The Temporal Efficiency of So2 Emissions Trading
MIT Center for Energy and Environmental Policy Research Working Paper No. 02-003
26 Pages Posted: 9 Dec 2002
Date Written: September 2002
This paper provides an empirical evaluation of the temporal efficiency of the U.S. Acid Rain Program, which implemented a nationwide market for trading and banking sulfur dioxide (SO2) emission allowances. We first develop a model of efficient banking and select appropriate parameter values. Then, we use aggregate data from the first seven years of the Acid Rain Program, to assess the temporal efficiency of the observed banking behavior. We find that banking has been surprisingly efficient and we discuss why this finding disagrees with the common perception of excessive banking in this program.
Keywords: emissions trading, banking, acid rain, tradable permits
JEL Classification: L50, Q25, Q28
Suggested Citation: Suggested Citation