Do Environmental Markets Cause Environmental Injustice?

Market-based environmental policies are widely adopted on the basis of allocative efficiency. However, there is growing concern that these market forces could widen existing disparities in pollution exposure between disadvantaged and other communities. Understanding whether such “environmental justice” (EJ) gaps widen or narrow requires estimating effects on pollution emissions and then tracking where that pollution goes. The paper presented in this ZEW Research Seminar develops an estimation framework that explicitly embeds a pollution dispersal model to examine how EJ gaps changed following the 2013 introduction of California's greenhouse gas (GHG) cap-and-trade program, the world's second largest carbon market and the one most subjected to EJ critiques. The authors find that the program reduced GHG and criteria air pollution emissions. Examining resulting spatial changes in pollution exposure, it is found that the program reversed previously widening EJ gaps in PM2.5, PM10, NOx, and SOx, narrowing gaps to 2008 levels by 2017. The authors demonstrate that using a pollution dispersal model is crucial for the robustness of the results and note that the approach for mapping emissions to exposure is applicable to many environmental policy settings.