Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
The SO2 Allowance Trading System: The Ironic History of a Grand Policy Experiment
Journal of Economic Perspectives
(pp. 103–22)
(Complimentary)
Abstract
Two decades have passed since the Clean Air Act Amendments of 1990 launched a grand experiment in market-based environmental policy: the SO2 cap-and-trade system. That system performed well but created four striking ironies: First, by creating this system to reduce SO2 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 SO2 market, demonstrating that what the government gives, the government can take away.Citation
Schmalensee, Richard, and Robert N. Stavins. 2013. "The SO2 Allowance Trading System: The Ironic History of a Grand Policy Experiment." Journal of Economic Perspectives 27 (1): 103–22. DOI: 10.1257/jep.27.1.103JEL Classification
- K32 Environmental, Health, and Safety Law
- L51 Economics of Regulation
- L94 Electric Utilities
- Q53 Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
- Q54 Climate; Natural Disasters; Global Warming
- Q58 Environmental Economics: Government Policy