| In principle, cap-and-trade programs can minimize the cost of achieving environmental goals by providing regulated entities with flexibility in choosing how, where, and potentially when to attain mandated results. That premise has been borne out generally, and cap-and-trade programs often meet environmental goals at lower than expected cost. The Acid Rain Program, established under the 1990 amendments to the Clean Air Act, uses a cap-and-trade program to limit emissions of sulfur dioxide from large electric power plants. That program is widely regarded as a success because it helped reduce emissions from coal-fired utilities at much less cost than had been expected.1 In addition, in compliance with the Montreal Protocol, the United States used a cap-and-trade program to phase out production of chlorofluorocarbons and other ozone-depleting substances. That program is considered to have been relatively cost-effective, and phaseout targets were met ahead of schedule. The United States also has used a cap-and-trade program to limit emissions of lead in gasoline and to curtail emissions of nitrous oxide and volatile organic compounds.2 Cap-and-trade programs have been used by the European Union, Canada, New Zealand, and Singapore to limit the release of ozone-depleting compounds; the European Union achieved its phaseout ahead of schedule. Since the 1990s, Chile has had cap-and-trade programs to cut emissions of total suspended particulate matter and has used auctions for the right to operate buses and taxis as a way to alleviate traffic congestion and cut related emissions.3 Cap-and-trade programs also are used to reduce emissions of greenhouse gases in the United States and abroad. In 2005, for example, the European Union began a program to cut carbon dioxide emissions in the energy sector and in some manufacturing industries. In 2008, a coalition of 10 northeastern and mid-Atlantic states implemented a cap-and-trade program to limit carbon dioxide emissions by electric utilities. Because those programs are relatively new, it is difficult to measure their success at cost-effectively reducing emissions of greenhouse gases. 1. See, for example, the discussion in Dallas Burtraw and Karen Palmer, The Paparazzi Take a Look at a Living Legend: The SO2 Cap-and-Trade Program for Power Plants in the United States, Discussion Paper 03-15 (Washington, D.C.: Resources for the Future, April 2003), www.rff.org/documents/RFF-DP-03-15.pdf.
2. Those trading programs are described in Environmental Protection Agency, The United States Experience with Economic Incentives for Protecting the Environment, EPA-240-R-01-001 (January 2001); and in Barry D. Solomon, “New Directions in Emissions Trading: The Potential Contribution of New Institutional Economics,” Ecological Economics, vol. 30, no. 3 (September 2009), pp. 371–387.
3. For more information on the various cap-and-trade programs, see Robert N. Stavins, Experience with Market-Based Environmental Policy Instruments, Resources Discussion Paper 01-58 (Washington, D.C.: Resources for the Future, November 2001), www.rff.org/rff/documents/rff-dp-01-58.pdf.
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