ABSTRACT
To end the controversy, Congress and the first Bush administration turned to tradable pollution permits. In the late 1960s, economists Crocker1
and Dales2 first introduced the idea of capping total emissions and allowing polluters to trade them. The idea had gained currency among economists because trading would be far less expensive than a command-and-control regulatory policy and could guarantee environmental improvements if a hard cap on total SO2 emissions were set and backed up by continuous emissions monitoring. Further, the initial allocation of tradable permits could be designed to reduce political opposition by, for example, giving away more permits to betterperforming utilities, as studies showed that the efficiency gains were independent of this allocation.
