Economics of Pollution Trading for SO2 and NOx

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Date

June 27, 2005

Authors

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

Publication

Journal Article

Reading time

1 minute

For years economists have urged policymakers to use market-based approaches such as cap-and-tradeprograms or emission taxes to control pollution. The SO2 allowance market created by Title IV of the1990 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 inthe United States, culminating in a second large experiment in emission trading in the eastern UnitedStates that began in 2003. This paper provides an overview of the economic rationale for emission tradingand a description of the major U.S. programs for sulfur dioxide (SO2) and nitrogen oxides (NOx). Weevaluate 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.

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Authors

Dallas Burtraw

Darius Gaskins Senior Fellow

Dallas Burtraw is the Darius Gaskins Senior Fellow at RFF. Burtraw’s research includes analysis of the distributional and regional consequences of climate policy and the evolution of electricity markets, including renewables integration.

David Evans

Alan Krupnick

Senior Fellow

Alan Krupnick is a senior fellow at RFF.

Karen Palmer

Senior Fellow

Karen Palmer is a senior fellow at Resources for the Future and an expert on the economics of environmental, climate and public utility regulation of the electric power sector.

Russell Toth

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