Selling the Right to Pollute

April 07, 1993

Pork bellies, heating oil, orange juice, acid rain?

Created by the federal Environmental Protection Agency, air-pollution rights began publicly trading last week like other commodities on the Chicago Board of Trade. A permit to emit one ton of sulfur dioxide -- the principal component of acid rain -- sold for about $140; nearly 300,000 rights (tons per year) were offered for sale.

The pollution rights market rewards utilities that go beyond their government-mandated smokestack cleanup requirements, and provides a hedge for utilities that cannot (or choose not to) meet the ever-tightening government limits on emissions. EPA says the system can help utilities to cut 1980 pollution levels in half by the year 2000.

EPA distributed air pollution rights to the nation's utilities. Even with extra permits, the power plants -- which account for over 70 percent of sulfur dioxide emissions -- would not be able to spew more pollution than they do today.

The danger of marketing "eco-futures" is apparent. Heavier polluters find it much cheaper and easier to buy the rights instead of using cleaner fuel or installing scrubber filters. They defer expenses, hoping that technology will become cheaper or that the rules will be loosened in the future. Meantime, environmental degradation is sold to the highest bidder.

A North Carolina utility bought 96,000 rights, at a third the cost of installing cleanup equipment. An Illinois plant saved 90 percent of the price of a new smokestack scrubber by buying 100,000 rights.

They acted rationally. The losers in the auction are the citizens, who must continue to put up with acid rainfall and dirtier air that should have been reduced by law.

In one lawsuit challenging the system, New York officials argue that the EPA should regulate rights trading between regions, to avoid the windblown drift of acid raid clouds: the Northeast has long complained that dirty coal-burning Midwestern utilities are poisoning its lakes.

Utilities that are cleaner than required could be rewarded in other ways for their virtue, perhaps by tax credits; they should not be allowed to sell their dispensations to sin.

Another danger lurks within the trading system. State regulatory agencies increasingly force utilities to lower consumer rates. Now, these commissions may well demand that power companies buy cheaper short-term pollution rights rather than install more costly cleanup equipment.

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