Setting the Limit

In air trading programs, the lower costs offered by trading were used in initial negotiations to secure more stringent pollution control targets (acid rain program, ozone-depleting gases, lead phaseout, and RECLAIM) or earlier deadlines (lead phaseout program). The air quality effects from more stringent limits were reinforced by the use of offset ratios for trades in nonattainment areas that were set at a ratio greater than 1.0 (implying a portion of each acquisition would go for better air quality). In addition, environmental groups have been allowed to purchase and retire allowances (acid rain program). Retired allowances represent authorized emissions that are not emitted.

In fisheries the institution of ITQs has sometimes, but not always, resulted in lower (more protective) TACs. In the Netherlands, for example, the plaice quota was cut in half (and prices rose to cushion the income shock) (Davidse, 1999).

Meeting the Limit

In theory the flexibility offered by tradable permit programs makes it easier to reach the limit, suggesting the possibility that the limit may be met more often under tradable permits systems than under the systems that preceded them. In most fisheries this expectation seems to have been borne out. In the Alaskan Halibut and Sablefish fisheries, for example, although exceeding the TAC was common before the imposition of an ITQ system, the frequency of excedences dropped significantly after the introduction of the ITQ (National Research Council, 1999).

A recent Organization for Economic Co-operation and Development review (1997:80) concludes:

The results of individual quota management on resource conservation have been mixed. For the most part, IQs [individual quotas] and ITQs have been effective in limiting catch at or below the TAC determined by management authorities. Catch was maintained at or below the TAC in 24 out of 31 fisheries for which information on this outcome was available. … In most cases, insufficient monitoring and enforcement allowed catches to exceed TACs.

Enforcing the Limit

Sometimes the rent involved in transferable permit programs is used to finance superior enforcement systems. In the sulfur allowance program, for example, the environmental community demanded (and received) a requirement that continuous emission monitoring be installed (and financed) by every covered utility. Coupling this with the rather stringent penalty system has meant 100 percent compliance.

The rents generated by ITQs also have provided the government with a source of revenue to cover the costs of enforcement and administration. In the many of

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