This paper provides an empirical evaluation of the temporal efficiency of the U.S. Acid
Rain Program, which implemented a nationwide market for trading and banking sulfur
dioxide (SO2) emission allowances. We first develop a model of efficient banking and
select appropriate parameter values. Then, we use aggregate data from the first seven
years of the Acid Rain Program, to assess the temporal efficiency of the observed
banking behavior. We find that banking has been surprisingly efficient and we discuss
why this finding disagrees with the common perception of excessive banking in this
program.