“No fences make bad neighbors” but markets make better ones: cap-and-trade reduces cross-border SO2 in a natural experiment

Daniel Leppert ()
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Daniel Leppert: Durham University Business School

Environmental Economics and Policy Studies, 2023, vol. 25, issue 3, No 5, 407-433

Abstract: Abstract The clean air interstate rule (CAIR) was a regional cap-and-trade program announced in 2005 which covered 27 eastern US states and sought to reduce sulfur dioxide emissions from coal-fired power plants. The rule was later vacated after a court found that the non-targeted design of the program did not comply with the Clean Air Act provision to regulate interstate air pollution. Using a custom air pollution dispersion model, I calculate the interstate SO2 pollution from 493 coal-fired power plants across the United States between 1997 and 2020. In a difference-in-differences setup with plants not covered by CAIR in the control group, I estimate the treatment effect of the program on overall- and cross-border SO2 emissions and find a 24% reduction in overall emissions and reduces the risk that a plant violates air quality standards across state borders by 2–4%. I report evidence of heterogeneous treatment effects where the reduction in overall emissions attributed to CAIR is lower among plants transporting SO2 in excess of 1% of the National Air Quality Standards to another state.

Keywords: Cap-and-trade; Air pollution; U.S. clean air act (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10018-023-00367-z

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