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Economics of Pollution Trading for SO2 and NOx

Dallas Burtraw, Karen Palmer, Alan Krupnick (), David Evans and Russell Toth

Discussion Papers from Resources For the Future

Abstract: For years economists have urged policymakers to use market-based approaches such as cap-and-trade programs or emission taxes to control pollution. The SO2 allowance market created by Title IV of the 1990 U.S. Clean Air Act Amendments represents the first real test of the wisdom of economists’ advice. Subsequent urban and regional applications of NOx emission allowance trading took shape in the 1990s in the United States, culminating in a second large experiment in emission trading in the eastern United States that began in 2003. This paper provides an overview of the economic rationale for emission trading and a description of the major U.S. programs for sulfur dioxide (SO2) and nitrogen oxides (NOx). We evaluate these programs along measures of performance including cost savings, environmental integrity, and incentives for technological innovation. We offer lessons for the design of future programs including, most importantly, those reducing carbon dioxide.

Keywords: sulfur dioxide; nitrogen oxides; emission trading; power plants; air pollution (search for similar items in EconPapers)
JEL-codes: H23 Q25 Q28 D78 (search for similar items in EconPapers)
Date: 2005-03-06
New Economics Papers: this item is included in nep-ene, nep-env and nep-pbe
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