Working Paper: NBER ID: w16860
Authors: Hilary Sigman; Howard F. Chang
Abstract: 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.
Keywords: No keywords provided
JEL Codes: K32; K42; Q54; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Allowing pollution offsets (Q52) | Increased pollution abatement in Sector 1 (Q52) |
| Allowing pollution offsets (Q52) | Higher compliance in Sector 1 (L59) |
| Allowing pollution offsets (Q52) | Legalizing excess emissions in Sector 1 (Q52) |
| Increased abatement in Sector 2 (Q52) | Decreased illegal pollution (Q53) |
| Decreased abatement in Sector 1 (Q52) | Increased illegal pollution (Q53) |
| Allowing pollution offsets (Q52) | Net decrease in illegal pollution (Q53) |
| Cost of compliance (G18) | Increased pollution abatement in Sector 1 (Q52) |
| Relative enforcement costs (K40) | Effectiveness of allowing offsets (H21) |
| Marginal costs of abatement in Sector 1 (Q52) | Net decrease in illegal pollution (Q53) |