, and Efficiency in Emission Permit Markets," Journal of Environmental Economics and Management, Elsevier, vol. 38(2), pages 176-194, September.
    12. Hahn, Robert W., 2000. "The Impact of Economics on Environmental Policy," Journal of Environmental Economics and Management, Elsevier, vol. 39(3), pages 375-399, May.
    13. Svendsen, Gert Tinggaard & Christensen, Jan Lien, 1999. "The US SO2 auction: analysis and generalization," Energy Economics, Elsevier, vol. 21(5), pages 403-416, October.
    14. Abeygunawardena, P & Barba, Ricardo, 2000. "Emission Trading as a Tool for Environmental Management," Sri Lankan Journal of Agricultural Economics, Sri Lanka Agricultural Economics Association (SAEA), vol. 3.
    15. Pezzey, John C.V., 2001. "Distributing the Value of a Country’s Tradeable Carbon Permits," 2001 Conference (45th), January 23-25, 2001, Adelaide 125832, Australian Agricultural and Resource Economics Society.
    16. Zhang, Zhong Xiang, 1999. "Should the rules of allocating emissions permits be harmonised?," Ecological Economics, Elsevier, vol. 31(1), pages 11-18, October.
    17. Burtraw, Dallas & Palmer, Karen, 2003. "The Paparazzi Take a Look at a Living Legend: The SO2 Cap-and-Trade Program for Power Plants in the United States," Discussion Papers dp-03-15, Resources For the Future.
    18. Shaul Ben-David & David Brookshire & Stuart Burness & Michael McKee & Christian Schmidt, 2000. "Attitudes toward Risk and Compliance in Emission Permit Markets," Land Economics, University of Wisconsin Press, vol. 76(4), pages 590-600.
    19. Paul L. Joskow & Richard Schmalensee & Elizabeth M. Bailey, 1996. "Auction Design and the Market for Sulfur Dioxide Emissions," NBER Working Papers 5745, National Bureau of Economic Research, Inc.
    20. repec:eee:enepol:v:107:y:2017:i:c:p:337-344 is not listed on IDEAS

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