Transforming Cap and Trade: Aligning Pollution Markets with Public Health Goals

Justin Kakeu, Ethan Ziegler and Brandon Holmes
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Justin Kakeu: Resources for the Future
Ethan Ziegler: Resources for the Future
Brandon Holmes: Resources for the Future

No 25-09, RFF Issue Briefs from Resources for the Future

Abstract: Air pollution is the leading environmental cause of death and disease globally (Wright and Pant, 2024). In 2021, household and ambient air pollution was the second leading risk factor for premature death, killing over 8.1 million people (Health Effects Institute 2024). Even in an energy-intensive world, many of these deaths are avoidable and can be prevented through the proper understanding and regulation of pollutants.Although PM₂.₅ and ozone are considered to be the deadliest pollutants, there are hundreds of pollutants that can be harmful to human health (Ingram 2024). Currently, governmental bodies and policies take a fragmented approach to the research and regulation of these pollutants; different departments regulate different pollutants, and pollutants are studied and regulated independent of one another (Greenbaum and Shaikh 2010). This fragmentation in regulation includes cap-and-trade systems, which are used to manage the emissions of different pollutants such as CO₂, SO₂, and NO₂.This issue brief will explore the concept of implementing a multipollutant cap-and-trade program, as opposed to the traditional single-pollutant model. This system would provide heterogeneous firms with a variety of emission permits to choose from, each representing a specified bundle of pollutants. Such a model would allow governments to regulate the total amount of each pollutant emitted while simultaneously accounting for the effects of pollutant interactions. While this issue brief focuses on the potential for a multipollutant cap-and-trade model, it is important to note that cap and trade is not the only regulatory strategy available. Direct command-and-control regulations—such as setting specific technology standards or emission limits for pollutants—also provide a pragmatic starting point (Stavins 2004). In fact, given the technical and institutional complexities involved in multipollutant assessment, establishing robust command-and-control frameworks may serve as a foundation from which a transition to a market-based multipollutant cap-and-trade system could be built over time.This issue brief is associated with an accompanying working paper about the detailed structure of a multipollutant permit model (Kakeu 2025). Despite the technical and institutional barriers that have hindered the adoption of multipollutant regulations in recent history, there are many benefits associated with transitioning to multipollutant frameworks. This goes beyond replacing single-pollutant cap-and-trade systems with multipollutant ones; an overall restructuring of the methodologies, communication, research, and action on and about the health effects of air pollution to a more holistic perspective is imperative.

Date: 2025-06-16
New Economics Papers: this item is included in nep-ene, nep-env and nep-res
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