In the last thirty years, two opposing trends have emerged in environmental policy: environmental justice and market-based mechanisms. They present fundamental tensions. The environmental justice movement’s distributional goals conflict with market programs’ focus on cost-effectively achieving aggregate goals, without regard to distribution. And the environmental justice movement’s participatory goals conflict with market programs’ focus on industry autonomy and privatized decisionmaking. The tension between environmental justice and markets is arising in the context of cap-and-trade programs for greenhouse gases (GHGs). While GHGs do not impose localized harms, GHG trading policies nonetheless raise distributional issues because GHG gas emissions are inevitably accompanied by co-pollutants that do.

After exploring the tensions between environmental justice and market goals, this book chapter articulates the importance of designing policies that attempt to achieve both justice and efficiency. Addressing the co-pollutant consequences of GHG trading policies could better serve overall social welfare than a narrow focus on GHG reductions alone. Incorporating arguments first articulated in Environmental Justice and Domestic Climate Change Policy, 38 ENVIRONMENTAL LAW REPORTER, NEWS & ANALYSIS 10287 (2008), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1077675, the chapter proposes several practical design mechanisms that could incorporate greater equity into cap-and-trade programs. Exploring the tension between equity and efficiency, the article addresses the potential economic and administrative efficiency consequences associated with each mechanism to achieve equity.