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%.
Keywords: cap-and-trade market, emissions trading, pollution control cost savings, spatial pollution hot spots