Political obstacles to the implementation of emissions markets: Lessons from RECLAIM

Natural Resources Journal

Volumn 40, Issue 3, 2000, Pages 643-693

  Thompson, Dale B ^a  

^a VIRGINIA POLYTECHNIC INSTITUTE AND STATE UNIVERSITY   (United States)

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EID: 23044522046     PISSN: 00280739     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (234)

1. See generally J.H. DALES, POLLUTION, PROPERTY, AND PRICES (1968);
2. THOMAS H. TIETENBERG, EMISSIONS TRADING (1985);
3. Robert W. Hahn & Robert N. Stavins, Incentive-Based Environmental Regulation: A New Era from an Old Idea?, 18 ECOLOGY L.Q. 1, 8-10 (1991).
4. Actual emissions markets in the United States include the EPA Emissions Trading program involving Bubbles and Netting, the Lead (in gasoline) Trading program, the Chloroflurocarbon (CFC) program under the Montreal Protocol, the Acid Rain program, and RECLAIM. For analysis of the Emissions Trading program, see generally Richard Stewart, Economics, Environment, and the Limits of Legal Control, 9 HARV. ENVTL. L. REV. 1 (1985);
5. Robert W. Hahn & Gordon L. Hester, Where Did All the Markets Go? An Analysis of EPA's Emissions Trading Program, 6 YALE J. ON REG. 109 (1989).
6. For the Lead Trading program, see generally Robert W. Hahn, Economic Prescriptions for Environmental Problems: How the Patient Followed the Doctor's Orders, 3 J. ECON. PERSP. 95 (1989).
7. For the CFC program, see generally Robert H. Hahn & Albert McGartland, The Political Economy of Instrument Choice: An Examination of the U.S. Role in Implementing the Montreal Protocol, 83 NW. U. L. REV. 592 (1989).
8. For the Acid Rain program, see generally Paul L. Joskow et al., The Market for Sulfur Dioxide Emissions, 88 AM. ECON. REV. 669 (1998).
9. For market advocates, see for example, Bruce A. Ackerman & Richard B. Stewart, Reforming Environmental Law, 37 STAN. L. REV. 1333 (1985);
10. Robert H. Hahn & Gordon L. Hester, Where Did All the Markets Go? An Analysis of EPA's Emissions Trading Program, 6 YALE J. ON REG. 109 (1989).
11. For CAC advocates, see Howard Latin, Ideal versus Real Regulatory Efficiency: Implementation of Uniform Standards and "Fine-Tuning" Regulatory Reforms, 37 STAN. L. REV. 1267 (1985).
12. The Environmental Defense Fund is the most notable exception. See Robert W. Hahn, United States Environmental Policy: Past, Present and Future, 34 NAT. RESOURCES J. 305, 332 (1994).
13. See, e.g., Vivien Foster & Robert W. Hahn, Designing More Efficient Markets: Lessons from Los Angeles Smog Control, 38 J.L. & ECON. 19, 44 (1995);
14. Robert W. Hahn, Economic Prescriptions for Environmental Problems: How the Patient Followed the Doctor's Orders, 3 J. ECON. PERSP. 95, 110 (1989);
15. Robert W. Hahn & Gordon L. Hester, Marketable Permits: Lessons for Theory and Practice, 16 ECOLOGY L.Q. 361, 363 (1989);
16. ROBERT N. STAVINS & ROBERT W. HAHN, TRADING IN GREEN HOUSE PERMITS: A CRITICAL EXAMINATION OF DESIGN AND IMPLEMENTATION ISSUES (Harvard John F. Kennedy School of Government Working Paper No. R93-15, 1993).
17. See generally Paul L. Joskow & Richard Schmalensee, The Political Economy of Market-Based Environmental Policy: The U.S. Acid Rain Program, 41 J.L. & ECON. 37 (1998);
18. Karl Hausker, The Politics and Economics of Auction Design in the Market for Sulfur Dioxide Pollution, 11 J. POL'Y ANALYSIS & MGMT. 19 (1995).
19. See Gary S. Becker, A Theory of Competition among Pressure Groups for Political Influence, 98 Q.J. ECON. 371, 373 (1983).
20. See James Buchanan & Gordon Tolluck, Polluters Profits and Political Response: Direct Controls versus Taxes, 65 AM. ECON. REV. 139, 140 (1975).
21. See Robert H. Hahn & Albert McGartland, The Political Economy of Instrument Choice: An Examination of the U.S. Role in Implementing the Montreal Protocol, 83 NW. U. L. REV. 592, 606 (1989).
