NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Effect of Allowing Pollution Offsets With Imperfect Enforcement

Hilary Sigman, Howard F. Chang

NBER Working Paper No. 16860
Issued in March 2011
NBER Program(s):   EEE   LE

Public policies for pollution control, including climate change policies, sometimes allow polluters in one sector subject to an emissions cap to offset excessive emissions in that sector with pollution abatement in another sector. The government may often find it more costly to verify offset claims than to verify compliance with emissions caps. Concerns about such difficulties in enforcement may lead regulators to restrict the use of offsets. In this paper, we demonstrate that allowing offsets may increase pollution abatement and reduce illegal pollution, even if the government has a fixed enforcement budget. We explore the circumstances that may make allowing pollution offsets an attractive option when enforcement is costly.

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Published: Hilary Sigman & Howard F. Chang, 2011. "The Effect of Allowing Pollution Offsets with Imperfect Enforcement," American Economic Review, American Economic Association, vol. 101(3), pages 268-72, May.

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