Do Environmental Markets Cause Environmental Injustice? Evidence from California's Carbon Market

Abstract

Market-based environmental policies are widely adopted on the basis of allocative efficiency. However, there is growing concern that market-induced spatial reallocation of pollution could widen existing pollution concentration gaps between disadvantaged and other communities. We estimate how this “environmental justice” (EJ) gap changed following the 2013 introduction of California's carbon market, the world's second largest and most subjected to EJ critiques. Embedding a pollution dispersal model within a program evaluation framework, we find that while EJ gaps across California for criteria air pollutants were widening prior to 2013, they have since fallen as a consequence of the carbon market.