22. See, e.g., Barton H. Thompson, Jr., The Search for Regulatory Alternatives, 15 STAN. ENVTL. L.J. 8, 17-18 (1996).
23. For a good discussion of public choice theory and its application to environmental regulation, see Jonathan B. Wiener, On the Political Economy of Global Environmental Regulation, 87 GEO. L.J. 749 (1999).
24. See, e.g., BRUCE A. ACKERMAN & WILLIAM T. HASSLER, CLEAN COAL/DIRTY AIR 116-28 (1981);
25. Robert Crandall, Economic Rents as a Barrier to Deregulation, 6 CATOJ. 173, 192-93 (1986).
26. See Gordon Brady et al., Political Limits of the Market for BAT Medallions, 14 REG. 61, 63-64 (1990).
27. See Crandall supra note 12, at 173.
28. See Brady et al., supra note 13, at 63-64.
29. See Nathaniel Keohane et al., The Choice of Regulatory Instruments in Environmental Policy, 22 HARV. ENVTL. L. REV. 313 (1998).
30. Recall that limiting entry lessens competition. With less competition, existing firms can generate rents through higher profits.
31. As will be discussed later, these permits have opportunity costs because they can be sold to firms emitting these pollutants.
32. See S. COAST Am QUALITY MANAGEMENT DIST., RECLAIM, FEASIBILITY STUDY SUMMARY: SUMMARY RECOMMENDATIONS 2-1 to 2-2 (1992) [hereinafter FEASIBILTTY SUMMARY RECOMMENDATIONS];
33. S. Coast Air Quality Management Dist., I RECLAIM EX-7 (1994) [hereinafter RECLAIM VOL. I].
34. See generally Martin Weitzman, Prices vs. Quantities, 41 REV. ECON. STUD. 477 (1974);
35. Marc J. Roberts & Michael Spence, Effluent Charges and Licenses under Uncertainty, 5 J. PUB. ECON. 193 (1976);
36. Richard V. Butler & Michael D. Maher, The Control of Externalities in a Growing Urban Economy, 20 ECON. INQUIRY 155 (1982).
37. See RECLAIM VOL. I, supra note 19, at EX-8.
38. See, e.g., id. at 5-15 to 5-16 tbl.5-2 (listing District Rules A-C-05, P-B-01, P-B-02, P-B-6, P-C-02, P-C-04 to P-C-08, P-F-01, P-F-02).
39. See REGULATORY FLEXIBILITY GROUP, THE OPEN MARKET ALTERNATIVE TO VOC RECLAIM 11-16 (1996).
40. The Los Angeles Basin includes the counties of Los Angeles, San Bernardino, Orange, and Riverside.
41. For instance, electric utilities were tightly regulated under Rule 1135, "Emissions of Oxides of Nitrogen from Electric Power Generating Systems,"
42. refineries under Rule 1109, "Emissions of Oxides of Nitrogen from Boilers and Process Heaters in Petroleum Refineries."
43. See RECLAIM VOL. I, supra note 19, at EX-3.
44. See id. at apps.I-B-1, I-B-2.
45. See S.COAST AIR QUALITY MANAGEMENT DIST., 1994 AIR QUALTTY MANAGEMENT PLAN 3-6 tbl.3-2A (1994) [hereinafter 1994 AQMP].
46. See id.
47. See generally S. COAST AIR QUALITY MANAGEMENT DIST., 2 RULES AND REGULATIONS (1994) [hereinafter RULES AND REGULATIONS].
48. See 1994 AQMP, supra note 28, at 3-6 tbl.3-2A.
49. California Clean Air Act of 1988, 1988 Cal. Adv. Legis. Serv. 1568 (Deering) (codified in scattered sections of California Health & Safety Code).
50. See CAL. HEALTH & SAFETY CODE § 40914 (West 1996);
51. see also RECLAIM VOL. I, supra note 19, at EX-20.
52. See Clean Air Act Amendments of 1990, Pub. L. No. 101-549, 104 Stat. 2399, 2399-2712 (codified at 42 U.S.C. §§ 7401-7671q (1994)).
53. See id. at § 178 (defining nonattainment).
54. See id. at § 172 (describing nonattainment plans in general).
55. See generally id. at § 182 (describing nonattainment plans in greater detail for Marginal, Moderate, Serious, Severe and Extreme Areas).
