CAIRN-INT.INFO : International Edition

As stressed by Tietenberg (2010, p. 359), “from its inauspicious beginning as an idea that was little more than an academic curiosity, emissions trading has matured into its current role as the centerpiece of the US program to control acid rain and international programs to control greenhouse gases.” The functioning of such markets in emission permits, today called cap-and-trade, is simple: first a suitable emission level is established by public authorities and an equivalent number of emission permits is allocated among polluters. Second, these permits are made tradable among polluters: for each polluter is assumed to equalize his marginal abatement cost to the permit price, all polluters’ marginal costs are equal at the competitive market equilibrium – which is the condition for total abatement cost minimization. This short paper attempts to enlighten the early history of this idea in the late 1960s.
In the 1960s, the nascent environmental economics was developing as an academic field distinct from natural resources economics, with a new focus on environmental quality. It started to regard growing pollution as an important environmental externality. Ronald Coase (1960) had already suggested his bargaining solution between the receptor and the polluter even though his influence remained thin in the environmental literature during the 1960s. The Pigovian tax, understood here as a tax that would equalize marginal benefits and damages in order to be optimal, was discussed in the literature on externality that was in renewal at that time and suggested as a mode of internalization (Oates 2000…


This paper studies the early history of the idea of markets for emission rights in the late 1960s. It stresses the difference between Thomas Crocker’s and John Dales’s proposals that are rarely distinguished in the literature. It briefly presents Dales’s proposal and his important critics of optimal solutions, like cost benefit analyses, that led him to settle on a politically chosen level of emission. Finally, the paper shows that, even though today what are called cap-and-trade instruments are widely used to manage pollution, acid rain or global warming, the early reception of Dales’s idea by environmental economists was quite cautious, even by those who were promoting the use of incentives in pollution control.
JEL Classification: B20, D4, D62, H23, K11, K32, Q51, Q52, Q53

  • John Dales
  • emissions trading
  • cap-and-trade
  • history of economic thought
  • pollution pricing
Nathalie Berta [1]
REGARDS, Reims University
  • [1]
    I am grateful for the instructive comments provided by H. Spencer Banzhaf and two anonymous referees.
You still have to read 97% of this article
Purchase full-text 5,00€ 24 pages, electronic only
(html and pdf)
add_shopping_cart Add to cart
Other option
Member of a subscribed institution ? business Authenticate
Uploaded on on 24/09/2021
Distribution électronique pour Hermann © Hermann. Tous droits réservés pour tous pays. Il est interdit, sauf accord préalable et écrit de l’éditeur, de reproduire (notamment par photocopie) partiellement ou totalement le présent article, de le stocker dans une banque de données ou de le communiquer au public sous quelque forme et de quelque manière que ce soit.
Loading... Please wait