Do Environmental Markets Cause Environmental Injustice? Evidence from California's Carbon Market

Danae Hernandez-Cortes, Kyle C. Meng

NBER Working Paper No. 27205
Issued in May 2020
NBER Program(s):Environment and Energy Economics, Health Economics, Public Economics

Market-based environmental policies are widely adopted on the basis of allocative efficiency. However, there is a growing distributional concern that market forces could increase the pollution exposure gap between disadvantaged and other communities by spatially reallocating pollution. We estimate how this “environmental justice gap” changed following the 2013 introduction of California’s carbon market, the world’s second largest and the one most subjected to environmental justice critiques. Embedding a pollution transport model within a program evaluation framework, we find that while the EJ gap was widening prior to 2013, it has since fallen by 21-30% across pollutants due to the policy.

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Document Object Identifier (DOI): 10.3386/w27205