56. See id.
57. See id. at § 182(c)(2).
58. See generally id. at § 182.
59. See 1994 AQMP, supra note 28, at 5-10 tbl.5-2.
60. See Clean Air Act Amendments of 1990, Pub. L. No. 101-549, 104 Stat. 2399, 2399-2712 § 182(g)(4) (codified at 42 U.S.C. § 7511a (1994)).
61. See RECLAIM VOL I, supra note 19, at EX-20 to EX-21.
62. Consumer products include paints, solvents, deodorants, hairspray, and many other items.
63. See RECLAIM VOL. I, supra note 19, at EX-2 to EX-5.
64. See id. at EX-1 to EX-2.
65. See id. at EX-6.
66. See, e.g., DAVID HARRISON & ALBERT NICHOLS, MARKET-BASED APPROACHES TO REDUCE THE COST OF CLEAN AIR IN CALIFORNIA'S SOUTH COAST BASIN 50 (1990).
67. See id.
68. See RECLAIM VOL. I, supra note 19, at EX-6 to EX-7.
69. See id.
70. See id. at EX-6.
71. See FEASIBILITY SUMMARY RECOMMENDATIONS, supra note 19, at 2-1 to 2-2;
72. RECLAIM VOL. I, supra note 19 at EX-7.
73. See RECLAIM VOL. I, supra note 19 at EX-7.
74. See id. at EX-6 to EX-7.
75. See id. at EX-6.
76. See id.
77. See id.
78. See id. at 1-4.
79. See id.
80. See Telephone Interview with Robert Wyman, Partner, Latham & Watkins (Mar. 18, 1996).
81. See id.
82. See Comment Letter #4 from Gail Ruderman Feuer, Senior Staff Attorney Natural Resources Defense Council, et. al. to James M. Lents, Executive Officer, South Coast Air Quality Management District (Sept. 7, 1993), reprinted in S. COAST AIR QUALITY MANAGEMENT DIST., III RECLAIM app.III-I (1994) [hereinafter RECLAIM VOL. III].
83. See RECLAIM VOL I, supra note 19, at 1-4.
84. See id.
85. See South Coast Air Quality Management District, Annual RECLAIM Audit Report for the 1996 Compliance Year (visited June 4, 2000) 〈http://www.aqmd.gov/hb/980342a.html〉.
86. See id.
87. See S. Coast Air Quality Management Dist, Steering Committee Meeting (Dec. 5, 1995) (Slide: VOC RECLAIM Allocations vs. Reported Emissions on file with author).
88. See Clean Air Act Amendments of 1990, Pub. L.No. 101-549, 104 Stat.2399, 2399-2712 § 182(c) (codified at 42 U.S.C. § 7511a (1994)).
89. See XUAN VU ET AL., S. COAST AIR QUAUTY MANAGEMENT DIST., 1 RECLAIM FOR VOLATILE ORGANIC COMPOUNDS EX-6 (1995).
90. See id.
91. See Telephone Interview with Robert Wyman, supra note 61.
92. See VU ET AL., supra note 70, at EX-6.
93. See RECLAIM VOL. I, supra note 19, at EX-21.
94. See VU ET AL., supra note 70, at EX-6.
95. See SURESH CHAURUSHIYA ET AL., S. COAST AIR QUALITY MANAGEMENT DIST., TECHNOLOGY REVIEW FOR ADHESIVES, COATINGS, INKS, AND SOLVENTS 1-1 to 1-2 (1996).
96. See REGULATORY FLEXIBILITY GROUP, THE OPEN MARKET ALTERNATIVE TO VOC RECLAIM 6 (1996).
97. See id. at 8.
98. See generally Gail Ruderman Feuer et al., Comments on the May 9, 1995 Proposed VOC RECLAIM Rules and Proposed Amended Rules 2011, 2012 (July 6, 1995) (unpublished manuscript, on file with author).
99. See Telephone Interview with Robert Wyman, supra note 61.
100. See id.
101. Possible instruments include taxes, permits, regulation, no action, and others.
102. See generally COMPARATIVE DISADVANTAGES?: SOCIAL REGULATIONS AND THE GLOBAL, ECONOMY (Pietro Nivola ed., 1997) for examples of how differences in representation affect choices made in trade policies.
103. See ANTHONY DOWNS, AN ECONOMIC THEORY OF DEMOCRACY 3-11 (photo, reprint 1977) (1957) (discussing rationality in general).
