A License to Pollute

The pollution credit allowance plan, included in proposals for the Clean Air Act Amendments of 1990, is intended to control the emission of sulfur and nitrogen oxides, the pollutants which cause acid rain. The forest and lake damage caused by acid rain could be largely prevented by reducing the total amount of sulfur and nitrogen oxides emitted in a region. The goal of the pollution allowance plan is to reduce the total amount of sulfur dioxide emitted annually in this country by 10 million tons, and also to limit emissions of nitrogen oxides. But many environmentalists are not happy about its projected effect.

The plan would provide pollution allowances for fossil-fuel burning plants, based, in most cases, on the amount of fuel that they burned between 1985 and 1987. After 1995, a plant would be allowed to emit only as much sulfur as it possessed allowances for. In the year 2000, the amount of allowances granted to each plant would be reduced to achieve the desired reduction in sulfur emissions. Though the 10 million ton reduction represents a 40 percent decrease in sulfur emissions, it is still less than the 50 percent reduction called for by the National Academy of Sciences in 1983.

Plants that come on line after the passage of the Act would be required to buy pollution allowances before they could emit sulfur dioxide; older plants that had reduced their capacity or cleaned up their emissions would have extra credits which could then be sold.

Those who designed the plan believe that this kind of market exchange is the most cost-efficient way to achieve pollution control. A plant which finds pollution control too expensive might buy allowances instead of controlling pollution; other plants, it is hoped, will choose to control pollution in order to profit by selling their allowances.

The reaction of environmentalists to pollution allowances has been mixed. Many are critical of the idea of buying and selling pollution rights. "It legitimizes the production of pollution," says environmental scientist Barry Commoner, who calls the plan "an abomination." Peg Stevenson of Greenpeace concurs with Commoner's analysis, saying that pollution allowances "create a right to pollute."

The concept, however, was originally proposed by Dan Dudek, an environmentalist with the Environmental Defense Fund (EDF); and other environmental organizations have joined EDF in supporting the plan. Sierra Club staffer Melanie Griffin, for example, believes that this proposal provides a good way to get pollution regulations enacted. "If the cap works, it will be great," she says. "If it's going to get the Bush administration talking about [acid rain] and it's going to get a bill through the House and Senate, then we might as well give it a try."

Environmental lobbyists expect that pollution allowances will be a part of whatever Clean Air legislation is eventually enacted, since the administration, House and Senate proposals all contain versions of the plan. Because some environmentalists accept it as a foregone conclusion, they are not putting resources into fighting it, even though many are far from enthusiastic about the concept. "I don't think that [pollution credits are] the right way to go," said Gene Karpinski, executive director of U.S. Public Interest Research Group (PIRG), but he added that PIRG is making no effort to challenge the plan.

Many lobbyists voiced dissatisfaction with the plan, but none said that they were planning to oppose the basic idea of pollution credits. Casey Padgett of Environmental Action explains that environmental groups might have fought the proposal, but that it caught them by surprise. "Initially some people believed that it wasn't going anywhere anyway;" he says, " ... then when Bush ... made it the centerpiece of his proposal, it was too late."

A right to pollute

The bill prevents pollution allowances from being considered property rights which would have the constitutional protections accorded to property by the Fifth Amendment, but some critics of the plan fear that once pollution allowances have been granted, they will become "effective property rights" which will be politically impossible to rescind. Padgett says, "In the future, we will want to reduce [emissions] farther. The national goal should be to move towards zero emissions." But he adds that it may "be very difficult to take pollution credits away, or reduce them" once they have been allotted to companies. Griffin also foresees ways in which the plan creates obstacles to further, more stringent regulation. "I can hear [the utilities] saying 10 years from now, 'You can't do this to us, because before you told us something else,'" she says.

