Enforcing Emissions Trading Programs

Combining an analysis of the compliance incentives faced by firms in an emissions trading program, a comprehensive review of the enforcement strategies employed in Sulfur Dioxide Allowance and the Regional Clean Air Incentives Market (RECLAIM) programs, and a review of the compliance performance of these programs thus far, we are able to propose several practical guidelines for enforcing emissions trading programs. We stress the importance of prevailing market prices for emissions permits in determining compliance incentives, the importance of accurately measuring firms' emissions, and the importance of implementing enforcement strategies that remove the incentives firms may have to falsify emissions reports.