104. See James Q. Wilson, The Politics of Regulation, in THE POLITICS OF REGULATION 357, 370-72 (James Q. Wilson, ed. 1980).
105. See id.
106. See William W. Buzbee, Brownfields, Environmental Federalism, and Institutional Determinism, 21 WM. & MARY ENVTL. L. & POL'Y REV. 1 (1997) for additional discussion of political entrepreneurship.
107. See E. Donald Elliott et al., Toward a Theory of Statutory Evolution: The Federalization of Environmental Law, 1 J.L, ECON. & ORG. 313, 335 (1985).
108. See id. at 337.
109. See generally Paul L. Joskow, Pricing Decisions of Regulated Firms: A Behavioral Approach, 4 BELL J. ECON. 118 (1973);
110. Paul L. Joskow, Inflation and Environmental Concern: Structural Change in the Process of Public Utility Price Regulation, 17 J.L. & ECON. 291 (1974).
111. Consumers will not respond as long as their expected loss from a political decision is less than the costs of their response. The costs of their response stay constant, but with greater effort by the political entrepreneur, the consumers' perception of expected loss from the political decision may rise to the point where they are triggered into action.
112. See HARRISON & NICHOLS, supra note 48, at 50.
113. See id.
114. Such as auto body shops.
115. See ECLECTICA, A SURVEY OF ATTITUDES AND OPINIONS OF PROSPECTIVE REGIONAL CLEAN AIR INCENTIVES MARKET PARTICIPANTS 15 (1993).
116. See id. at 21.
117. See id. at 22-24.
118. See SMALL BUSINESS COALTION, RECLAIM: THE SMALL BUSINESS PERSPECTIVE 19 fig.8 (1992).
119. See id. at 15.
120. None of the seventeen letters sent as comments to the NOx/SOx RECLAIM proposal was written by these sources, or their representatives. See RECLAIM VOL. III, supra note 63 at app. III-H (1993).
121. Abatement costs are the costs of reducing pollution. They can include the costs of equipment to clean emissions, the costs of adopting alternative, lower-polluting processes or products, and other costs associated with attempts to reduce emissions by a source.
122. See HARRISON & NICHOLS, supra note 48, at 99-100.
123. See id. at 100.
124. See Larry B. Stammer, AQMD Rejects Key Smog Proposals in Blow to Businesses, LOS ANGELES TIMES, Aug. 8, 1992, at A1 ("Immediately after the vote to reject the nine key proposals, one businessman vowed to mount a grass-roots campaign to oust AQMD board members who had voted against the pro-business proposals.");
125. Jeffry A. Perlman, Smog Rules Driving firms Out of Area, LOS ANGELES TIMES, Mar. 17, 1992, at B1;
126. Judy Pasternak, Complaints by Industry Spur AQMD Shift, LOS ANGELES TIMES, Nov. 7, 1991, at A3 ("Prompted by complaints that clean-air rules are driving industries away or out of business, the S. Coast Air Quality Management Dist. on Wednesday announced a series of reforms of its complex bureaucratic processes.");
127. Judy Pasternak, AQMD Approves Changes to Region's Clean Air Plan, LOS ANGELES TIMES, July 13, 1991, at A1 ("About a dozen pickets outside the hotel's entrance [at a public hearing of the District Board] held signs reading 'SCAQMD Unfair to Business.'").
128. If all three groups received permits, a product that generated one ton of emissions would lead to the issuance of 3 tons of permits, and consequently 3 tons of emissions.
129. See HARRISOM & NICHOLS, supra note 48, at 99-100.
130. Recall that marginal abatement costs of consumer products are extremely low, while businesses' MACs are higher.
131. See FEASIBILITY SUMMARY RECOMMENDATIONS, supra note 19, at 2-1 to 2-2; VU ET AL., supra note 70 at EX-7 to EX-8.
132. Because of the complexity of command-and-control regulatory implementation, it takes a long time to fully implement CAC regulations. Also, the participatory process of CAC regulation enables negotiation that might favor sources that are directly involved in the negotiations at the expense of sources not directly involved.
133. See HARRISON & NICHOLS, supra note 48, at 122. Their estimate assumed that the car would emit 100 pounds of NOx and 50 pounds of VOCs. See id.
134. The retail price of California emissions equipment on a 1998 Ford Taurus is $170. See Edmunds.com, The 1998 Ford Taurus LX Sedan, (visited June 4, 2000) 〈http://www.edmunds.com/newcars/1998/ford/taurus/lxsedan.html〉.
