The SO 2 Allowance Trading System: The Ironic History of a Grand Policy Experiment

Richard Schmalensee and Robert Stavins

Journal of Economic Perspectives, 2013, vol. 27, issue 1, 103-22

Abstract: Two decades have passed since the Clean Air Act Amendments of 1990 launched a grand experiment in market-based environmental policy: the SO 2 cap-and-trade system. That system performed well but created four striking ironies: First, by creating this system to reduce SO 2 emissions to curb acid rain, the government did the right thing for the wrong reason. 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, as 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 SO 2 market, demonstrating that what the government gives, the government can take away.

JEL-codes: K32 L51 L94 Q53 Q54 Q58 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/jep.27.1.103
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Citations: View citations in EconPapers (111)

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Related works:
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)
Working Paper: The SO2 Allowance Trading System: The Ironic History of a Grand Policy Experiment (2012)
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