Emissions trading policies are most feasible when pollutants are localized rather than widely dispersed across large regions. In fact, localized controls may actually generate regional problems. For example, local SO₂ emissions controls have induced firms to build tall smokestacks so that SO₂ emissions are carried beyond the zone of control and create acid rain far downwind. Federal regulation of acid rain has been controversial because it pits the high-sulfur coal industry in the "Rust Belt" against forestry, aesthetics and outdoor recreation in the Northeast. Midwest electricity rates will rise as utilities install "scrubbers" to reduce SO₂ emissions and/or purchase emissions reduction credits from other Midwest utilities (as allowed under the new revisions to the Clean Air Act.)

Some pollutants are dispersed globally, and require international controls. For example, CFC's are blamed for ozone depletion (ground-level ozone is a pollutant, but ozone in the stratosphere filters out harmful solar UV radiation). 59 countries have signed a 1990 treaty agreeing to phase out CFC's entirely by 2000, and established a fund to subsidize LDC phase-outs of these chemicals. The US is using a marketable permit system for CFC's: permits will be phased out gradually. Windfall profits accruing to permit-holders are captured by an excise tax on CFC's.

Greenhouse gases (e.g., CO₂, methane) supposedly trap excess solar heat in the earth's atmosphere, causing global warming and climatic disruptions. There is a lot of scientific controversy about whether we are actually experiencing global warming or not, and about how much warming (if any) is due to human causes.

Various solutions are under discussion: UN-administered taxes on all industries which generate greenhouse gases, so that industries internalize the full environmental cost of their emissions; international subsidies for reforestation and rainforest protection to absorb more CO₂ in vegetation; the development of an international market in greenhouse gas emissions permits. An international permit market can only succeed if emissions permits are accepted as permanent, quantifiable and enforceable worldwide.

Although uncertainty about global warming is very high, Tietenberg notes that the risks of being wrong about it are asymmetric: excess control of greenhouse gases will retard global economic growth, while too little control could result in global disaster. Note that the very long time horizons of the global warming problem make conventional benefit-cost analyses unreliable (see Example 16.2: the PV of world GNP 100 years from now at current interest rates is only about $1 million!); we need to factor in a little more atruism for future generations. At the very least, we need to eliminate market distortions that actually promote the generation of greenhouse gases. Solving these global pollution problems will require unprecedented international cooperation.