The SO2 Allowance Trading System: The Ironic History of a Grand Policy Experiment

Citation:

Schmalensee, Richard, and Robert N Stavins. “The SO2 Allowance Trading System: The Ironic History of a Grand Policy Experiment.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2012.

Abstract:

Two decades have passed since the Clean Air Act Amendments of 1990 launched a grand experiment in market-based environmental policy: the {SO}2 cap-and-trade system. That system performed well but created four striking ironies. First, by creating this system to reduce {SO}2 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, since 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 {SO}2 market, demonstrating that what the government gives, the government can take away.

Last updated on 07/22/2015