Efficient Pollution Regulation: Getting the Prices Right: Comment

The cost-effectiveness of cap-and-trade emissions regulations has become widely accepted. A 2009 proposal by Muller and Mendelsohn would replace conventional ton-for-ton trading with trading based on estimates of marginal damages by pollutant and by source. This proposal faces difficulties arising f...

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Bibliographic Details
Published in:The American economic review 2012-02, Vol.102 (1), p.602-607
Main Authors: Fraas, Art, Lutter, Randall
Format: Article
Language:English
Subjects:
Air pollution
Cost analysis
Cost efficiency
Cost estimates
Costs
Economic efficiency
Economic models
Economic theory
Emission standards
Emissions
Emissions regulations
Emissions trading
Environmental agencies
Environmental economics
Environmental regulation
Environmental regulations
Metropolitan areas
Particulate emissions
Pollutant emissions
Pollution
Pollution control
Regulation
Shorter Papers
Urban areas
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Summary:The cost-effectiveness of cap-and-trade emissions regulations has become widely accepted. A 2009 proposal by Muller and Mendelsohn would replace conventional ton-for-ton trading with trading based on estimates of marginal damages by pollutant and by source. This proposal faces difficulties arising from the negative marginal damage estimates - neglected in Muller and Mendelsohn (2009) - for nitrogen oxide (NOx) emissions from many urban counties. Such estimates imply nonconvexities in air chemistry that complicate trading and could result in trades that increase emissions by both buyer and seller. Uncertainty in source-specific damages also creates rent-seeking opportunities and the potential for costly litigation. JEL: H53, Q53, Q58 [PUBLICATION ABSTRACT]
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.102.1.602