Trade in Pollution Permits

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Trade in pollution permits

Trade in pollution permits augments the traditional approach to environmental regulation by using market principles to control pollution. Since its inception, the program has been criticized as unfair and unfeasible. Yet the concept of trading pollution permits continues to spread.

Most environmental laws limit the amount of waste or pollution each regulated facility can emit to air, water, or land. These limits are then written into permits. Regulators monitor the facility to make sure the permits are followed. Any facility exceeding the permitted level of emissions may be fined or otherwise penalized. This method of controlling pollution is known as command and control.

In 1990, Title IV of the Clean Air Act Amendments became the first federal law to codify a market-based approach to pollution control . The title regulated sulfur dioxide emissions in an effort to reduce acid rain . It set a goal of a 10 million lb (4.5 million kg) reduction in power plants emissions of sulfur dioxide. The law granted each power plant the right to a certain level of pollution. Companies that emit less than they are allowed can sell the remainder of their pollution allowance to other companies.

Title IV redefined pollution as a commodity, like pork bellies or soybean futures. One of the largest trade in pollution transactions took place between two utilities, the Tennessee Valley Authority (TVA) and Wisconsin Power and Light. The TVA, one of the largest emitters of sulfur dioxide, paid several million dollars to one of the cleanest utilities in the country, Wisconsin Power, for the right to emit an additional 10,000 lb (4,500 kg) of the compound. Despite its obvious success, financial analysts and utility industry executives are still skeptical about the fledgling market's future.

If the market does become established, critics fear that trades like the one between the TVA and Wisconsin Power will only become more common. Because the market maximizes profit, certain utilities that are already highly polluting may spend money buying the right to pollute rather than to clean up their production processes. Other, cleaner utilities may continue to provide the extra pollution allowances. Certain parts of the country will have more pollution than others.

Proponents of the market-based approach respond that simply reaching the goal of reducing sulfur dioxide emissions by 10 million lb (4.5 million kg) will benefit the country as a whole. They also see an advantage in making pollution costly, for then businesses will have an economic interest in reducing it.

The debate about the feasibility and fairness of pollution trading continues. Other regional and local authorities, such as the Southern California Air Quality Management District, have considered adopting such measures for their jurisdictions.

[Alair MacLean ]

RESOURCES

PERIODICALS

Allen, F. E. "Tennessee Valley Authority Is Buying Pollution Rights from Wisconsin Power." Wall Street Journal (May 11, 1992): A12.

Mann, E. "Market-Driven Environmentalism: The False Promise." GREEN: Grantmakers Network on the Economy and the Environment 1 (Winter 1992): 1–3.

Portney, P. "Market-Driven Environmentalism: Tomorrow's Success." GREEN: Grantmakers Network on the Economy and the Environment 1 (Winter 1992): 1, 3–5.

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