The authors empirically examine the consequences of introducing a cap-and-trade program in California, showing that while the program helped reduce greenhouse (GHG) emissions it had the unintended consequence of increasing toxic emissions from treated facilities as facilities cut back on their waste treatment efforts to reduce GHG emissions. We further show that this effect was weaker for more harmful toxins, for facilities that had invested in reducing toxic waste at source, and for those subject to scrutiny from regulators, consistent with it being the result of strategic firm actions.
This paper is forthcoming in Management Science.