The sulfur dioxide allowance-trading program in the USA: Recent developments and lessons to be learned

The US Allowance Trading Program, which is an emission-trading program for sulfur dioxide, was put into effect on 1 January 1995. It is the First comprehensive attempt in US air-quality policy to practice the idea of emission trading. More than two years after its implementation, the allowance market offers the unique opportunity of evaluating the efficiency of tradeable-permit markets on a practical basis, rather than a solely theoretical one. The author analyzes the recent developments in the allowance-trading market and alternative 'explanations' used in attempts to explain low trading activity and low allowance prices. The author concludes that the present allowance price will prove to be equal to the abatement costs; the allowance-trading program is not only ecologically effective but is also economically efficient; and it plays an important role in the development of future tradeable-permits markets.