The potential conflict between efficiency and equity in the pursuit of policy goals popularized by Okun (1974) is manifest at the nexus of two of the most far reaching changes in the environmental policy arena; the adoption of market-like tools for pollution control and the quest for environmental justice.  This paper examines whether the Clean Air Act Amendment’s (CAA) sulfur dioxide allowance trading program (ATP) inadvertently transfers pollution, environmental risk, and negative health effects to poor and minority communities.  If such transfers occurred as a result of the adoption of market-based tools for pollution control, this would indicate a trade-off between efficiency and equity.

This paper is an extension of Ringquist’s 2010 article, “Trading Equity for Efficiency in Environmental Protection? Environmental Justice Effects from the SO2 Allowance Trading Program.”  We make two improvements to this paper. First, we utilize a pollution dispersion model that allows us to define affected communities using the plume shadows of trading facilities, rather than using census-defined units (e.g., Ringquist 1997) or GIS-defined concentric circles (e.g., Mohai and Saha 2007). Since pollutants do not disperse uniformly and radially, this method will more accurately capture the populations most heavily affected by these sources of pollution.  Second, in addition to measuring pollution transfers from trading, we estimate the environmental risks and health effects from pollution transfers on residents in these affected communities.  With additional data on risk exposure and estimated health effects, we will be able to measure more accurately the consequences of pollution transfers stemming from the use of market instruments in environmental policy.