Marketable Pollution Permits and Acid Rain Externalities: A Comment and Some Further Evidence

Abstract

In a recent paper, Scott Atkinson (1983) has provided some important insights into the design of systems of marketable permits for the control of air pollution. Atkinson reaches two major conclusions: 1. A system of marketable permits that minimizes the control costs for the attainment of local ambient air-quality standards for So2 is likely to increase significantly the extent of long-range sulfate depositions (acid rain) as compared to a traditional command-and-control (CAC) strategy. 2. Solely from the perspective of local air quality, the cost-minimizing system of marketable permits must imply higher levels of local pollution relative to an alternative system of emissions permits or to a prototype CAC system. We have no quibbles with the first point. Moreover, Atkinson's simulation results suggest that the trade-off between local air pollution and the long-range transport of sulfur is a serious issue. This is largely a matter of stack height. Higher chimneys allow sulfur emissions to escape the local environment only to result in increased sulfate pollution at more distant locations. This suggests that stack height must be treated as a critical variable in the design of systems to control jointly local and 'global' pollution. Our concern in this note is with Atkinson's second point. We shall show, first, that the Atkinson theorem is formally incorrect: the cost-minimizing permit system need not result in increased local pollution. However, as a practical matter, Atkinson may well be right. We shall supplement his simulation results with some findings from another set of simulations for a different air pollutant, particulate matter, in the Baltimore Air Quality Control