Evidence of Innovation and Diffusion Under Tradable Permit Programs

There have been five large tradable permit programs (US Acid Rain Program, US Nitrogen Budget Program, Los Angeles Regional Clean Air Management Program, EU Emissions Trading Scheme, and the US Lead Phase Down) in effect long enough to have potentially yielded data to test whether the program altered the rate of innovation and/or diffusion of abatement technology. This paper is an overview of the literature concerning empirical evidence (or lack thereof) of innovation by the firms that comprise the industries affected by these tradable permit programs. We briefly discuss the methods used to determine technological advance and then more thoroughly review existing studies examining advances in pollution control technology under permit programs. Finally, some overarching observations are presented.