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Banking on Allowances: The EPA’s Mixed Record in Managing Emissions-Market Transitions

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  • Fraas, Arthur G.

    () (Resources for the Future)

  • Richardson, Nathan

    () (Resources for the Future)

Abstract

The history of emissions-trading markets in the United States is marked by change. Since cap-and-trade programs were first implemented on a large scale after the 1990 Amendments to the Clean Air Act, the U.S. Environmental Protection Agency (EPA) has repeatedly revised and replaced emissions-trading markets for nitrous oxides and sulfur dioxide. In each transition, the agency has had to decide what to do with emissions allowances banked in the earlier program. These banked allowances represent early reductions in emissions, with corresponding environmental benefits, but also the expectation on the part of regulated entities that they will continue to hold value in the future. Unsettling these expectations can lead to price volatility, instability in markets, and erosion of buy-in from regulated entities and the credibility of regulators. The paper discusses EPA’s mixed record regarding these transitions and implications for the future of cap and trade as a policy tool.

Suggested Citation

  • Fraas, Arthur G. & Richardson, Nathan, 2010. "Banking on Allowances: The EPA’s Mixed Record in Managing Emissions-Market Transitions," Discussion Papers dp-10-42.pdf, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-10-42.pdf
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    File URL: http://www.rff.org/RFF/documents/RFF-DP-10-42.pdf
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    Cited by:

    1. Yu, Jongmin & Mallory, Mindy L., 2015. "An optimal hybrid emission control system in a multiple compliance period model," Resource and Energy Economics, Elsevier, vol. 39(C), pages 16-28.
    2. Muller, Nicholas Z., 2012. "The design of optimal climate policy with air pollution co-benefits," Resource and Energy Economics, Elsevier, vol. 34(4), pages 696-722.
    3. Fell, Harrison, 2016. "Comparing policies to confront permit over-allocation," Journal of Environmental Economics and Management, Elsevier, vol. 80(C), pages 53-68.
    4. Fell, Harrison, 2015. "Comparing Policies to Confront Permit Over-allocation," Discussion Papers dp-15-17, Resources For the Future.
    5. Hitaj, Claudia & Stocking, Andrew, 2016. "Market efficiency and the U.S. market for sulfur dioxide allowances," Energy Economics, Elsevier, vol. 55(C), pages 135-147.

    More about this item

    Keywords

    cap and trade; nitrous oxides; sulfur dioxide; banking; borrowing; CAIR; NOx SIP Call; Transport Rule; Clean Air Act; EPA;

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