Designing a market for tradable emissions permits

Abstract

The purpose of this chapter is to investigate the practicality of a system of tractable emissions permits. The central issue is not whether a market for emissions permits will work perfectly, but whether it can produce a more efficient combination of emissions and abatement strategies than the traditional regulatory approach. This question is examined in the context of a particular pollutant in a specific area, namely, the control of sulfur oxides (SO) emissions into the atmosphere in Los Angeles. Nevertheless, we believe the analysis to be of general interest. It raises questions that must be answered in order to make a tradable permits system a practical alternative anywhere. It also illustrates the range of institutional arrangements and informational requirements that must be considered in developing a market for permits.

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