Climate Cap and Trade and Pollution Hot Spots: An Economics Perspective

Although cap and trade is overwhelmingly preferred by economists for reducing greenhouse gases and spurring the adoption of renewables and other zero-carbon alternatives, some scholars and advocates worry that it allows firms to concentrate operations in poor and minority neighborhoods, thus leading to hot spots of harmful co-pollutants. Commentators differ on the danger of hot spots and the necessity of adjusting cap-and-trade programs to avoid them, however. This Article therefore surveys ex post economic studies of cap-and-trade programs to show that they do not lead to hot spots but may actually cool them—perhaps even better than command-and-control regulation. Accordingly, cap and trade unencumbered by unnecessary restrictions should be part of the policy mix for a just energy transition.