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how the acid rain program killed northeasterners

Remember acid rain? For me, it’s one of those vague menaces of childhood, slightly scarier than the gypsy moths that were eating their way across western Pennsylvania but not as bad as the nuclear bombs I expected to fall from the sky at any moment. The 1980s were a great time to be a kid.

The gypsy moths are under control now, and I don’t think my own kids have ever given two thoughts to the possibility of imminent nuclear holocaust. And you don’t hear much about acid rain these days, either.

In the case of acid rain, that’s because we actually fixed it. That’s right, a complex and challenging environmental problem that we got together and came up with a way to solve. And the Acid Rain Program, passed as part of the Clean Air Act Amendments of 1990, has long been the shining example of how to use emissions trading to successfully and efficiently reduce pollution, and served as an international model for how such programs might be structured.

The idea behind emissions trading is that some regulatory body decides the total emissions level that is acceptable, finds a way to allocate polluters rights to emit some fraction of that total acceptable level, and then allows them to trade those rights with one another. Polluters for whom it is costly to reduce emissions will buy permits from those who can reduce emissions more cheaply. This meets the required emissions level more efficiently than if everyone were simply required to cut emissions to some specified level.

While there have clearly been highly successful examples of such cap-and-trade systems, they have also had their critics. Some of these focus on political viability. The European Emissions Trading System, meant to limit CO2 emissions, issued too many permits—always politically tempting—which has made the system fairly worthless for forcing reductions in emissions.

Others emphasize distributional effects. The whole point of trading is to reduce emissions in places where it is cheap to do so rather than in those where it’s more expensive. But given similar technological costs, a firm may prefer to clean up pollutants in a well-off area with significant political voice rather than a poor, disenfranchised minority neighborhood. Geography has the potential to make the efficient solution particularly inequitable.

These distributional critiques frequently come from outside economics, particularly (though not only) from the environmental justice movement. But in the case of the Acid Rain program, until now no one has shown strong distributional effects. This study found that SO2 was not being concentrated in poor or minority neighborhoods, and this one (h/t Neal Caren) actually found less emissions in Black and Hispanic neighborhoods, though more in poorly educated ones.

A recent NBER paper, however, challenges the distributional neutrality of the Acid Raid Program (h/t Dan Hirschman)—but here, it is residents of the Northeast who bear the brunt, rather than poor or minority neighborhoods. It is cheaper, it turns out, to reduce SO2 emissions in the sparsely populated western United States than the densely populated east. So, as intended, more reductions were made in the West, and less in the East.

acid_revised

The problem is that the population is a lot denser in the Northeastern U.S. So while national emissions decreased, more people were exposed to relatively high levels of ­SO2 and therefore more people died prematurely than would have been the case with the inefficient solution of just mandating an equivalent across-the-board reduction in SO2 levels.

To state it more sharply, while the trading built into the Acid Rain Program saved money, it also killed people, because improvements were mostly made in low-population areas.

This is fairly disappointing news. It also points to what I see as the biggest issue in the cap-and-trade vs. pollution tax debate—that so much depends on precisely how such markets are structured, and if you don’t get the details exactly right (and really, when are the details ever exactly right?), you may either fail to solve the problem you intended to, or create a new one worse than the one you fixed.

Of course pollution taxes are not exempt from political difficulties or unintended consequences either. And as Carl Gershenson pointed out on Twitter, a global, not local, pollutant like CO2 wouldn’t have quite the same set of issues as SO2. And the need to reduce carbon emissions is so serious that honestly I’d get behind any politically viable effort to cut them. But this does seem like one more thumb on the “carbon tax, not cap-and-trade” side of the scale.

 

Written by epopp

February 15, 2016 at 1:17 pm

7 Responses

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  1. Invisible Hand Damns Yankees …

    Liked by 1 person

    Jon Awbrey

    February 15, 2016 at 1:30 pm

  2. Monica Prasad had a relevant NYT op-ed a few years ago on the pitfalls of slapping a tax on carbon without using the revenue to subsidize substitutes: http://www.nytimes.com/2008/03/25/opinion/25prasad.html?_r=0

    In the U.S.’s case, the problem wouldn’t be that Republicans would want it to offset taxes elsewhere (It’s probably easier to convince them to give revenues back to industry) so much as Democrats would salivate at the thought of new revenues for any given pet social program.

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    Josh Mccabe

    February 15, 2016 at 2:05 pm

  3. Thanks for this blog post regarding acid rain; I really enjoyed it and am definitely recommending this blog to my friends and family. I’m a 15 year old with a blog on finance and economics at shreysfinanceblog.com, and would really appreciate it if you could follow, read and comment on some of my articles, and perhaps follow, reblog and share some of my posts on social media. Thanks again for this fantastic post.

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    Shrey Srivastava

    February 15, 2016 at 3:16 pm

  4. @Josh — The potential revenue-neutrality of a carbon tax has a certain appeal to some Republicans. But only to Republicans who admit CO2 emissions are a problem, which is an alarmingly small number. But yeah, Prasad’s point about how hard it is for government to get a new revenue source and then allow it to shrink as intended is well-taken. No easy answer here.

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    epopp

    February 15, 2016 at 5:12 pm

  5. Thanks for an interesting post! Speaking of “how you get the details exactly right” in the context of the structure of these markets, it’s worth to mention the professional practices that these markets are dependent on – mainly the accounting practices of standardization and various calculations regarding the pollutants – which have drawn the attention of the performativity school, among others, to the issue of emission trading. See, for example, the special issue of Accounting, Organizations, & Society from 2009 (link: http://www.sciencedirect.com/science/journal/03613682/34/3 ).
    That is, it’s not only the ‘policy’ issues that determine the framework which make this issue politically problematic. It’s also the professional practices of trying to figure the details right!

    Liked by 1 person

    Yaniv Ron-El

    February 16, 2016 at 12:18 am

  6. Carbon dioxide is what’s called a “well-mixed gas,” meaning that it persists long enough in the atmosphere for concentration to be, in the long-term, independent of the location of the emission source. Sulfur dioxide is not. So there is no geographic distribution issue with regard to emissions; climate change effects are, of course, highly differentiated geographically, but roughly the same distribution of effects will occur no matter where the carbon dioxide is emitted.

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    Rahul Mahajan

    February 17, 2016 at 3:14 pm

  7. @Rahul — Thanks for the comment. I do realize CO2 spreads in a way SO2 does not — the point I was trying to make is not that CO2 markets would suffer from this particular issue, but that distributional effects are complex and hard to predict — to the point where the side effects can outweigh the efficiency benefits.

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    epopp

    February 17, 2016 at 10:01 pm


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