Evaluation of Phase II Compliance with Title IV of the 1990 Clean Air Act Amendments

EPA Grant Number: R828630
Title: Evaluation of Phase II Compliance with Title IV of the 1990 Clean Air Act Amendments
Investigators: Ellerman, A. Denny , Joskow, Paul L. , Montero, Juan Pablo , Schmalensee, Richard
Institution: Massachusetts Institute of Technology
EPA Project Officer: Hunt, Sherri
Project Period: October 1, 2000 through March 31, 2003
Project Amount: $289,477
RFA: Market Mechanisms and Incentives for Environmental Management (2000) RFA Text |  Recipients Lists
Research Category: Economics and Decision Sciences

Description:

This research will conduct a detailed, ex-post evaluation of abatement responses and allowance market performance through the first few years of the Phase II under Title IV of the 1990 Clean Air Act Amendments, better known as the U.S. acid rain program. Particular emphasis will be placed on ascertaining abatement costs, determining the cost savings when compared to plausible "command and control" alternatives, and, more generally, analyzing the extent to which agents respond rationally to market incentives that reflect environmental goals. This grant extends the investigators' earlier research on Phase I of the acid rain program (Markets for Clean Air: the U.S. Acid Rain Program).

Objectives/Hypothesis:

Numerous studies have asserted that market mechanisms and incentives are superior to non-market alternatives, yet few empirical studies exist to verify this theoretical finding, in part because market mechanisms have been so little used. SO2 emissions trading now provides an unparalleled opportunity to test this finding. Accordingly, the objective of the research conducted under this grant will be to gauge the extent to which the relatively unfettered use of market mechanisms has met these theoretical expectations and more generally to understand how firms react when relatively well-defined property rights to the use of the environment are made available to them.

Approach:

The research plan consists of three main components. The first is a survey of operators of Phase II affected electric generating units concerning abatement cost, compliance strategies, and reliance on market mechanisms in 2000, the first year of Phase II. The second is the econometric estimation of how much Title IV has actually reduced emissions, given electricity generation in 2000 and ongoing trends in generation, fuel use, and SO2 emissions. The third element integrates this information on the cost and quantity of abatement with readily available emissions and allowance data to analyze how firms have responded to the market-based incentives in Title IV. Due attention will be given in this final integrating task to upstream responses by fuel suppliers.

Expected Results:

As was the case with the Phase I research by these investigators, this project will result in a number of publications, first as working papers by MIT's Center for Energy and Environmental Policy Research, and later as articles primarily but not exclusively in peer-reviewed academic journals. In addition, all of the investigators frequently speak and make presentations on emissions trading to a wide variety of audiences, and they will continue to do so using the results of this research. We expect that the end result of the research funded by this grant and of efforts to disseminate these research findings will be a better understanding on the part of policy-makers, regulators, researchers, and other interested parties of the potential for market mechanisms and incentives in managing environmental problems. This will lead to a more cost-effective allocation of federal and state environmental protection resources and an improved understanding of the cost of abatement in evaluating actions to address health risks and other environmental concerns.

Publications and Presentations:

Publications have been submitted on this project: View all 42 publications for this project

Journal Articles:

Journal Articles have been submitted on this project: View all 1 journal articles for this project

Supplemental Keywords:

air emissions, acid deposition, tradable permits, cap and trade systems, environmental property rights, cost effectiveness, RFA, Economic, Social, & Behavioral Science Research Program, Scientific Discipline, Economics and Business, Ecology and Ecosystems, Market mechanisms, environmental quality, market incentives, policy making, trading systems, decision making, environmental Compliance, Clean Air Act, abatement technology, tradable pollution permits, emissions trading, pollution allowance trading, public policy, allowance allocation, environmental economics, acid rain program

Progress and Final Reports:

  • 2001 Progress Report
  • 2002 Progress Report
  • Final Report