RT Journal Article
SR Electronic
T1 When to Pollute, When to Abate? Intertemporal Permit Use in the Los Angeles NO<em><sub>x</sub></em> Market
JF Land Economics
JO Land Econ
FD University of Wisconsin Press
SP 275
OP 299
DO 10.3368/le.88.2.275
VO 88
IS 2
A1 Holland, Stephen P.
A1 Moore, Michael R.
YR 2012
UL http://le.uwpress.org/content/88/2/275.abstract
AB We study intertemporal trading of nitrogen oxides permits in Southern California’s RECLAIM program. We model RECLAIM’s distinct intertemporal features: two overlapping permit cycles and two overlapping compliance cycles. In the model, competitive equilibrium is cost-effective, and firms have an incentive to delay abatement. From 1994 to 2006, RECLAIM facilities traded intertemporally by using permits of the opposite cycle. We test two theoretical propositions—delayed abatement and trading across cycles—with a difference-in-differences estimator and show weak, though inconclusive, support of the theory. The theoretical and empirical results are relevant to cap-and-trade programs with potential for overlapping permit cycles. (JEL Q58)