Regional differences

The pollution allowances are being given to existing companies in perpetuity. New utilities coming on line will have to buy allowances before they will be able to begin emitting sulfur, so that 25 years from now, it is possible that there will be two nearly identical utility plants constructed at different times producing the same amount of pollution each year, with the newer one (and its ratepayers) being forced to pay a large sum of money each year to the older one in order to buy pollution allowances.

Pollution allowances will also result in a continued health threat to the people living close to plants that choose to buy pollution credits rather than control emissions. Sulfur emissions "create problems for children, old people, pregnant people and asthmatics," according to Greenpeace's Stevenson. In allowing companies such leeway to pollute, "You are trading away the right to good health," says Frances Dumelle of the National Lung Association.

Even in those regions where utility companies choose to reduce emissions, acid rain may continue to cause significant problems, according to Stevenson. "A utility in the Midwest which isn't making any major changes in emissions could buy credits from a clean utility and continue to dump acid rain on the Northeast," she says.

New, non-utility sources of sulfur dioxide will not be subject to the provisions of the pollution allowance plan at all. (They will be required to comply with other provisions of the Clean Air Act.) Although EPA estimates that there will be little net change in sulfur emissions by nonutility sources in the foreseeable future, this loophole could encourage substantial increases in sulfur emissions. Since utilities have to pay to emit sulfur, new factories may soon be designed to generate more of their own energy so that they can buy less from utilities. Thus sulfur emissions from sources that are not subject to the cap would increase. It is also possible that economic or technological change could lead to an unforeseen change in the amount of production by sulfur-emitting industries.

A gift

The strongest opponents of pollution allowances, such as Commoner, not only doubt that the plan will work to reduce emissions but also believe that the fundamental concept is flawed. These critics point out that since plans for allotting pollution credits are generally based on past fuel use and past emissions rates, the companies that were wasteful of fuel (and in some cases companies that polluted excessively) will get the largest allowances. "It sends a message that you can benefit from being a polluter," says Padgett. In addition, most of the versions of the plan contain provisions for special cases under which allowances can be based on future fuel use or emissions rates, which could create a financial incentive for pollution. "We are rewarding pollution instead of punishing it, and that is exactly the wrong thing to do," Padgett asserts.

The plan makes the right to emit sulfur dioxide a financially valuable commodity. At the same time as it creates this asset, Congress is proposing to donate it to the utilities. "At least [the government] should capture some revenue," says Zygmunt Platter, a professor of law at Boston College. Padgett is concerned that the gift will spur other polluters to try to extend the credit system beyond sulfur and nitrogen oxide emissions. "The government is printing free money, and giving this free money to a selected group of polluters," he says. "There will be substantial pressure [from other polluters] to give out more money."

Prevention is the answer

In their eagerness to compromise on a politically viable sulfur- reduction scheme, many environmental groups support a plan that fails to address the long-term problem. What is needed, according to Peg Stevenson of Greenpeace, are "strict limits on every pollution source, with incentives for compliance and penalties for failure." Commoner goes one step further saying, "We now know the only thing that works is prevention ... [the allowance plan] is a cartoon of exactly what not to do." Stevenson says that the plan attempts to find a middle ground but points out that, in order to clean up the air, it is necessary to stop polluters rather than allowing them to pay to pollute. "If plants are too dirty to be operating, they're too dirty to be operating," she says.

Using market forces to encourage self-regulation of industrial polluters is an idea that is quickly gaining popularity among business lobbies and elected officials with campaign obligations to repay. Lynn Thorp of Greenpeace emphasizes, however, that this plan will not eliminate the problem of sulfur emissions.

A proposal similar to the pollution allowance plan has already been made in the Senate version of the Clean Air Act. This proposed regulation would allow companies that emit carcinogenic compounds into the air to continue such poisoning if they first purchase the property of local residents and then move them from the area. "There are a lot of different contexts in which the idea will be promoted," says Padgett, "and it should be vigorously opposed.

Jonathan Dushoff is a researcher at the Center for Study of Responsive Law, working on the Public Assets Project.