Pollution Credits

Pollution Credits A market based approach to alleviate pollution while stimulating economic growth Definition Pollution Credit: An amount of pollutants that a given industrial firm, utility, or state that can be deposited into the atmosphere within a given year. If the firm produces less than it’s allotted quota, then it can sell their extra pollutants to other companies. History    Based on Lead and CFC credit trading in the 1970’s Trading began in 1990 with the creation of the Clean Air Act Orginally targeted SOX emissions Clean Air Act     Established in 1990 by President Bush (Senior) Designed to curb three major threats to the nation’s environment; Acid Rain, Urban Air pollution, and Toxic Air emissions Establishment of a national permit program to make law realistic Improve enforcement program to insure compliance with the Act Policy Components -Netting - intra-plant trading - New Source Review - Offsets -non-attainment areas able to achieve economic growth when they failed to meet NAAQS under the clean air act Policy Components cont… -Bubbles -“Emission Averaging” - voluntary generation of ERCs - Banking - Firms ability to store certified ERCs in an emissions bank Cap-and-Trade system    Cap: the total amount of pollution that sources can emit- it is set to meet specific environmental goals. If you are under your cap you get credits which you are allowed to sell or trade. If you are over your cap and have not purchased any credits there are automatic significant penalties. Emission Markets  - Six different markets EPA Emissions Trading Program S. California’s RECLAIM program Lead Phasedown program Acid Rain program CFC phasedown Effluent Trading - - - EPA Emissions Trading Program    Intra-state airsheds EIP (economic incentives program) ERC: a one ton decrease in air emissions of a particular type. - Five Criteria 1. real 2. Permanent 3. Quantifiable 4. Enforceable 5. Surplus RECLAIM Southern California -NOX 320 stationary sources -SOX 40 sources  1440 tons of pollution per year since 1989  Cap-and- Trade system  RTCs -weather patterns  Lead Phasedown Program      National program 1979-1987 Targeted production rights at petroleum refineries (gram per gallon) Lead Banking Lead trading Acid Rain Program      National SO2 trading Allowance gives holder right to emit 1 ton of SO2 in a specified or later year Goal: 10 million ton reduction in SO2 emissions by electric utilities from their 1990 level 100% compliance by utilities and SO2 23-39% below the required levels in 1997 CFC Phasedown        International Allowance trading system for five major CFCs and halons Similar to Lead Phasedown program Strict production limits Allocated by EPA to 28 CFC and halon producers Allowed trading between countries that had signed Montreal Protocol (1987) 750 trades for 430 kg of CFCs, robust market Effluent Trading     Watersheds small compared to air pollution trading Point vs. Nonpoint sources Monitored by federal, state, and local environmental agencies Ex. Minnesota, Colorado, New York, Wisconsin  Economics      Low transactions costs between companies when trading credits. More efficient- companies can decide when and how to comply to pollution requirements set by government. Fewer administrative resources needed by industry and government. Drives down cost. According to EPA estimated to save two billion dollars a year. Impact on the Environment -Decrease in smog -Mercury in the environment -BWCAW -clean air for this generation and ones that follow -Acid Rain -ecosystem protection -point vs. non-point polluters Issues  Hg considered to be to dangerous to public health and the environment. Trading of this pollutant shouldn’t be done. New York’s air policy is more stringent than Federal policy. Because of this they build up pollution credits, which they sell to the Midwest. People argue this is bad, due to pollution in the Midwest that follows air currents to New York, creating acid rain.  Clear Skies Initiative Simplification of rules “We made them easy to understand. We trust people in this plant to make the right decisions” -Bush -Step backward in America’s campaign for clean air -aimed at nitrogen oxides, sulfur dioxide, and mercury  Battle Royale     Clean Air Act 1990 Mercury pollution limited to 5 tons per year by 2008 Nitrogen Oxide pollution levels to be at 1.25 million tons per year Limits pollution of Carbon Dioxide     Clear Skies Initiative Mercury limits set at 26 tons per year by 2010 Nitrogen Oxide pollution levels to be at 2.1 million tons by 2008 Delays enforcement of public health standards for smog and soot until 2015 Discussion Question  Bush has proposed to increase the amount of pollutants that can be emitted into the atmosphere i.e. Mercury etc. -by doing this will the value of pollution credits be lessened. If so how will this affect the market for pollution credits?