Enforcing Cap and Trade: A Tale of Two Programs

Abstract:     
The ease of enforcement is often identified as a benefit of cap and trade regulation. Almost all such assertions are made based on the experience of the Acid Rain Program, a cap and trade program implemented by the US Environmental Protection Agency in 1995 to cap the sulfur dioxide emissions from the nation’s power plants. However, RECLAIM, a cap and trade program that began the year before in Los Angeles’s South Coast Air Quality Management District, tells a very different story about how difficult and resource-intensive the enforcement of a cap and trade program can be. This article describes and analyzes enforcement data from these two programs to show that even when enforcement provisions are designed in a similar way, the enforcement systems and enforcement outcomes that prevail may be very different. The article features an empirical analysis of RECLAIM enforcement cases from the beginning of the program through 2006, characterizing them in terms of number, type, case processing times, and penalty amounts.

Number of Pages in PDF File: 28

Keywords: cap and trade, emissions trading, Acid Rain Program, RECLAIM, enforcement

JEL Classification: K23, K32

Accepted Paper Series