Cap and Trade: How the Sulfur Dioxide Allowance Market Works, and How it Could Work Better


This Article provides an overview of the sulfur dioxide allowances market, and identifies ways in which could be improved. This information can be used to improve the performance of the sulfur dioxide allowances market, and incorporated into new emissions allowance markets to improve their operation. Part I of this Article provides background information on the creation and operation of the sulfur dioxide allowances market. Part II reports and analyzes data regarding the actual behavior of the market from 1995 to 2003. Part III engages in an economic analysis of the interaction between the allowances market and the power industry. Part IV then identifies and describes some barriers to efficient trading. Finally, Part V will explore potential solutions to the problems caused by the capital gains tax. Improving the efficiency of the sulfur dioxide allowances market will allow firms to spend less money to maintain current emissions levels. To the extent that environmental regulations are constrained by industry costs, this improved efficiency will allow for more stringent environmental regulation.


Environmental Law | Law and Economics

Date of this Version

August 2004