Acid Rain: Reflections on 20 Years of Policy Innovation
The SO2 Allowance Trading System and the Clean Air Act Amendments
Harvard University, John F. Kennedy School of Government | February 6, 2012
Gabriel Chan, Robert Stavins, Robert Stowe, and Richard Sweeney
In 1990, the U.S. Congress passed and President George H. W. Bush signed into law amendments to the Clean Air Act, which included a path-breaking, market-based approach to addressing the threat of acid rain. The SO2 allowance-trading program established under the 1990 Amendments was the world's first large-scale pollutant cap-and-trade system. This policy brief examines the design, enactment, implementation, and performance of that system, with an eye toward identifying lessons learned for future efforts to apply cap and trade to other environmental challenges, including global climate change. The first section provides background on the Acid Rain Program and summarizes data and analysis on its benefits. Subsequent sections examine key questions regarding cost, environmental effectiveness, market performance, distributional implications, and effects on technology innovation. We then examine the political context of the formulation, enactment, and implementation of the SO2 allowance-trading system. Finally, in the conclusion, we briefly reflect on implications for climate change policy.
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