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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)

Executive Summary

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 compliance.

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.

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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 health.

As explained in Trading Thin Air, there are three major defects with the OMT plan:

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 responsibilities.

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.

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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 to problems: invoking powers to override negative IG findings and warning employees about the legal and professional consequences of disclosing internal documents; 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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Michael R. Meuser
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MapCruzin.com is an independent firm specializing in GIS project development and data research. We created the first U.S. based interactive toxic chemical facility maps on the internet in 1996 and we have been online ever since. Learn more about us and our services.

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