Air Pollution Credits: Innovative Solution To Combat Air Pollution

Air pollution credits, also known as emissions trading, are a way of dealing with pollution on an open market. The system, which emerged from the federal Clean Air Act of 1977 and 1990, allows companies to earn credits by reducing their emissions beyond what is required by permits and rules. These credits can then be used to offset future increases in emissions or sold to other companies that need to compensate for exceeding their emissions caps. The goal of the pollution credits system is to provide flexibility for businesses while maintaining standards for cleaner air and incentivizing companies to meet environmental goals.

Emission Reduction Credits (ERCs)

The ERC system was established as part of the 1977 Clean Air Act Amendments and expanded in the 1990 Clean Air Act Amendments. It is a "'cap and trade'" system that allows utilities and manufacturers allowances to emit specific amounts of pollutants. Companies that reduce emissions below the required level earn ERCs, which they can use or sell to companies that need emission offsets. An emission offset occurs when a company compensates for an increase in emissions in one area by decreasing emissions in another area or by purchasing ERCs from another company.

The value of an ERC depends on district rules and fluctuates over time. ERCs are issued and traded in units of tons per year, and one credit is equivalent to one ton of air emissions. Companies that own ERC certificates may use them in whole or part to meet New Source Review requirements when adding new facilities or equipment.

ERCs are only issued for reductions that are quantifiable, enforceable, permanent, and surplus. The reductions must be of actual emissions, and ERC certificates are only issued when these criteria are met. The ERC system has been praised for providing incentives for companies to meet environmental goals while maintaining flexibility in compliance with air quality standards.

However, critics of the system argue that it merely transfers responsibility for pollution without holding the polluting entity accountable for the poor air quality it has caused. They suggest that while the system may reduce overall pollution, it does not address the local impact of pollution, as seen in the case of New York, where the state accumulated pollution credits by selling them to other states, only to have the pollution blown back over state lines.

Cap-and-trade programs

Under this system, a company can earn pollution credits by voluntarily reducing polluting emissions beyond limits dictated by the EPA. These earned credits can then be sold to another company that has trouble keeping its emissions within permissible limits, or they can be saved for future use. The 'cap' portion of the system refers to the specific amount of emissions that may be discharged within a state, region, or country. The 'trade' portion refers to the ability of companies to buy and sell these credits.

Different "cap and trade" allowances apply to the most common pollutants, sulfur dioxide and nitrogen oxides, which contribute to acid rain, smog, and ozone depletion. Each allowance, or credit, is a trading unit equivalent to one ton of air emissions. The EPA exacts annual penalties for companies whose emissions exceed the number of allowances. The practice of pollution credits bartering has proven beneficial in reducing air pollution and providing an incentive for companies to meet environmental goals. For example, the EPA's national acid rain program to reduce sulfur dioxide resulted in a decrease of six million tons of emissions per year compared to 1980 levels. Nitrogen oxide levels were reduced by 50% compared to 1990 levels as a result of a program undertaken by several northeastern states.

Emission Reduction Credits (ERCs) are a type of pollution credit that companies earn when they reduce emissions beyond what is required by permits and rules. ERCs can be used by their owners or sold to companies that need emission offsets. An emission offset occurs when a company compensates for an increase in emissions in one area by decreasing emissions in another area. For example, if a company is expanding and the expansion will involve an increase in emissions, this company can use ERCs to offset the emissions increase. ERCs are restricted to the Air District they are generated, however, ERCs within two Air Districts in the same Air Basin can be transferred with the approval of both District Boards.

Pollution credits as a commodity

Pollution credits, also known as emission reduction credits (ERCs), emerged from the federal Clean Air Act of 1990 as a way for businesses to navigate regulations aimed at reducing air pollution. The Environmental Protection Agency (EPA) and individual states have implemented a "cap and trade" system that allows utilities and manufacturers to emit specific pollutants up to a certain limit. Companies can earn pollution credits by voluntarily reducing polluting emissions beyond the limits set by the EPA. These credits can then be sold to other companies that exceed their permissible emission limits or saved for future use.

