A Denny Ellerman, Juan-Pablo Montero
The Temporal Efficiency of SO2 Emissions Trading
EP 13 | Non-Technical Summary | PDF
Abstract: This paper provides an empirical evaluation of the temporal efficiency of the US Acid Rain Program, which implemented a nationwide market for trading and banking sulphur 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 access the temporal efficiency of the observed banking behaviour. 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