Tuesday, February 19, 2008

More About SOx Cap & Trade in the U.S.

I wrote a paper on SOx trading in the U.S. last semester and thought I would add to what Dr. Webber talked about today (2/19) in his lecture. SOx trading in the U.S. has been by almost all measures a resounding success. The health benefits of reduced SOx emissions outweigh the costs of emissions abatement by about a factor of 100 and the program has achieved nearly 100% compliance, compared to 80% for most others federal air pollution control regulations (Gerald Visgilio and Diana Whitelaw. 2007. Acid in the Environment Lessons Learned and Future Prospects).

A key to the success of the program was that the system allows emitters to bank emissions credits for future use or sale. This creates buy in to the program because emitters with banked emissions permits have an incentive to support the program and allows emitters to avoid installing back-up abatement equipment.

Emitters found innovative ways to meet emissions targets. Power plants used low-sulfur coal from western states and increased investment in railroad infrastructure and railroad deregulation drastically reduced transportation costs for western states' low-sulfur coal. Power plant operators became better at operating the abatement equipment and the efficiency of the equipment improved, further reducing costs. Economies of scale in manufacturing reducing capital costs for power plants installing abatement equipment as well (Choosing Environmental Policy).

The EPA recently introduced a new rule further reducing SOx emissions from power plants in eastern states via the Clean Air Interstate Rule (CAIR), which takes effect in 2010 (here). Resources For the Future wrote an interesting report showing that the CAIR is not strict enough and greater economic benefits are possible from stricter standards (here).

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