Working Paper: NBER ID: w18306
Authors: Richard Schmalensee; Robert Stavins
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, this system was put in place to curb acid rain, but the main source of benefits from it was unexpected. 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.
Keywords: No keywords provided
JEL Codes: Q40; Q48; Q54; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| SO2 allowance trading system (Q58) | reduction of SO2 emissions (Q52) |
| reduction of SO2 emissions (Q52) | improved human health outcomes (I14) |
| SO2 allowance trading system (Q58) | improved public health outcomes (I14) |
| railroad deregulation (L98) | switch from high-sulfur to low-sulfur coal (L94) |
| SO2 allowance trading system (Q58) | reduced compliance costs (K20) |
| political rhetoric (D72) | policy acceptance (G52) |
| government regulatory framework (G38) | unintended consequences for established markets (D40) |
| SO2 allowance trading program (Q58) | emissions reductions (Q52) |
| prior railroad deregulation (L98) | cost-effectiveness of SO2 allowance trading system (Q52) |
| railroad deregulation (L98) | emissions reductions (Q52) |