135. See RECLAIM VOL. I, supra note 19, at EX-8.
136. This plan was submitted to the federal EPA in order to comply with the California Clean Air Act of 1988, 1988 Cal. Adv. Legis. Serv. 1568 (Deering) § 172 (codified in scattered sections of California Health & Safety Code).
137. See RECLAIM VOL. I, supra note 19, at 5-13.
138. See id. at EX-10.
139. Without new source permits, no construction of new facilities emitting these pollutants could take place.
140. See Hahn & Hester, supra note 3, at 111.
141. See RECLAIM VOL. I, supra note 19 at 5-15 to 5-16 tbl.5-2.
142. See id. at 1-4.
143. See id. at EX-3.
144. See id. at EX-8.
145. This feature was not expected to be widely used and, hence, would have little effect on equilibrium prices of these cars. Indeed, there was a limit of 30,000 vehicles per year. See RULES AND REGULATIONS, supra note 30, at 2008-1.
146. See RECLAIM VOL. I, supra note 19, at EX-8 to EX-9.
147. See id. at EX-8.
148. See id. at EX-9.
149. See Telephone Interview with Jack Broadbent, NOx/SOxProgramManager, S. Coast Air Quality Management Dist., (July 12, 1996).
150. See id.
151. See RULES AND REGULATIONS, supra note 30, at 1109-1 and 1146-1.
152. See RECLAIM VOL. I, supra note 19, at 2002-8 to 2002-9 app.I-A (reprinting Rule 2002).
153. See RECLAIM VOL. I, supra note 19, at 5-13.
154. See id. at 5-15 to 5-16.
155. See id. at 2002-8 to 2002-9 app.I-A (reprinting Rule 2002).
156. See S. COAST AIR QUALTTY MANAGEMENT DIST., II RECLAIM app.II-C-5 (1993) [hereinafter RECLAIM VOL II].
157. Recall that because of representation bias, we will only consider contributions from local businesses.
158. Recall that they could purchase permits from facilities with lower MAC, and the price paid would be slightly higher than these lower MAC.
159. See Telephone Interview with Robert Wyman, supra note 61.
160. See Marla Cone, Smog Market Set to Open in Southland, Los ANGELES TIMES, Dec. 28, 1993, at B1.
161. See Richard D. Farman, Perspective on Pollution. RECLAIM: Can the Regional Clean Air Incentive Program Work?, Los ANGELES TIMES, Oct. 13, 1993, at B7. The chief message of this editorial by Farman, Chief Executive Officer of the Gas Company, was that RECLAIM was "unfair to smaller facilities." See id.
162. See generally Feuer et al., supra note 79.
163. See id.
164. See Telephone Interview with Jack Broadbent, supra note 126.
165. Despite the strong opposition, the program was adopted anyway.
166. The number of constituents represented by these groups was much lower than the number of constituents who had jobs with or were consumers of the large businesses supporting the program.
167. See RECLAIM VOL. I, supra note 19, at EX-28.
168. See Interview with Anupom Ganguli, VOC Program Manager, S. Coast Air Quality Management Dist, in Diamond Bar, Cal. (July 24, 1996).
169. Clean Air Act Amendments of 1990, 42 U.S.C. § 7511b (1994).
170. Something that was protested vigorously by environmental groups.
171. This is because the demand for gasoline and electricity is relatively inelastic to changes in income.
172. See S. COAST AIR QUALTTY MANAGEMENT DIST., 1997 AIR QUALITY MANAGEMENT PLAN, 3-8 tbls. 3-1A and 3-1B, 3-9 tbls. 3-2A and 3-2B, 3-10 tbls.3-3A and 3-3B (1997).
173. See id.
174. See 1994 AQMP, supra note 28, at 6-2.
175. Recall that inventories are required every three years.
176. See Interview with Anupom Ganguli, supra note 145.
177. See id.
178. See VU ET AL., supra note 70, at EX-7.
179. See id. at 5-13.
180. See id. at 5-15.
181. Recall that 1989 was less affected by the severe recession suffered by the Los Angeles Basin.
182. See S. Coast Air Quality Management Dist, Steering Committee Meeting (Dec. 5, 1995) (Slide: VOC RECLAIM Allocations vs. Reported Emissions on file with author).
