The SO2 Allowance Trading System and the Clean Air Act Amendments of 1990: Reflections on Twenty Years of Policy Innovation

Gabriel Chan, Robert Stavins, Robert Stowe, Richard Sweeney

NBER Working Paper No. 17845
Issued in February 2012
NBER Program(s):Environment and Energy Economics, Industrial Organization, Public Economics, Political Economy

The introduction of the U.S. SO2 allowance-trading program to address the threat of acid rain as part of the Clean Air Act Amendments of 1990 is a landmark event in the history of environmental regulation. The program was a great success by almost all measures. This paper, which draws upon a research workshop and a policy roundtable held at Harvard in May 2011, investigates critically the design, enactment, implementation, performance, and implications of this path-breaking application of economic thinking to environmental regulation. Ironically, cap and trade seems especially well suited to addressing the problem of climate change, in that emitted greenhouse gases are evenly distributed throughout the world's atmosphere. Recent hostility toward cap and trade in debates about U.S. climate legislation may reflect the broader political environment of the climate debate more than the substantive merits of market-based regulation.

download in pdf format
   (431 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w17845

Published: AThe SO2 Allowance Trading System and the Clean Air Act Amendments of 1990: Reflections on 20 Years of Policy Innovation.@ National Tax Journal 65(2), June 2012, pp. 419-452. With G. Chan, R. Stowe, and R. Sweeney. [A-72]

Users who downloaded this paper also downloaded* these:
Schmalensee and Stavins w18306 The SO2 Allowance Trading System: The Ironic History of a Grand Policy Experiment
Borenstein, Bushnell, Knittel, and Wolfram w8620 Trading Inefficiencies in California's Electricity Markets
Hallegatte, Heal, Fay, and Treguer w17841 From Growth to Green Growth - a Framework
Hahn and Stavins w15854 The Effect of Allowance Allocations on Cap-and-Trade System Performance
Schmalensee and Stavins w21742 Lessons Learned from Three Decades of Experience with Cap-and-Trade
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us