The Environmental and Distributional Consequences of Emissions Markets: Evidence from the Clean Air Interstate Rule
Posted: 26 Jun 2017
Date Written: June 25, 2017
Who benefits from market-based environmental policies? To shed light on this question, we investigate the environmental and distributional consequences of regional cap-and-trade programs to mitigate sulfur dioxide and nitrogen oxides from U.S. power plants. Using double and triple differences, we find that these programs substantially reduced emissions beyond our counterfactual development. Looking at the socio-economic characteristics of the areas surrounding each power plant, we find that policy-induced SO2 reductions were smaller in poor, low educated and minority neighborhoods. There is a similar but weaker pattern for NOX emissions. We further find evidence of sorting and capitalization of policy-induced emissions reductions into property values. Due to lower home-ownership rates, poor neighborhoods benefit less from the real estate appreciation. Overall, our findings suggest that the environmental and economic benefits from market-based environmental policies are unevenly distributed across socio-economic groups.
Keywords: air pollution, cap-and-trade, environmental policy, environmental injustice
JEL Classification: Q52, Q53, Q56, Q58, C33
Suggested Citation: Suggested Citation