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Review of Environmental Economics and Policy Advance Access published online on January 6, 2009
Review of Environmental Economics and Policy, doi:10.1093/reep/ren021
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© The Author 2008. Published by Oxford University Press on behalf of the Association of Environmental and Resource Economists. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org

Cap and Trade, Rehabilitated: Using Tradable Permits to Control U.S. Greenhouse Gases

Nathaniel O. Keohane*

* Environmental Defense Fund, 257 Park Ave. South, New York, NY 10010, USA; e-mail: nkeohane@edf.org

The first 150 words of the full text of this article appear below.


   Introduction
 
The past two decades have seen a remarkable embrace of economics in the sphere of environmental policy. Emissions trading (also known as cap and trade), first proposed by Dales (1968) but long restricted to academic wish lists, is now the presumptive method for new regulation of pollution in the United States. The landmark U.S. Acid Rain Program, Title IV of the 1990 Clean Air Act Amendments, instituted a system of tradable emissions permits to cut sulfur dioxide (SO2) emissions from electric power plants. Dubbed "a grand policy experiment" by Stavins (1997), this program has cut emissions by 40 percent at a fraction of the predicted cost, with overwhelming benefits to human health and ecosystems (NAPAP 2005). The SO2 program inspired the use of emissions trading for nitrous oxides (NOx) in the northeastern United States, and paved the way for what is now the . . . [Full Text of this Article]


   Allocating the Value of Emissions
 
Economic Efficiency
Political Feasibility
Likelihood of Passage
Scope of the Program
Rent Seeking
Political Sustainability
The Value of Flexibility

   Setting Prices Versus Setting Quantities
 
Political Implications
Framing of Policy Objectives
Scope of the Program
International Harmonization
Cost-effectiveness
International Participation
Distributional Equity
Short-Run Price Volatility
Long-Run Cost Uncertainty

   A Reassessment of the Prevailing View
 
Problems with the Prevailing View
A Simple Thought Experiment

   Summary and Conclusions
 

   Appendix
 
Marginal Costs
Marginal Benefits

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