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Chicago Fed Letter, No. 120, August 1997
What Can the Midwest Learn from California about Emissions Trading

For more than 30 years, economists have advocated the use of market-based environmental regulations to improve the efficiency of regulatory programs designed to clean up the environment. Emission taxes and tradable emission permit markets have been proposed to supplant traditional regulatory methods by which regulators prescribe specific technology-based standards. One market-based program that received considerable attention began in 1994, when the South Coast Air Quality Management District (SCAQMD) introduced the Regional Clean Air Incentives Market (RECLAIM) in the Los Angeles basin. RECLAIM is a regional market designed to improve air quality through the reduction of two pollutants, oxides of nitrogen (NOx) and oxides of sulfur (SOx).

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