Trading away air pollution Clean deal: Flexibility leads to savings, faster cleanup achievement.

June 28, 1996

BASIC ECONOMICS teaches that lower prices increase demand. If so, why has trading been so sluggish in air pollution rights for utilities and industry since Congress authorized the system six years ago? And why have the affected plants cleaned up their act faster than predicted?

The broadest answer may be flexibility of the 1990 legislation, which tells polluters what to achieve without telling them how. The pollution allowances, sold by companies that clean up more than required to those that have not met their reduction goals, are only a part of the system that has spurred price competition for alternatives.

Utilities have reduced sulfur dioxide emissions by 50 percent, at a cost nearly 70 percent lower than previous federal programs, ++ as pollution-allowances trade for one-tenth the price predicted back in 1990. But prices for smokestack-scrubbers on plants and for low-sulfur coal have also fallen significantly, indicating a healthy price competition.

Some of the drop in pollution is due to lower economic growth, Improved technology and tighter emissions limits might produce similar results over time. But the flexibility and competition of the trading program have helped to drive the accelerated cleanup.

Valid concerns remain that "hot spots" of air pollution can form in areas where polluters buy allowances instead of cutting emissions. And regional goals may conflict with national ones: upwind polluters buying pollution rights can spoil the air of vulnerable areas downwind.

Environmental advocates also suspect that government-set "caps" on pollution, which determine how many allowances can be sold, may be too high and encourage too little action.

Pollution allowance programs are growing, both regionally and nationally, as federal emissions standards tighten and the Environmental Protection Agency plans a national system to trade ozone-causing pollution allowances. The trade-off is for greater efficiency, not for dirtier air.

Pub Date: 6/28/96

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