THE SO2 EMISSIONS TRADING PROGRAM: COST SAVINGS WITHOUT ALLOWANCE TRADES

Title IV of the 1990 amendments to the Clean Air Act initiated a historic experiment in incentive-based environmental regulation by permitting electric generating facilities to trade allowances for emission of sulfur dioxide. To date, relatively little allowance trading has occurred. However, the costs of compliance have been much less than anticipated. The purpose of this paper is to address the apparent paradox—that the allowance trading program may not require (very much) trading in order to be successful. Title IV represented two great steps forward in environmental regulation: (i) a move toward performance standards and (ii) formal allowance trading. The first step has been sufficient to date for improving dynamic efficiency and achieving relative cost-effectiveness.     

COSTS AND BENEFITS OF REDUCING AIR POLLUTANTS RELATED TO ACID RAIN

The 1990 Clean Air Act Amendments initiated a dramatic reduction in emissions of sulfur dioxide and nitrogen oxides by electric power plants. This paper presents the results of an integrated assessment of the benefits and costs of the program. Dramatic uncertainties characterize the estimates especially with respect to the benefits of the program, many of which were modeled explicitly. The lion's share of benefits results from reduced risk of premature mortality, especially through reduced exposure to sulfates, and these expected benefits measure several times the expected costs of the program. Significant benefits also are estimated for improvements in health morbidity, recreational visibility, and residential visibility, each of which measures approximately equal to costs. Areas that were the focus of attention in the 1980s—including effects to soils, forests, and aquatic systems—still have not been modeled comprehensively, but evidence suggests that benefits in these areas are relatively small, at least with respect to "use values" for the environmental assets that are affected.