183. See id.
184. See Interview with Anupom Ganguli, supra note 145.
185. See Clean Air Act Amendments of 1990,42 U.S.C. § 7511a (1994) (describing 3 percent rule).
186. See Interview with Anupom Ganguli, supra note 145.
187. See id.
188. See id.
189. See id.
190. See VU ET AL., supra note 70, at EX-8.
191. See id.
192. See id. at EX-9. The measures this refers to are the twelve "Potential Substitute Measures" (CTS-A through CTS-L) in chapter four of the 1994 AQMP.
193. See 1994 AQMP, supra note 28, at 4-6 tbl. 4-1.
194. See VU ET AL., supra note 70, at EX-6.
195. See CHAURUSHIYA ET AL., supra note 76, at 3-12 (listing "key contacts").
196. See id. at 3-1 to 3-12, 11-3 to 11-7; see also Interview with Anupom Ganguli, supra note 145.
197. See CHAURUSHIYA ET AL., supra note 76, at 3-1 to 3-12, 11-3 to 11-7; see also Interview with Anupom Ganguli, supra note 145.
198. See Interview with Anupom Ganguli, supra note 145.
199. See REGULATORY FLEXIBILITY GROUP, supra note 23, at 11 (1996).
200. See id.
201. See id. at 15-16.
202. See id.
203. See Letter from Robert Wyman, Partner, Latham & Watkins, to Dale B. Thompson, Visiting Assistant Professor, Virginia Tech (Aug. 20, 1997) (on file with author).
204. See SMALL BUSINESS COALITION, RECLAIM: THE SMALL BUSINESS PERSPECTIVE 15 (1992);
205. see generally ECLECTICA, A SURVEY OF ATTITUDES AND OPINIONS OF PROSPECTIVE REGIONAL CLEAN AIR INCENTIVES MARKET PARTICIPANTS (1993).
206. See ECLETICA, supra note 95 at 29.
207. See id.
208. See Telephone Interview with Robert Wyman, supra note 61; Letter from Robert Wyman to Dale B. Thompson, supra note 179.
209. Letter from Robert Wyman to Dale B. Thompson, supra note 179.
210. Recall that risks affect capital costs.
211. See REGULATORY FLEXIBILITY GROUP, supra note 23, at 15.
212. See id.
213. For further discussion of static and dynamic advantages of incentive based policies, see Dale B. Thompson, An Examination of the Consequences of Political, Administrative, and Legal Institutions on the Implementation and Performance of Environmental Policies 37,39-40 (1998) (unpublished Ph.D. dissertation, Stanford University) (on file with author).
214. See Telephone Interview with Robert Wyman, supra note 61.
215. See Letter from Robert Wyman to Dale B. Thompson, supra note 179.
216. See Interview with Anupom Ganguli, supra note 145.
217. See generally Feuer et al., supra note 79.
218. Under CAC, each facility has a limit as to how much emissions it can produce. Under an emissions market, a single facility is allowed to purchase a large quantity of permits and produce a significantly higher level of emissions. This concentration of emissions can then lead to a hot spot.
219. To see these changes, compare the board composition between the 1994 and 1997 AQMPs, found in each year's AQMP.
220. See Telephone Interview with Jack Broadbent, supra note 126; Telephone Interview with Robert Wyman, supra note 61.
221. See Interview with Anupom Ganguli, supra note 145.
222. See generally Weitzman, supra note 20.
223. The ultimate choice of the estimate will represent a division in allocation. For instance, in estimating technological advances of abatement technology, the estimate of this advance will divide our endowment of environmental quality between sources that pollute and groups that value an unpolluted environment.
224. See generally Butler & Maher, supra note 20.
225. See REGULATORY FLEXIBILITY GROUP, supra note 23, at 11-14.
226. See id.
227. See generally Butler & Maher, supra note 20.
228. See infra fig.A.
229. See generally Weitzman, supra note 20.
230. If the marginal benefit to society of pollution reduction is steeper than the marginal cost of abating that pollution, then a quantity-setting policy instrument will be more beneficial than a price-setting one. Similarly, a price-setting policy instrument will be preferred if the marginal cost curve is steeper than the marginal benefit curve. For further discussion, see Dale B. Thompson, supra note 188, at 118.
231. See infra fig.B.
232. See generally Roger G. Noll, Instrument Choice in Environmental Policy (unpublished manuscript, on file with author).
233. Uncertainty in technological change means that some party will have to bear the burden of this risk.
234. The lack of inventories and the consequential barrier to emissions markets is mentioned in Michael P. Vandenbergh, An Alternative to Ready, Fire, Aim: A New Framework to Link Environmental Targets in Environmental Law, 85 KY. L.J. 803, 858 (1996/1997).