The Market for Sulfur Dioxide Allowances: What Have We Learned from the Grand Policy Experiment?

We quantify the cost savings from the Acid Rain Program (ARP) by comparing compliance costs for non-NSPS coal-fired generating units under the ARP with compliance costs under a uniform performance standard that achieves the same aggregate emissions. In 2002 we find cost savings of approximately $250 million (1995$). We also compare health damages associated with observed SO2 emissions from all ARP units with damages from a no-trade counterfactual. Damages under the no-trade scenario are $2.4 billion (2000$) lower than under the ARP, reflecting allowance transfers from units in the western to units in the eastern US with higher exposed populations.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

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