Working Paper: NBER ID: w17845
Authors: Gabriel Chan; Robert Stavins; Robert Stowe; Richard Sweeney
Abstract: The introduction of the U.S. SO2 allowance-trading program to address the threat of acid rain as part of the Clean Air Act Amendments of 1990 is a landmark event in the history of environmental regulation. The program was a great success by almost all measures. This paper, which draws upon a research workshop and a policy roundtable held at Harvard in May 2011, investigates critically the design, enactment, implementation, performance, and implications of this path-breaking application of economic thinking to environmental regulation. Ironically, cap and trade seems especially well suited to addressing the problem of climate change, in that emitted greenhouse gases are evenly distributed throughout the world's atmosphere. Recent hostility toward cap and trade in debates about U.S. climate legislation may reflect the broader political environment of the climate debate more than the substantive merits of market-based regulation.
Keywords: SO2 allowance trading; Clean Air Act; environmental regulation; cap-and-trade; acid rain
JEL Codes: Q52; Q53; Q55; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Implementation of the cap-and-trade system (Q58) | Reduction in SO2 emissions (Q52) |
| Flexibility provided by the cap-and-trade system (Q58) | Compliance at lower costs (Q52) |
| Incentives created by the trading system (D47) | Over-compliance and technological innovation (O39) |
| Program's banking provisions (G21) | Greater emissions reductions (H23) |