Since the passage of the Clean Air Act, SO2 emissions have decreased by 35%. Part of this is due to tradable allowances, which created a market solution to the

Since the passage of the Clean Air Act, SO2 emissions have decreased by 35%. Part of this is due to tradable allowances, which created a market solution to the external costs of SO2 emissions. In this video, we look at the lessons of tradable allowances for SO2 and see if a similar market-based solution could work to decrease other pollutants, such as CO2.

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Your logic is correct. The non-using purchaser will only lower the level of pollution this time around. Let me just clarify a terminological point: even if this user would lower the expected level of activity in the polluting industry he would act according to overall market rules. He is, in the short run, satisfying a demand for clean air which he proves to be greater than the government was able to secure.

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