Clean Air For Less: Exploiting Tradeoffs Between Different Air Pollutants

Abstract

The Administration's Clear Skies initiative and all competing legislative proposals take a pollutant-by-pollutant approach to address air pollution problems caused by emissions of both nitrogen oxides (NOx) and sulfur dioxide (SO2). Randall Lutter and Dallas Burtraw argue that as a result they miss an important opportunity to cut compliance costs without reducing expected environmental protection. For a scenario where firms could use permits to emit three tons of NOx instead of one ton of SO2, we estimate that compliance costs would fall by more than $1 billion per year relative to emissions caps like those in Clear Skies. Yet expected environmental damages would not increase because the projected damages from three tons of NOx are roughly the same as from one ton of SO2. To ensure that new air pollution legislation is cost-effective, Congress should allow firms to exchange NOx and SO2 permits at a rate that reflects relative environmental damages.