Emissions Trading, an Exercise in Reforming Pollution Policy

By T. H. Tietenberg | Go to book overview
equivalency condition, but subsequent probing by the Natural Resources Defense Council has produced some apparent inconsistencies.34While state inventory showed the precontrol level of emissions at the vent to be 105 tons per year, the application assumed 201 tons per year. With an assumed 99.5 percent control of the emissions from this vent, the claimed credit was 200 tons per year whereas the actual reduction, according to the inventory, would be only 104 tons per year. If the inventory is valid, the trade would increase actual emissions by some 59 tons per year, not reduce emissions by 36.4 tons per year.Whatever the resolution of this dispute, this case illustrates the importance of having an accurate emissions inventory as a basis for determining equivalency. To the extent actual emissions (as opposed to calculated emissions) increase as a result of an inadequate emissions inventory baseline, air quality deteriorates--a clear violation of the intent of the program. This appears to be one of the most serious threats to the viability of the program--the failure to develop an adequate accounting system to verify the equivalence of emission trades.
SUMMARY
Enforcement under the Clean Air Act involves four main steps: (1) detecting violations, (2) notifying the source of the violation, (3) negotiating and/or litigating a compliance schedule, and (4) imposing sanctions. Though the states have the primary responsibility for enforcement, EPA has the power to bring enforcement actions against polluters not complying with their SIP responsibilities.
Cost-minimizing behavior on the part of sources implies weighing the costs of compliance against the costs of noncompliance. The costs of compliance include not only the control costs, but also the costs of seeking relaxed standards through lobbying and litigation. The costs of noncompliance include the resources committed to negotiation or legal defense as well as the payments required by any monetary sanctions imposed.
The risk-neutral source would minimize its costs when the marginal compliance cost is equal to the expected marginal noncompliance cost. The expected marginal noncompliance cost is the marginal cost of non-
____________________
34
Letter from David Doniger, Staff Attorney, Natural Resources Defense Council to John Hepola, Chief, State Implementation Plan Section, Environmental Protection Agency ( January 10, 1983).

-184-

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Emissions Trading, an Exercise in Reforming Pollution Policy
Table of contents

Table of contents

  • Title Page iii
  • Contents vii
  • Tables ix
  • Preface xi
  • Abbreviations xiv
  • 1 / Introduction 1
  • References 13
  • 2 - /The Conceptual Framework 14
  • References 35
  • 3 - The Potential For Cost Savings 38
  • Summary 56
  • 4 - The Spatial Dimension 60
  • Summary 89
  • 5 - Distributing The Financial Burden 93
  • Summary 120
  • References 123
  • 6 - Market Power 125
  • Summary 145
  • 7 - The Temporal Dimension 149
  • Summary 165
  • 8 - Enforcement 168
  • Summary 184
  • 9 - Evaluation and Proposals For Further Reform 188
  • Concluding Comments 213
  • References 214
  • Index 217
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