Air Pollution Permits: Can They Be Sold?

The ability to buy and sell the right to pollute has been a topic of debate between environmentalists, health experts, and business leaders. In an emissions trading scheme, a central authority or government body sells a limited number of permits that allow the discharge of specific pollutants over a set time period. These permits can be bought and sold, allowing polluters to either use their permits exactly, emit less and sell excess permits, or emit more and buy permits from other participants. This incentivizes companies to reduce emissions beyond required levels as they can sell unused permits for a profit. However, to environmentalists like Nancy Summers from the Virginia Consortium for Clean Air, the idea of trading pollution credits is perverse and potentially dangerous.

The process of selling and buying air pollution permits

Step 1: Allocation or Sale of Permits

The government or a designated authority is responsible for allocating or selling a limited number of permits, also known as allowances or credits. These permits authorise the holder to emit a specified quantity of a particular pollutant. The permits may be sold through auctions or allocated based on historical emissions data.

Step 2: Polluters Obtain Permits

Companies or organisations that emit pollutants are required to obtain and hold permits equivalent to their emissions. They can purchase these permits from the government, other participants in the market, or through auctions. The cost of the permits is determined by supply and demand in the market.

Step 3: Compliance and Monitoring

Polluters must ensure they have enough permits to cover their annual emissions. They can achieve this by reducing their emissions, purchasing additional permits, or using banked permits from previous years. Continuous emissions monitoring and reporting are usually required to demonstrate compliance with the permit conditions.

Step 4: Trading of Permits

The market-based nature of emissions trading allows participants to buy and sell permits. Companies that achieve extra pollution reductions can sell their unused permits or credits to other companies, often those facing higher costs of pollution control. This trading can be done directly between participants or through brokers or auctions.

Step 5: Enforcement and Penalties

Enforcement measures are crucial to ensure compliance with the permit conditions. Government agencies or regulatory bodies may impose fines, sanctions, or other penalties on polluters who exceed their allowances or fail to comply with reporting requirements. Continuous monitoring and verification by government agencies or third-party auditors may be necessary.

Step 6: Overall Emission Reductions

The goal of the emissions trading program is to reduce overall emissions. The government may lower the emission cap over time, aiming towards national or international emissions reduction targets. The trading of permits creates economic incentives for companies to reduce their emissions, as they can sell unused permits and avoid the cost of purchasing additional ones.

The role of the government in selling and allocating permits

The government plays a crucial role in selling and allocating permits, which are a type of government-created license that regulates activities such as air pollution. The initial allocation of permits, known as the "primary market," is typically handled by government agencies, which distribute permits based on historical use or through auctions. These agencies also oversee the trading of permits in the secondary market, where permits are bought and sold following their initial entry into the primary market.

In the United States, the Environmental Protection Agency (EPA) plays a significant role in allocating and managing permits related to air pollution. The EPA issues "operating permits" that consolidate all air pollution control requirements into a single, comprehensive document. These permits are legally enforceable and outline the monitoring, record-keeping, and reporting requirements necessary to ensure compliance with emission limits. The EPA also administers innovative/flexible permits, which provide companies with more flexibility in their operations while maintaining environmental accountability.

The EPA has implemented various market-based regulatory approaches, such as emissions trading programs, to reduce air pollution. One prominent example is the Acid Rain Program, which uses a cap-and-trade system to limit sulfur dioxide (SO2) emissions from power plants. The EPA issues emissions allowances to regulated electric generating units, and companies must hold enough allowances to cover their annual emissions. The trading system provides flexibility in emissions reduction methods and timing, encouraging companies to go beyond the required reductions.

The government's role in allocating and managing permits extends beyond air pollution to other areas, such as water resource management and fisheries. These programs aim to balance economic incentives with environmental sustainability by setting limits and allocating permits to potential users. The specific design and implementation of these programs vary depending on the resource being managed and the governing bodies involved.

The benefits of emissions trading

Emissions trading is a market-oriented approach to controlling pollution by providing economic incentives for reducing the emission of pollutants. It is also known as cap and trade (CAT) or emissions trading scheme (ETS).

Cost-Effectiveness

Emissions trading has been shown to lower the cost of meeting emission reduction goals. Well-designed emissions trading programs can reduce compliance costs by up to 50% compared to command-and-control alternatives. This is because emissions trading provides sources with the flexibility to find and apply the lowest-cost methods for reducing pollution.

Accelerated Environmental Achievements

The use of emissions trading has enhanced the achievement of environmental goals. The achievement of required emission reductions has been accelerated when emission reduction requirements are phased in and firms are able to bank emission reduction credits. For example, the Lead Trading program for gasoline, the Acid Rain program, and the Northeast NOx Budget Trading Program all achieved environmental goals faster through these program design features.