The "cap and trade" system offers flexibility to companies while maintaining standards for cleaner air. Each allowance or credit is a trading unit equivalent to one ton of air emissions. The EPA imposes annual penalties on companies whose emissions surpass their allowances. The practice of pollution credits bartering has been successful in reducing air pollution and incentivizing companies to meet environmental goals. For instance, the EPA's national acid rain program led to a significant decrease in sulfur dioxide and nitrogen oxide levels compared to previous years.

Despite the positive outcomes, critics argue that the system merely transfers responsibility without holding the polluting entity accountable for the poor air quality it has caused. In addition, attempts to reduce regulations and provide more incentives have been met with suspicion, with critics fearing a potential increase in pollution. Nevertheless, pollution credits have become a valuable commodity in the global market, providing financial relief to businesses while contributing to environmental goals.

Carbon credits, a type of pollution credit, are also gaining prominence as an important commodity class. They serve as permits that allow companies to emit a specific amount of carbon dioxide or other greenhouse gases. By assigning a price to carbon emissions, carbon credits create an economic incentive for businesses to reduce their environmental impact. Carbon credits and offsets are traded in markets, with carbon credits flowing vertically from companies to regulators and offsets being exchanged horizontally between companies.

Clean Air Act of 1990

The Clean Air Act of 1990 was a landmark piece of legislation that significantly improved air quality in the United States and addressed several major environmental and health concerns. The Act's amendments introduced a range of measures to curb air pollution and protect the health of Americans, while also promoting sustainable economic growth and sound energy policies.

One of the key features of the 1990 Clean Air Act was the introduction of "pollution credits" or "emission reduction credits" (ERCs). This system, known as "cap and trade," was designed by the Environmental Protection Agency (EPA) and individual states to provide flexibility to businesses while maintaining standards for cleaner air. Under this system, companies could earn credits by voluntarily reducing polluting emissions beyond the limits set by the EPA. These credits could then be traded or sold to other companies that needed to offset their higher emission levels. The value of an ERC is determined by the market and can fluctuate based on supply and demand.

The Clean Air Act of 1990 also targeted four specific environmental threats: acid rain, urban smog, toxic air pollution, and the depletion of the Earth's ozone layer. Acid rain, caused primarily by sulfur dioxide emissions from power plants, has seen a significant decline since the Act was implemented, with an over 80% reduction in sulfur dioxide pollution. The Act also led to substantial reductions in nitrogen dioxide levels, with a more than 50% decrease since 1990, and a notable improvement in the Earth's ozone layer.

Additionally, the 1990 amendments to the Clean Air Act expanded the EPA's authority and reach. The EPA was authorized to implement a national operating permit program, known as the "Title V Program," which required large businesses to address and report on pollutants released into the air. The EPA also gained the power to regulate non-road engines, including locomotives, heavy equipment, and marine transport, further reducing transportation-related air pollution.

The Clean Air Act of 1990 enjoyed strong bipartisan support, passing with a 93% majority in the House and an 89-11 vote in the Senate. The Act's success in improving air quality and public health is undeniable, and it has served as a model for subsequent environmental legislation and international agreements, such as the Paris Climate Agreement. However, despite the progress made, there is still work to be done to fully address air pollution and its impacts on human health and the environment.

Criticisms of the trading program

The principal argument against trading programs is that they do not guarantee improvements to air quality in the areas most affected by air pollution. While such programs may improve air quality overall, they do not necessarily reduce emissions at sources that contribute the most to local air pollution and its resulting health problems. For instance, a study found that the risk of premature death due to the pollution emitted from the Salem Harbor plant was five times higher for a person living within 31 miles of the plant than for someone living further away.

Another criticism is that trading programs do not ensure a reduction in the harm caused by air pollution to the surrounding environment, such as acid rain. Furthermore, environmentalists argue that trading programs do not guarantee that people living near plants will experience improvements in air quality, which could improve their health.

Some critics also charge that carbon trading perpetuates existing imbalances, such as an industrialized North versus a pre-industrial South. This is because carbon emissions may accumulate in one area as a big local emitter continues emitting carbon by buying credits from sources in other areas. This can result in the creation of toxic hotspots and sacrifice zones, with adverse health effects on community residents, such as decreases in life span.

Additionally, the early EPA reduction credit programs were criticized for their poor performance, burdensome and time-consuming administrative approval processes, and high transaction costs, which made trading difficult.

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