Do Environmental Markets Cause Environmental Injustice? Evidence from California's Carbon Market

Working Paper: NBER ID: w27205

Authors: Danae Hernandez-Cortes; Kyle C. Meng

Abstract: Market-based environmental policies are widely adopted on the basis of allocative efficiency. However, there is growing concern that market-induced spatial reallocation of pollution could widen existing pollution concentration gaps between disadvantaged and other communities. We examine how this \\environmental justice" (EJ) gap changed following the 2013 introduction of California's carbon market, the world's second largest and the most subjected to EJ critiques. We estimate that the program lowered GHG, PM2:5, PM10, and NOx emissions by 3-9% annually between 2012-2017 for sample industrial facilities regulated only by the carbon market. Using a pollution dispersal model to characterize resulting spatial changes in pollution concentrations, we find the program caused EJ gaps in PM2:5, PM10, and NOx from these facilities to narrow by 6-10% annually. We demonstrate that explicit modeling of pollution dispersal is critical for detecting these results.

Keywords: Environmental justice; Carbon market; Pollution; Cap-and-trade

JEL Codes: H4; I14; Q5; Q52; Q53; Q54

Causal Claims

Cause	Effect
Explicit modeling of pollution dispersal is critical for detecting changes in emissions (Q52)	Accurate capture of spatial distribution of emissions and their effects on disadvantaged communities (R23)
Failure to account for pollution dispersal (Q53)	Biased estimates (C51)
EJ gaps have narrowed but not eliminated (I24)	Gaps returning to levels observed in 2008 by 2017 (F62)
Introduction of the carbon market in 2013 (Q58)	Environmental justice gaps in PM2.5, PM10, and NOx emissions from regulated facilities narrow by approximately 6 to 10% annually between 2012 and 2017 (Q52)
Carbon market reduces greenhouse gas and local air pollutant emissions by 39% annually across sampled industrial facilities (Q52)	Environmental justice gaps narrow (I24)