Assessment of the Emission Trading Policy: A case study for the Acid Rain Program in the United States

Abstract

Various environmental standards have been established for the sake of public health and ecosystem diversity since environmental awareness was awakened in the late 1960s. However, the results were often unsatisfactory. Either environmental goals achieved were far from desired, or regional development was hampered due to some unpractical high environmental standards. The failure of these environmental standards resulted in innovations of environmental policy instruments to find practical environmental goals and methods approaching them scientifically. Another class of environmental policy instruments, so called economic incentive policies, is established based on environmental economics theory. A neo-classical economics framework is founded for setting appropriate environmental goals and assessing efficiency of environmental policies in reaching these goals. This thesis summarizes rationales and factors affecting the performance for environmental policy instruments under the neo-classical economic framework. Since the acid rain program, the first large-scale implementation of the emissions trading policy, has achieved great success in reducing SO₂ emissions from the electricity generators in the United States, the emission trading policy attracted many interests in this kind of environmental policy instrument. Many countries, such as China, plan to adopt the emissions trading policy to address various environmental problems. Hence, factors leading to the success of this program should be identified. Potential risks and problems must be addressed as well lest the emissions trading policy causes some problem during implementation. Feasibility of implementing an emissions trading policy will be discussed based on these results. Three kinds of geographic analyses, change detection, network analysis, and hot spots identification, are conducted in this thesis to study the effectiveness and efficiency of the acid rain program. It is found that the acid rain program is successful in improving the sustainability of the economic development in the United States. But the effectiveness is not as great as the high emissions cutting rate achieved in this program. In addition, the acid rain program lowers the compliance costs of achieving the environmental goal since the radius of the high quality coal service area doubles. Lastly, hot spots are found around the Ohio River valley and Los Angeles. Suggestions on integrating geographic factors into the economic framework are presented in order to eliminate the risk of causing severe environmental problems. Finally, the feasibility of migrating the emissions trading policy to China is discussed. Further work can be conducted in this direction to realize sustainable development quicker with lower costs.