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The Effect of Allowing Pollution Offsets With Imperfect Enforcement

  • Hilary Sigman
  • Howard F. Chang

Public policies for pollution control, including climate change policies, sometimes allow polluters in one sector subject to an emissions cap to offset excessive emissions in that sector with pollution abatement in another sector. The government may often find it more costly to verify offset claims than to verify compliance with emissions caps. Concerns about such difficulties in enforcement may lead regulators to restrict the use of offsets. In this paper, we demonstrate that allowing offsets may increase pollution abatement and reduce illegal pollution, even if the government has a fixed enforcement budget. We explore the circumstances that may make allowing pollution offsets an attractive option when enforcement is costly.

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File URL: http://www.nber.org/papers/w16860.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16860.

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Date of creation: Mar 2011
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Publication status: published as Hilary Sigman & Howard F. Chang, 2011. "The Effect of Allowing Pollution Offsets with Imperfect Enforcement," American Economic Review, American Economic Association, vol. 101(3), pages 268-72, May.
Handle: RePEc:nbr:nberwo:16860
Note: EEE LE
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  1. Hilary Sigman, 2010. "Monitoring and Enforcement of Climate Policy," NBER Working Papers 16121, National Bureau of Economic Research, Inc.
  2. Stranlund, John K. & Dhanda, Kanwalroop Kathy, 1999. "Endogenous Monitoring and Enforcement of a Transferable Emissions Permit System," Journal of Environmental Economics and Management, Elsevier, vol. 38(3), pages 267-282, November.
  3. Malik, Arun S., 1990. "Markets for pollution control when firms are noncompliant," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages 97-106, March.
  4. James B. Bushnell, 2011. "The Economics of Carbon Offsets," NBER Chapters, in: The Design and Implementation of U.S. Climate Policy, pages 197-209 National Bureau of Economic Research, Inc.
  5. Juan-Pablo Montero, 1999. "Voluntary Compliance with Market-Based Environmental Policy: Evidence from the U.S. Acid Rain Program," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 998-1033, October.
  6. Emilson Silva & Xie Zhu, 2008. "Global trading of carbon dioxide permits with noncompliant polluters," International Tax and Public Finance, Springer, vol. 15(4), pages 430-459, August.
  7. A. Denny Ellerman & Nick Johnstone & Friedrich Schneider & Alexander F. Wagner & Juan-Pablo Montero & Johann Wackerbauer, 2003. "Tradable Permits," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 4(1), pages 3-32, October.
  8. Markus Ohndorf, 2010. "Optimal Monitoring for project-based Emissions Trading Systems under incomplete Enforcement," IED Working paper 10-13, IED Institute for Environmental Decisions, ETH Zurich.
  9. Don Fullerton & Catherine Wolfram, 2012. "The Design and Implementation of U.S. Climate Policy," NBER Books, National Bureau of Economic Research, Inc, number full10-1, May.
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