Do Environmental Markets Cause Environmental Injustice? Evidence from California's Carbon Market
Market-based environmental policies are widely adopted on the basis of allocative efficiency. However, there is growing concern that market-induced spatial reallocation of pollution could widen existing pollution concentration gaps between disadvantaged and other communities. We estimate how this “environmental justice” (EJ) gap changed following the 2013 introduction of California's carbon market, the world's second largest and most subjected to EJ critiques. Embedding a pollution dispersal model within a program evaluation framework, we find that while EJ gaps across California for criteria air pollutants were widening prior to 2013, they have since fallen as a consequence of the carbon market.
This paper has benefited from comments by Maximilian Auffhammer, Spencer Banzhaf, Youssef Benzarti, Severin Borenstein, Jim Bushnell, Kelly Caylor, Marc Conte, Chris Costello, Olivier Deschenes, Meredith Fowlie, Corbett Grainger, Larry Goulder, Kelsey Jack, Arturo Keller, Gary Libecap, Emily Maynard, Andrew Plantinga, David Pellow, Ed Rubin, Jim Salzman, Sam Stevenson, Alisa Tazhitdinova, Chris Tessum, and Paige Weber. We are also grateful for feedback received at various seminars and conferences. Kent Strauss and Vincent Thivierge provided excellent research assistance. Use was made of computational facilities purchased with funds from the National Science Foundation (CNS-1725797) and administered by the Center for Scientific Computing (CSC). The CSC is supported by the California NanoSystems Institute and the Materials Research Science and Engineering Center (MRSEC; NSF DMR 1720256) at UC Santa Barbara. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
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