Improved Incentives for Innovation

Emissions trading provides greater incentives for innovation. By allowing sources to find the lowest-cost methods for reducing pollution, emissions trading encourages the development and implementation of new technologies.

Flexibility

Emissions trading offers flexibility in terms of the means and timing of reducing emissions, enabling companies to minimize their compliance costs. For example, companies can choose to reduce emissions by installing controls, switching to cleaner-burning fuel, or adjusting electricity production.

Reduced Compliance Costs

Emissions trading can lead to lower compliance costs for individual firms and the economy as a whole, compared to command-and-control mechanisms. This is because firms will choose the least-cost way to comply with pollution regulations, resulting in reductions where the least expensive solutions exist.

Global Applicability

Emissions trading is particularly well-suited for controlling greenhouse gas emissions, which have the same warming effects regardless of where they are emitted. This means that emissions trading can be global in scope, allowing for the banking of emission credits and inter-temporal trading.

The drawbacks of emissions trading

Emissions trading, also known as "cap and trade", is a market-based approach to reducing pollution. While it is proven to be effective in reducing pollution, there are several drawbacks to this system.

Price Volatility and Market Manipulation

Price volatility, market power, and the potential for market manipulation are factors that may subject emissions trading to failure. This would undermine the effectiveness of emissions trading and lead to distorted market outcomes. For example, the EU emissions trading scheme, which includes 11,000 power stations and industrial plants that produce half of Europe's carbon emissions, has struggled during the economic downturn.

Distributional Impacts and Environmental Injustice

Emissions trading can disproportionately affect lower-income populations and lead to increased pollution concentrations in vulnerable communities. Companies can pass the costs of purchasing permits to consumers by increasing the prices of goods and services. Additionally, different countries have varying priorities, creating difficulties in achieving an international consensus on pollution limits.

Inaccurate Data and Reporting

The estimates for past, current, and future emissions may lack reliable data, and there is a risk of untruthful emission reports and inventories. For instance, the Canadian province of Alberta's emissions trading scheme has been criticized for its lax verification process and inaccurate measurement methods.

Perverse Incentives

Allocating permits based on past emissions can create a perverse incentive for firms to maintain or even increase emissions in order to receive more permits in the future. This can subsidize polluters and reduce the rate of technological improvement towards less polluting methods.

Overall

While emissions trading provides a flexible and cost-effective approach to reducing pollution, it is important to carefully consider and address these potential drawbacks to ensure the effectiveness and fairness of the system.

The process of obtaining an air pollution control permit

Identify Permit Requirements:

Firstly, businesses need to determine if they require an air pollution permit. This typically applies to facilities with equipment that may emit air pollution or is used for controlling air pollution. Examples include internal combustion engines, boilers, concrete batch plants, and operations involving chemical reactions. It is important to refer to the relevant government websites and guidelines to understand the specific permit requirements for your industry.

Apply for Authority to Construct (ATC):

Before constructing or modifying any equipment that may emit air pollution, businesses must obtain an ATC permit. This permit ensures that the equipment is designed, constructed, and operated according to local, state, and federal air quality requirements. The application process may vary depending on the region, but it generally involves submitting a completed application form, providing detailed information about the equipment, materials, and operations, and paying the necessary fees.

Preliminary and Final Review:

Once the application is submitted, the regulatory body will conduct a preliminary review to determine if all the necessary information has been provided. If the application is complete, it will then undergo a final review, where the proposed project is evaluated against applicable air quality rules, standards, and regulations. This includes calculating emissions, performing risk assessments, and ensuring compliance with health-based standards.

Issuance of ATC:

If the proposed project meets all the applicable criteria and standards, the regulatory body will issue the ATC. This allows the business to proceed with the construction or modification of the equipment. It is important to note that there may be specific requirements and conditions outlined in the ATC that the business must adhere to during the construction or modification process.

Construction and Inspection:

After receiving the ATC, the business can begin construction or modification of the equipment. Once the work is completed, the regulatory body will typically send an inspector to verify that the project was built according to the specifications in the ATC and complies with the applicable rules and regulations.

Apply for Permit to Operate (PTO):

Following the successful completion and inspection of the project, businesses must then apply for a PTO. This permit allows the ongoing operation of the facility while adhering to all permit conditions and local, state, and federal air quality requirements. The PTO application process may vary but typically involves submitting relevant documentation and paying the necessary fees.

Reevaluation and Renewal:

Permits are typically reevaluated at regular intervals, such as every three years, to ensure ongoing compliance with air quality standards and to reflect any changes in local, state, or federal requirements. Businesses must stay up to date with the applicable regulations and be prepared to implement any necessary modifications to maintain compliance.

Obtaining an air pollution control permit is a comprehensive process that involves multiple steps and interactions with regulatory bodies. It is essential for businesses to stay informed about the specific requirements and guidelines in their region to ensure a smooth and efficient permitting process.

Frequently asked questions