A mixed bag: assessment of market performance and firm trading behavior in the NOx RECLAIM program

Tradable permit markets have become an increasingly popular tool to address environmental policy problems. This paper examines the performance of one particular emissions trading market, the Regional Clean Air Incentives Market (RECLAIM) that started operating in Southern California at the beginning of 1994. It first describes how the RECLAIM program is designed and then describes and evaluates the performance of the market by analyzing trading and price data of NOx emission credits. We find that a considerable number of trades have occurred in the market, however, we also find that many facilities are not significantly participating in the market. We conclude by focusing on the firm's perspective in order to attempt an explanation of trading behavior observed to date.