Working Paper

The Market-based Lead Phasedown

Nov 20, 2003 | Richard G. Newell, Kristian Rogers


The U.S. lead phasedown was effective in meeting its environmental objectives, and did so morequickly with the allowance of permit banking. The marketable lead permit system was highly costeffective,saving hundreds of millions of dollars relative to comparable policies not allowing trading orbanking. Estimates suggest that transaction costs brought about only a modest reduction in programefficiency. The market-based nature of the program also provided incentives for more efficient adoptionof new lead-removing technology, relative to a uniform standard. Distributionally, it is likely that theprogram was actually more responsive to the cost concerns of small refiners than a similar uniformstandard would have been. The flexibility of the program likely increased the amount of violations,however, and added an unexpected monitoring and enforcement burden. On the other hand, one of theefficiency advantages of the incentive-based program is that it provided opportunities for unanticipatedmeans of cost-effective compliance.