Environmental policy in the U.S. is often enacted at both the federal level and the state level. This dissertation uses unique data derived from a combination of a detailed simulation model of the U.S. electricity sector and an integrated assessment model of air pollution dispersion and valuation to examine three problems in state and federal environmental policy. These data represent the “taxes” (or shadow cost of abatement) on sulfur dioxide and nitrogen oxides that are efficient for each state when considering only their own costs and benefits, and also the level of federal uniform tax on the same pollutants that maximizes each state’s net benefits. This data is used in three analyses. First, we examine the case of environmental federalism. Differences in spillovers across states, together with differences in population density and local cost structures create substantial spatial heterogeneity in the economics of air pollution. Uniform federal control and state level control both have advantages and disadvantages, and it is unclear which is more efficient. For the case of sulfur dioxide (nitrogen oxides), when states choose their own level of pollution, 31.5% (76.2%) of the potential benefits under the nationally optimal scheme are lost. The uniform tax only results in a loss of 0.19% (2.32%) of the potential benefits. The data derived, which are directly based on the costs and benefits of air pollution, provide a broad measure of constituent interest. These variables are used to explain state adoption of green electricity policies and federal legislative voting on environmental issues. In contrast to previous studies, it is found that constituent interest and ideology are both important determinants in the formation of environmental policy. Lastly, it is widely known in the literature that states act strategically when choosing policies. This result also persists for state-level environmental stringency. We use unique weighing matrix specifications to distinguish between tax competition and competition based on spillover effects. It is also shown that higher marginal damages of pollution limit strategic behavior.