Hormesis, hotspots and emissions trading.

Area of Science:

• Environmental economics
• Environmental law
• Toxicology

Background:

• Traditional environmental policy analysis assumes linear relationships between emissions and health effects.
• This study examines the impact of nonlinear dose-response functions, specifically hormesis, on instrument choice.
• Hormesis describes a phenomenon where a substance may be beneficial at low doses but harmful at high doses.

Discussion:

• The article differentiates hormesis from local emissions (hotspots), noting only local effects challenge emissions trading.
• It analyzes how stringent regulatory standards interact with hormesis, suggesting perverse outcomes are unlikely except at the curve's nadir.
• Hotspots raise concerns regarding both harmfulness and fairness.

Key Insights:

• Hormesis does not inherently prevent the effectiveness of emissions trading or taxes.
• The choice of regulatory standard significantly influences the potential for adverse effects under hormesis.
• Market-based instruments can be improved by shifting from emissions trading to risk trading.

Outlook:

• Further research could explore optimal designs for risk trading and risk taxes.
• Policy recommendations focus on adapting existing market-based instruments to account for nonlinear dose-response relationships.
• The findings suggest a nuanced approach to environmental regulation, considering specific pollutant characteristics.