Weighing the Value of a Ton of Pollution

The United States' experimentation with emissions trading in the 1990s was an important first step in controlling air pollution while maximizing benefits from emissions that do occur. However, trading programs to date suffer a serious flaw: they treat all traded emissions of equal volume the same regardless of where they occur, instead of recognizing that emissions in a sparsely populated, pristine area likely have much lower social harm than the same volume of emissions in a heavily populated area with poor air quality. This paper summarizes the authors' efforts to develop a more sophisticated emissions trading regime that addresses this shortcoming