The right to spew pollution, the need to hold one's nose

The Economy

September 29, 1997|By Jay Hancock

IF YOU DON'T want to spend $100 for a scalped, upper-reserve seat at the Orioles-Mariners playoffs, consider something in the same price range: the right to pump a ton of sulfur dioxide gas into the troposphere.

For about $90 at the Chicago Board of Trade, you get a genuine SO2 emissions certificate and the blessings of economists.

Don't have your own 100-megawatt electricity generator to use the permit on? You can resell it to somebody who does; maybe you'll make money.

Or you can hold on to it, shove it into the drawer with the rubber bands and the pizza coupons, and forever cork up a tiny batch of pollution.

Sulfur dioxide causes acid rain, which helps the azaleas but kills fish and trees and melts buildings.

To many economists, pollution-permit trading is a natural step for a society that has already coined thriving secondary markets in MasterCard debt, insurance death-benefit futures and even state lottery annuities.

If a lottery winner can sell future interest in a jackpot payout to investors, why can't Baltimore Gas and Electric Co. auction its pollution licenses to the highest bidder?

It can and does.

To little publicity, BGE has pulled up a seat at the $5 table in the emissions- allowance trade. It has paid factories in other parts of the country for minor rights to spew sulfur dioxide skyward, transferring the rights -- and eventually the pollution -- here. And it has sold permits on the open market, sending BGE pollution elsewhere and banking some cash in return.

"We're likely to buy allowances now," said John Hattrup, supervisor of environmental services for BGE's generation business. "They're relatively inexpensive -- a lot less expensive than what people anticipated."

Pollution permits have value because they're scarce and getting scarcer. The Clean Air Act of 1990 requires a 60 percent reduction in sulfur dioxide discharges from levels of the mid-1980s to 2000.

Rather than prescribe a 60 percent cut for each polluter,

as governments are wont to do, U.S. regulators opened a new book, on economists' advice. By making SO2 allowances fungible, they've ensured that reductions will be achieved at the least national cost.

Plants that can cheaply scrub their smoke, will.

Plants that can't are able to buy the surplus allowances of the plants that can. The countrywide result will be the same as if the Environmental Protection Agency simply ordered every factory to abate by 60 percent. The expense will be far less.

One exhibit of the scheme's wisdom, supporters say, is that it annoys the purest free-market economists as well as militant environmentalists.

"It's an efficient way to get to what is likely the wrong place," said Rick Stroup, an economist with the Political Economy Research Center, a pro-market think tank in Montana.

As long as bureaucrats are going to limit pollution, Stroup likes permit-trading. But in many cases, he doesn't think the government ought to be dictating SO2 discharges in the first place. Let's leave most of that to the courts, the polluters, and the plaintiffs who can actually prove harm, he said.

Environmentalists suspect permit trading because it spawns the inequities and unsavoriness typical of market setups. Chicago brokers peddling "licenses to pollute" don't fetch applause at Sierra Club meetings.

In New York, for example, Gov. George E. Pataki has stuffed his briefcase full of nitrogen oxide allowances and offered them free to manufacturers moving to the state. Thanks to a Pataki deal with a new glass plant, the air over New York's Finger Lakes region will be soaking up an extra 150 tons of nitrogen oxide a year.

BGE, for its part, expects to be a net buyer of SO2 credits in a few years, Hattrup said. Why? With discharge limits shrinking, shopping for permits in Chicago will be a lot cheaper than if BGE actually had to clean up its own plants.

Three years from now, the country's smokestacks together will emit only 40 percent of the sulfur dioxide they pumped out in the 1980s. It might even be less: School groups and other environmentalists have bought SO2 credits and ripped them up.

But markets seldom do anything equitably. Let's see how Marylanders like breathing some other state's sulfur, imported by BGE.

Pub Date: 9/29/97

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