The Market for Sulfur Dioxide Emissions

The 1990 Clean Air Act Amendments initiated the first large-scale use of the tradable permit approach to pollution control. The theoretical case for this approach rests on the assumption of an efficient market for emission rights. Our empirical analysis shows that the emission rights market created...

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Bibliographic Details
Published in:The American economic review 1998-09, Vol.88 (4), p.669-685
Main Authors: Joskow, Paul L., Schmalensee, Richard, Bailey, Elizabeth M.
Format: Article
Language:English
Subjects:
Auction markets
Auctions
Emission allowances
Emissions trading
Environment
Environmental agencies
Environmental economics
Environmental policy
Market prices
Pollutant emissions
Pollution
Reservation prices
Sulfur dioxide
Trade
U.S.A
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Summary:The 1990 Clean Air Act Amendments initiated the first large-scale use of the tradable permit approach to pollution control. The theoretical case for this approach rests on the assumption of an efficient market for emission rights. Our empirical analysis shows that the emission rights market created by the 1990 Amendments had become reasonably efficient by mid-1994. We also show that the auctions specified in the Amendments to jump-start trading had become a small part of the overall market. Finally, we demonstrate that the strategic bidding behavior discussed in the literature has had no effect on market prices.
ISSN:0002-8282