Variance Design and Air Pollution Control

Confronted with shortages of low sulfur content residual fuel oil and, consequently, faced with the threat of social and economic upheaval, several air pollution control authorities in the Northeastern states were forced to relax hard-won air quality standards during the winter of 1972. The authorities did so by granting variances to their sulfur content standards for residual fuel oil. This paper examines the institutional characteristics of these variance policies from an economic incentive standpoint. After setting up desirable structural criteria for institutional design of such crisis policies, the authors examine the experience of the winter of 1972 and arrive at policy guidelines which recommend themselves for consideration in future periods of fuel oil shortages.