Keywords: cap-and-trade market, emissions trading, pollution control cost savings, spatial pollution hot spots
Does emissions trading lead to air pollution hot spots? Evidence from an urban ozone control programme
This study is an empirical investigation into the contentious issue of possible sub-area hot spots caused by emissions trading in a pioneering application of a cap-and-trade market approach to reducing aggregate stationary-source volatile organic compound emissions in the Chicago severe ozone non-attainment region. When sub-areas are defined as populated zip codes, 89 out of 95 affected codes revealed a decrease and six an increase in emissions over pre-trading levels. If these six sub-areas are increased slightly in size by adding adjacent zip codes, emissions will be reduced in all sub-areas. Those sub-areas with the largest initial emissions revealed the most significant reductions after trading. The study also finds that trading has significantly reduced both aggregate market-wide levels and the variation in sub-area emissions from pre-trading patterns. Spatially constraining the present region-wide market to pre-empt possible future hot spots could reduce savings in pollution control costs by over 40%.