Editor's Column: Emissions Trading Is Move In Right Direction

16 February 2001

By Stentor Danielson

I may have been just a little bit wrong.

Like many others, I was concerned throughout last year's Presidential campaign about the environmental effects of a George W. Bush administration. This worry (as expressed in my column "Bush Has A Long Way To Go On Environment," in the April 7, 2000 issue of The Maroon-News) was highlighted by the fact that Bush's opponent, then-Vice President Al Gore, was noted for his commitment to the environment.

Bush seemed to confirm my fears when he promised to review (political-speak for "try to overturn") many of Bill Clinton's eleventh-hour executive orders. Many of these orders were environmental regulations that Clinton was unable to muscle through a Republican-controlled Congress. I concede that Clinton may have overstepped his authority in making many of his last-minute orders, but I doubt Bush opposes them purely on procedural grounds.

So I was pleasantly surprised to hear what the Environmental Protection Agency (EPA) has been up to since Christie Whitman took over. Michigan and New Hampshire have received approval for emissions trading programs similar to the ones that the Clinton administration allowed in Illinois and New Jersey just before it left office. Though denounced by more anti-market environmental groups, emissions trading is a great opportunity for Bush to make some progress on the environment without damaging his conservative credentials.

Emissions trading began as a 1995 compromise between Clinton and Congressional Republicans. The premise is that businesses are offered incentives, rather than regulations, to get them to institute more environmentally-friendly practices. As Whitman told the Senate Environment and Public Works Committee at her confirmation hearing, "We will offer the carrot first, but we will not retire the stick."

Under an emissions trading scheme, pollution regulations remain the same. But companies that surpass their targets are able to sell that margin as "pollution credits" to other companies that cannot meet the standards.

Say, for example, the target is 50 units of pollution per day and Company A is able to install new equipment that reduces its pollution to 30 units per day. Company A can then offer those 20 units of extra pollution to Company B, which is having a harder time cutting its emissions. The end result is the same, whether pollution is 50 units from A and 50 from B, or 30 from A and 70 from B. And it spares us the time and expense of prosecuting Company B for violating clean air and water standards (producing 70 units per day of pollution in the meantime) while Company A continues to produce 20 units per day of pollution that, with a little incentive, it wouldn't have to produce.

To cite a real-world example, utility PSE&G was able to earn pollution credits by switching from coal plants to natural gas. It made a profit selling those credits to the pharmaceutical company Merck, which was not able to upgrade to compliance as fast.

Used properly, market incentives can dispel the myth that corporations and environmentalists must be enemies. Programs like emissions trading make it cost-effective for industry to institute environmentally-friendly practices. Companies that can reduce emissions more than required by law have a strong incentive to do so, while excessive emissions are a financial (and hence all too real) burden, rather than simply a legal problem (which can be weaseled out of). This makes environmental standards easier to enforce, as markets are self-regulating, as well as making them more palatable to legislators with more conservative economic philosophies.

Of course, a commitment to market-based incentives for pollution reduction could create some problems. Negotiations on reducing greenhouse emissions held last November at The Hague broke down because the European Union favored more rigid national targets while the United States refused to budge on its proposal for tradable emissions credits.

These credits are a good idea. Rich, developed countries like the United States are encouraged to push to the frontiers of pollution-reducing technology. Meanwhile, onerous environmental regulations don't shoot down progress in poorer nations, as the situation must often get worse before it gets better. At the same time, total global emissions are still reduced, but they are redistributed to where their production does the most good.

Of course, this would need to be coupled with debt relief and capital investment programs that would (in addition to improving developing countries' economies and standard of public services) make developing nations able to buy credits. This just goes to show that environmental, social, and economic problems are all intertwined.

Hopefully, Bush can learn from the EPA that environmental protection does not have to be anti-business. It is possible, with plans like emissions trading, to use business's own economic mechanisms to make the world cleaner, healthier and safer.

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