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Master's Professional Reports Abstract

The Long Road Ahead: How Marketable Permits Can Inform Pollution Policy
Crook, Lowry Alexander
REPORT 1999 C8828 Public Affairs Library

Focusing on the example of permits for ozone precursors, the report approves the current trend toward expanded use of marketable permits, not because they will allow firms to shift pollution burdens and reduce static control costs, but rather because permit markets can provide a noticeable "price tag" that communicates polluters' marginal cost of abatement. The report then examines possible distortions in permit markets that may cause the permit prices to deviate from marginal abatement costs, but it concludes that permit prices will provide an increasingly reliable indication of firms' costs. These pollution abatement price tags can expose the rampant inflation in predictions of abatement costs. In the long term, this aspect of marketable permits is important, because it should catalyze stricter standards and a shift in policy goals from static cost minimization to encouragement of social and market innovation.