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The SO2 Allowance Trading System: The Ironic History of a Grand Policy Experiment

Author

Listed:
  • Schmalensee, Richard

    (MIT)

  • Stavins, Robert N.

    (Harvard University and Resources for the Future)

Abstract

Two decades have passed since the Clean Air Act Amendments of 1990 launched a grand experiment in market-based environmental policy: the SO2 cap-and-trade system. That system performed well but created four striking ironies. First, by creating this system to reduce SO2 emissions to curb acid rain, the government did the right thing for the wrong reason. Second, a substantial source of this system's cost-effectiveness was an unanticipated consequence of earlier railroad deregulation. Third, it is ironic that cap-and-trade has come to be demonized by conservative politicians in recent years, since this market-based, cost-effective policy innovation was initially championed and implemented by Republican administrations. Fourth, court decisions and subsequent regulatory responses have led to the collapse of the SO2 market, demonstrating that what the government gives, the government can take away.

Suggested Citation

  • Schmalensee, Richard & Stavins, Robert N., 2012. "The SO2 Allowance Trading System: The Ironic History of a Grand Policy Experiment," Working Paper Series rwp12-030, Harvard University, John F. Kennedy School of Government.
  • Handle: RePEc:ecl:harjfk:rwp12-030
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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