The environment and economics the impact of restricting the SO2 allowance market

Abstract This paper analyzes the effects of several types of regulatory policy on the operation of the SO2 allowance trading system established in the UC Clean Air Act Amendments of 1990 (CAAA). Theoretically, such a system can achieve environmental goals at least cost. However, regional environmental and employment concerns have suggested regulations in some states that will restrict full market operation, thereby negating many of the efficiency gains that market based regulation is designed to capture. This paper determines the costs of these regulatory interventions. These costs can be compared with employment and environmental impacts to assist policy makers in their regulatory decisions.