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Keywords:

  • emissions trading;
  • cap and trade;
  • allocation;
  • compliance;
  • affirmative motivations

Early emissions trading programs have obtained a very high rate of compliance, in part by using continuous emissions monitors (CEMs) that automatically record emissions data on a 24-hour basis. As they expand into a wider range of pollutants and sources, however, such policies will have to rely on less automated forms of self-reporting. This article asks if improved “affirmative motivations” for compliance based on perceptions of a policy's fairness could reduce the likelihood of underreporting, thereby lowering verification costs without unduly jeopardizing environmental integrity. Using a computerized laboratory emissions trading market, we find that many subjects reported emissions honestly in situations where dishonest reporting would have been more profitable, as well as a statistically significant association of affirmative motivations based on perceptions of a policy's fairness with honest reporting. These results suggest that designing an emissions trading program to increase its perceived fairness among users has the potential to increase honest emissions reporting and reduce monitoring costs.