TRADING THIN AIR: EPA's Plan to Allow Open Market Trading of Air Pollution Credits
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TRADING THIN AIR: EPA's Plan to Allow Open Market Trading of Air Pollution Credits (June, 2000)
As part of its effort to "reinvent" government, the
Clinton-Gore Administration has embraced
"market based solutions" in the form of pollution
trading programs. "Emissions trading" allows
facilities to buy and sell the right to pollute. What is
traded under these policies is a "credit,"
representing emission reductions, which is used as
an alternative means to show environmental
A proposal the Administration advanced this fall
goes well beyond traditional air emissions trading
concepts in which trades are limited to one
economic sector and only one type of pollutant.
The new plan would allow inter-sector or open
market trading (OMT). Under this new plan,
facilities can increase or maintain their current levels
of "smokestack" pollution by removing mobile
pollution sources such as old cars, leaf blowers,
lawn mowers, etc.
The Administration is now poised to begin approving state implementation of
OMT despite an array of unresolved problems which, according to EPA
employees, could cripple enforcement of the Clean Air Act against stationary
sources of pollution.
Obsessed with the prospect of obtaining an election-year "win-win" solution
that promises to decrease pollution while cutting back regulation, EPA
managers have ignored glaring technical deficiencies, glossed over severe
enforcement problems and muzzled internal dissent. As a consequence, the
Clinton-Gore Administration has allowed its fixation on developing market
based solutions to distract it from its primary responsibility of protecting public
As explained in Trading Thin Air, there are three major defects with the OMT
First is the absence of "quantification protocols," i.e., the technical
procedures for creating a common, verifiable currency for trading.
Quantification protocols ensure that a trade is an "apples-to-apples"
exchange. The EPA's own Inspector General (IG) has raised this failing
in several reviews, yet EPA management has overridden the IG's
findings of a "material weakness" to proceed with its proposal.
Second, the plan is utterly dependent upon an enforcement role which
EPA cannot fulfill. EPA's enforcement programs already have serious
limitations and are in no condition to support new, more complex
Third, EPA's concentration on OMT has indefinitely delayed submission
of air pollution control plans for all federally designated urban
"nonattainment areas" — areas disproportionately comprised of poor
and minority populations who are bearing the primary health
consequences of excessive air pollution.
Under OMT, cost reduction for industry would replace public health as the
driving force behind compliance strategies since markets, not EPA, set the
standard for quality. The consequences for air quality would be direct yet
uncontrollable as state after state would be able to opt out of known and
certain compliance and attainment strategies and opt into new market-based
regimes where everything would be negotiable but little would be verifiable.
While EPA struggles to finalize these policies, it has turned a blind eye on
several states which have already proceeded with open market trading. As the
number of states and sources evading their Clean Air Act responsibilities by
way of this "don't ask don't tell" policy has grown, EPA has found itself in a
frantic rush to "grandfather" the past noncompliance.
The effects of this noncompliance may have serious public health
consequences. Since the OMT plan allows "cross-pollutant" trading, a
company may increase its emissions of a highly toxic chemical (such as
benzene) if another company decreases its emissions of a relatively non-toxic
chemical (such as nitrogen oxide or NOx). Thus, more deadly pollutants could
remain unabated in return for reductions of chemicals with little direct results for
public health. When several industrial facilities purchase pollution credits in one
geographic area, concentrations of pollutants could create toxic hot spots.
Heavy polluting industries that would most benefit from open market trading
operate in low income urban areas, a factor which would exacerbate the
environmental inequality inflicted upon the less affluent neighborhoods and the
people who reside in them. Unfortunately, the Administration fails to credibly
address the "environmental justice" effects of its own proposal.
Driven by the desire to unveil a "re-invention" regulatory success story during a
presidential election year, EPA managers have deliberately turned a blind eye
invoking powers to override negative IG findings and warning
employees about the legal and professional consequences of disclosing
tolerating a web of incestuous interconnections between top agency
policymakers and the corporate creators of OMT; and
encouraging "demonstration" trades of essentially worthless emission
credits (in lieu of meaningful pollution reductions or fines) in a tortured
effort to show that a pollution marketplace can work.
In the end, EPA was simply trading thin air.
This reports concludes with the recommendations of concerned employees on
how to back out of this ill-conceived drive for premature approval for open
market pollution credit trading and tackle the underlying problems that need to
be addressed before any market-based compliance schemes can be relied
upon to protect public health and air quality.
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