Designing Markets for Pollution When Damages Vary
Across Sources : Evidence from the NOx Budget Program
RFF Academic Seminar
Assistant Professor at the University of California Berkeley, Department of Agricultural and Resource Economics
Friday, April 29, 2011
12 - 1:30 p.m.
Lunch will be provided
7th Floor Conference Center
1616 P St. NW
Washington, D.C. 20036
Existing and planned emissions trading programs are almost exclusively “emissions-based”, meaning that a permit can be used to offset a ton of pollution, regardless of where in the program region the ton is emitted. Designing programs in this way presumes that the health and environ- mental damages resulting from the permitted emissions are independent of where in the regulated region the emissions occur. A growing body of scientific evidence indicates that this is not the case for nitrogen oxides (NOx). When marginal damages from incremental emissions reductions vary significantly across sources, there is the potential to significantly improve the efficiency of permit market outcomes by using facility or region-specific marginal damage estimates to determine the terms of permit trading. We estimate the efficiency gains from “damage-based” trading in the context of a major NOx emissions trading program. We find that, under the damage-based trading regime, levelized annual abatement costs increase by an estimated $12 M ( i.e. less than 2 percent). However, damages associated with permitted emissions decrease by approximately $62 M annually. The net benefits under the policy that incorporates spatially differentiated trading increase by 17%, or almost $50M annually.
All seminars will be in the 7th Floor Conference Room at RFF, 1616 P Street NW. Attendance is open, but involves pre-registration no later than two days prior to the event. For questions and to register to an event, please contact Daniel McDermott at McDermott@rff.org (tel. 202-328-5174). Updates to our academic seminars schedule will be posted at www.rff.org/academicseminarseries.