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Economic Assessment of the Regional Clean Air Incentives Market: A New Emissions Trading Program for Los Angeles

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  • Scott Lee Johnson
  • David M. Pekelney

Abstract

This article documents the methodology used to compare policy alternatives considered for RECLAIM, an emissions trading program for Los Angeles which commenced January 1994. RECLAIM reduces NO x and SO x emissions from stationary sources with declining emissions credit allocations. The emissions trading model (ETM) includes credit supply and demand, spatial restrictions, and opportunity costs of owning credits. The ETM solves interactively with a regional model that estimates economic impacts. Predicted emissions distributions are input into airshed and exposure models. The models predict similar improvements in air quality and public health as command and control regulations, but with lower costs and employment impacts.

Suggested Citation

  • Scott Lee Johnson & David M. Pekelney, 1996. "Economic Assessment of the Regional Clean Air Incentives Market: A New Emissions Trading Program for Los Angeles," Land Economics, University of Wisconsin Press, vol. 72(3), pages 277-297.
    • Handle: RePEc:uwp:landec:v:72:y:1996:i:3:p:277-297
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    Cited by:

    1. Stavins, Robert N., 2003. "Experience with market-based environmental policy instruments," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 1, chapter 9, pages 355-435, Elsevier.
    2. Gary D. Libecap, 2014. "Addressing Global Environmental Externalities: Transaction Costs Considerations," Journal of Economic Literature, American Economic Association, vol. 52(2), pages 424-479, June.
    3. Richard Schmalensee & Robert N. Stavins, 2019. "Policy Evolution under the Clean Air Act," Journal of Economic Perspectives, American Economic Association, vol. 33(4), pages 27-50, Fall.
    4. Chao-Ning Liao, 2009. "Technology adoption decisions under a mixed regulatory system of tradable permits and air pollution fees for the control of Total Suspended Particulates in Taiwan," Journal of Regulatory Economics, Springer, vol. 35(2), pages 135-153, April.
    5. Sovacool, Benjamin K., 2011. "The policy challenges of tradable credits: A critical review of eight markets," Energy Policy, Elsevier, vol. 39(2), pages 575-585, February.
    6. Robert W. Hahn & Robert N. Stavins, 2011. "The Effect of Allowance Allocations on Cap-and-Trade System Performance," Journal of Law and Economics, University of Chicago Press, vol. 54(S4), pages 267-294.
    7. Larson, Donald F. & Parks, Paul, 1999. "Risks, lessons learned, and secondary markets for greenhouse gas reductions," Policy Research Working Paper Series 2090, The World Bank.
    8. Liao, Chao-Ning, 2007. "Modelling a mixed system of air pollution fee and tradable permits for controlling nitrogen oxide: a case study of Taiwan," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 51(4), pages 1-16.
    9. Burtraw, Dallas & Evans, David A., 2009. "Tradable rights to emit air pollution," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 53(1), pages 1-26.
    10. Richard Schmalensee & Robert N. Stavins, 2017. "Lessons Learned from Three Decades of Experience with Cap and Trade," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 11(1), pages 59-79.
    11. Burtraw, Dallas & Szambelan, Sarah Jo, 2009. "U.S. Emissions Trading Markets for SO2 and NOx," RFF Working Paper Series dp-09-40, Resources for the Future.
    12. Liao, Chao-ning & Önal, Hayri & Chen, Ming-Hsiang, 2009. "Average shadow price and equilibrium price: A case study of tradable pollution permit markets," European Journal of Operational Research, Elsevier, vol. 196(3), pages 1207-1213, August.
    13. Lata Gangadharan, 2004. "Analysis of prices in tradable emission markets: an empirical study of the regional clean air incentives market in Los Angeles," Applied Economics, Taylor & Francis Journals, vol. 36(14), pages 1569-1582.
    14. Reimund Schwarze & Peter Zapfel, 2000. "Sulfur Allowance Trading and the Regional Clean Air Incentives Market: A Comparative Design Analysis of two Major Cap-and-Trade Permit Programs?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 17(3), pages 279-298, November.
    15. Meredith Fowlie & Jeffrey M. Perloff, 2013. "Distributing Pollution Rights in Cap-and-Trade Programs: Are Outcomes Independent of Allocation?," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1640-1652, December.
    16. Stephen P. Holland & Michael R. Moore, 2012. "When to Pollute, When to Abate? Intertemporal Permit Use in the Los Angeles NOx Market," Land Economics, University of Wisconsin Press, vol. 88(2), pages 275-299.
    17. Hahn, Robert W., 2000. "The Impact of Economics on Environmental Policy," Journal of Environmental Economics and Management, Elsevier, vol. 39(3), pages 375-399, May.
    18. Gary D. Libecap, 2013. "Addressing Global Environmental Externalities: Transaction Costs Considerations," NBER Working Papers 19501, National Bureau of Economic Research, Inc.
    19. Simon Quemin & Christian Perthuis, 2019. "Transitional Restricted Linkage Between Emissions Trading Schemes," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(1), pages 1-32, September.
    20. Onal, Hayri & Liao, Chao-Ning, 2002. "An Economic Analysis Of The Emission Reduction Market System In Chicago," 2002 Annual meeting, July 28-31, Long Beach, CA 19717, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    21. B Hansjürgens, 1998. "The Sulfur Dioxide Allowance-Trading Program in the USA: Recent Developments and Lessons to be Learned," Environment and Planning C, , vol. 16(3), pages 341-361, June.
    22. Aldy, Joseph E. & Auffhammer, Maximillian & Cropper, Maureen L. & Fraas, Arthur G. & Morgenstern, Richard D., 2020. "Looking Back at Fifty Years of the Clean Air Act," RFF Working Paper Series 20-01, Resources for the Future.
    23. Antonio M. Bento & Emeric Henry & Scott E. Lowe, 2013. "The Determinants of Credit Allocations in a Market-based Trading System: Evidence from the RECLAIM Program," The Review of Regional Studies, Southern Regional Science Association, vol. 43(1), pages 51-80, Summer.
    24. Tengda Lu & Xieer Dai & Jun Chen & Ming Dai, 2018. "Pricing Industrial Discharge Quota (IDQ): A Model Reflecting Opportunity Cost of Performing Ecological Responsibility," Sustainability, MDPI, vol. 10(6), pages 1-20, June.

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