Emissions trading and distribution

Economists see emissions trading as desirable because they allow people and firms to trade away their responsibility to actually reduce emissions themselves. Others see this as a problem as it means the burden of that responsibility may be inequitably shared. A new paper by Meredith Fowlie, Stephen Holland and Erin Mansur looks at this issue and finds that the adverse distributional consequences of emissions reduction did not seem to occur in Southern California’s RECLAIM program.

[DDET Here is the abstract]

A perceived advantage of cap-and-trade programs over more prescriptive environmental regulation is that enhanced compliance flexibility and cost effectiveness can make more stringent emissions reductions politically feasible. However, increased compliance flexibility can also result in an inequitable distribution of pollution. We investigate these issues in the context of Southern California’s RECLAIM program. We match facilities in RECLAIM with similar California facilities also located in non-attainment areas. Our results indicate that emissions fell approximately 24 percent, on average, at RECLAIM facilities relative to our counterfactual. Furthermore, we find that observed changes in emissions do not vary significantly with neighborhood demographic characteristics.

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1 thought on “Emissions trading and distribution”

  1. Joshua,

    Interesting article.  For something slightly related, Michael Pascoe goes in to bat for a carbon tax in today’s SMH: http://business.smh.com.au/business/carbon-trading-stuffed-and-stuffing-business-20090611-c44c.html?page=-1

    What I find interesting is that people seem to think that the horse trading that goes on in relation to permit allocation won’t also apply to tax concessions under a carbon tax arrangement or the distribution of tax receipts.  The arguments that a carbon tax is somehow ‘pure’ or immune from political horse trading seem naive to me.  In an ideal world we would also have a full auction of permits with no grandfathering under an ETS and a secondary restructure of other taxes and concessions using the permit revenue to ease the burden of the scheme on the low income earners and EITEI’s, but the world isn’t perfect and a carbon tax wouldn’t be either.

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