Where are the sky's limits? Lessons from Chicago's cap-and-trade program

Environment

Volumn 49, Issue 2, 2007, Pages 18-32

  Evans, David A ^a,b   Kruger, Joseph A ^c  

^a RESOURCES FOR THE FUTURE   (United States)

^b UNIVERSITY OF MARYLAND   (United States)

^c National Commission on Energy Policy   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 34547930705     PISSN: 00139157     EISSN: None     Source Type: Journal    
DOI: 10.3200/ENVT.49.2.18-32     Document Type: Review

References (29)

1. X," Annual Review of Environment and Resources 30 (Palo Alto, CA: Annual Reviews, 2005): 254-89.
2. X is a byproduct of combustion. Also note that although typically regulated for ozone control, some VOMs are federally regulated as hazardous air pollutants.
3. Illinois Environmental Protection Agency (IEPA), Emissions Reduction Market System Adoption of 35 Illinois Administrative Code 205 and Amendments to 35 Illinois Administrative Code 106: Statement of Reasons (Springfield, IL, 1996).
4. IEPA, Design For VOM Emissions Trading System, (Springfield, IL, 1996).
5. Created by the 1990 Clean Air Act Amendments, the Clean Air Act Permit Program centralizes federal, state, and local reporting requirements into one document for facilities that, in severe nonattainment regions, emit more than 25 tons of criteria pollutants per year.
6. IEPA, Technical Support Document for VOM Emissions Reduction Market System (Springfield, IL, 1996).
7. J. P. Montero, J. M. Sanchez, and R. Katz, "A Market-Based Environmental Policy Experiment in Chile." Journal of Law and Economics XLV, no. 1, (2002): 267-87.
8. D. Evans and J. Kruger. "Taking Up the Slack: Lessons from a Cap and Trade Program in Chicago," Resources for the Future Discussion Paper 06-32, Washington, DC, July 2006.
9. 2 cap had there not been a ratchet. See B. J. McLean, "Evolution of Marketable Permits: The U.S. Experience with Sulfur Dioxide Trading," International Journal of Environment and Pollution 8, no. 1/2 (1997): 19-36. This feature, sometimes known as a "compliance factor," was also present in allowance allocation methodologies put forward in some European Union member state national allocation plans in the European Union Emissions Trading Scheme.
10. R. F. Kosobud, H. H. Stokes, C. D. Tallarico, and B. L. Scott, "The Chicago VOC Trading System: The Consequences of Market Design for Performance." MIT CEEPR Working Paper WP-2004-019 (Boston, MA, 2004), http://web.mit.edu/ceepr/www/2004-019.pdf (accessed 13 March 2005).
11. U.S. EPA, Table of Final MACT Rules, http://www.epa.gov/ttn/atw/ mactfnl.html (accessed 30 March 2006).
12. U.S. EPA, Taking the Toxics Out of the Air, EPA-452/K-00-002 (Washington, DC, 2000) http://www.cpa.gov/oar/oaqps/takingtoxics/airtox.pdf (accessed 23 March 2006).
13. A definitive determination is difficult because IEPA does not know for certain if a source is affected by a particular rule until the source goes through a CAAPP permitting process. The promulgation of a hazardous air pollutant rule is not cause to reassess the permit of any source that may be affected. Also note that the technologies that abate hazardous air pollutant VOMs often do not discriminate. When used, they also abate non-hazardous-air- pollutant VOMs that are present with the hazardous air pollutant VOMs.
14. Evans and Kruger, note 8 above.
15. No attempt is made here to identify why these sources shut down or why they have not been replaced by new sources of emissions. However, possible reasons could include economic downturn, differential regulation of existing and new sources, and differential treatment of industry inside and outside nonattainment areas.
16. IEPA, note 4 above.
17. One hypothesis not explored here is whether some underlying causes of source shutdown, say, reduced economic activity in the relevant sectors, is also influencing emissions from sources that have remained in existence, See Evans and Kruger, note 8 above.
18. W. J. Baumol and W. E. Oates. The Theory of Environmental Policy (New York: Cambridge University Press, 1988).
19. A. B. Jaffe, R. G. Newell, and R. N. Stavins, "Technological Change and the Environment," in K.-G. Mäler and J. Vincent, eds., Handbook of Environmental Economics (Amsterdam: North-Holland/Elsevier Science, 2003);
20. and T. Sterner, Policy Instruments for Environment and Natural Resource Management (Washington, DC: Resources for the Future, 2003).
21. The question of whether the ERMS target was justified from a cost and benefit perspective is not addressed here. Nevertheless, it is important to remember that this is a critical piece for judging the program's overall performance.
22. Burtraw et al., note I above.
23. This is a general discussion of types of mechanisms and is not necessarily in the context of ERMS, where statutory restrictions may limit their introduction.
24. See, for example, W. A. Pizer, "Combining Price und Quantity Controls to Mitigate Global Climate Change," Journal of Public Economics 85, no. 3 (2002): 409-34.
25. Testimony of Joel Bluestein before the Committee on Environment and Public Works, Subcommittee on Clean Air, Climate Change and Nuclear Safety, United States Senate, 8 May 2003. http://epw.senate.gov/108th/Bluestein_050803. pdf (accessed 1 April 2006).
26. C. M. Hepburn et al., "Auctioning of EU ETS Phase II Allowances: How and Why?" Climate Policy 6, no. 1 (2006) 135-58.
27. This could change, of course, if IEPA decides to lower the ERMS cap to meet the new 8-hour ozone standard, as it is considering. See IEPA, Annual Performance Review Report-2005: Emissions Reduction Market System, http://www.epa.state.il.us/air/erms/apr/indcx.html (accessed 1 May 2006).
28. IEPA, note 6 above.
29. Of course, these policies may have resulted in lower emissions than what was realized under ERMS, depending on the extent to which they applied to sources that did not shut down. For more on the difficulty of predicting the behavior of counterfactual regulations for ERMS. see "Approval and Promulgation of Implementation Plans; Illinois Trading Program" Federal Register 66, no. 199: 52343-59.