The SO2 Allowance Trading System: The Ironic History of a Grand Policy Experiment

Richard Schmalensee and Robert Stavins

No 18306, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: Q40 Q48 Q54 Q58 (search for similar items in EconPapers)
Date: 2012-08
New Economics Papers: this item is included in nep-ene, nep-env, nep-his and nep-res
Note: EEE PE POL
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Citations: View citations in EconPapers (21)

Published as Richard Schmalensee & Robert N. Stavins, 2013. "The SO 2 Allowance Trading System: The Ironic History of a Grand Policy Experiment," Journal of Economic Perspectives, American Economic Association, vol. 27(1), pages 103-22, Winter.

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Journal Article: The SO 2 Allowance Trading System: The Ironic History of a Grand Policy Experiment (2013)
Working Paper: The SO2 Allowance Trading System: The Ironic History of a Grand Policy Experiment (2012)
Working Paper: The SO2 Allowance Trading System: The Ironic History of a Grand Policy Experiment (2012)
Working Paper: The SO2 Allowance Trading System: The Ironic History of a Grand Policy Experiment (2012)
Working Paper: The SO2 Allowance Trading System: The Ironic History of a Grand Policy Experiment (2012)
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