On marketable air-pollution permits: The case for a system of pollution offsets

After examining the properties of several alternative forms of marketable permit systems for the control of air pollution, this paper proposes a system of pollution offsets as the most promising approach. Under the pollution-offset scheme, sources of emissions are free to trade emissions permits subject to the constraint of no violations of the predetermined air-quality standard at any receptor point. The paper shows that the pollution-offset system has the capacity to achieve the predetermined standards of air quality at the minimum aggregate abatement cost, while making comparatively modest demands both on the sources and on the administering agency.