Friday, February 10, 2006

Clear Skies... "Caps" on emissions

The Clear Skies Initiative will cut air pollution 70 percent, using a proven, market-based approach that will save American consumers millions of dollars.”
“Build upon the 1990 Clean Air Act’s acid rain program, America’s most successful clean air law in the last decade, and encourage the use of new pollution control technologies.”

Consumers save because it’s an “encouragement program”. It’s another way of trying to get people to create new innovations to better reduce pollution. Since the creation of the Clean Air Act our pollution has declined by 29% (which is based off of 6 pollutants), yet our economy has grown by 160%. While it has been slightly successful since its creation, it can’t keep pace with our economy. The more rapidly we grow the more pollution we create. The new Initiative is just that, a “push” on the economy to pollute less, OR to create new technology that will help create things with less pollution emission.

First the program need to have the EPA establish new targets based off in-depth research that must first be conducted. Second it wants to reduce the emissions on 3 key pollutants (SO2,NOx, and Mercury). They believe this can be done by adopting a comprehensive, integrated, multi-pollutant approach. Step three is to set national, federally enforced emission limits for each pollutant. They believe that this will in turn create the incentive to create technology that will lower emissions and therefore save money. Step four is all about putting caps on the use of current energy resources, allowing for a long term planning for effective and efficient energy sources.

The Clear Skies Initiative is a more “marker-based” program that rewards innovation and ensuring results. They believe that by setting “caps” on the allowed amount of emissions companies will be more inclined (more like forced) to create technology to allow them to stay under the cap, but produce more at the same time. They also have a trading system that will be set up. This system is set for each company, but they are free to trade "allowances" in the market, as long as the stay with in the required limit. Again this is another way of baiting them to find better ways to run their equipment and therefore benefiting from selling/trading off their unneeded allowances. It says that “This flexibility lets businesses figure out the cheapest way to reduce emissions while government sticks to setting the overall emission cap at a level that guarantees that industry meets ambitious air quality goals.”

Overall I happen to agree with the ideas they are proposing, as long as the “cap” is a reasonable amount. Also I would want proof that they pollutant they are studying as the ones we need to worry about. Are they looking at it as a whole? Can the market itself generate an efficient level of pollution? How would u know when dealing with firms as a whole? Maybe specific firms need different “caps” or allowance levels. How will you know what level will work right with other firms? The ideas themselves are workable, but only if we find the efficient level for each firm. We would need to know the marginal cost curve and marginal damage curve for EVERY firm. That would require a long period of time and TONS of research. And even then I might have to adjust it to get to the right level. Especially if you think about the so called “cheapest method of control” for each firm, they vary. It would require very detailed information from each industry, but also among the plants IN the industry. The authorities assigning the limits don’t have enough info to know what would be best. The plant managers/workers are less inclined to share the info they do have because they would then have to be forced to live up to a different standard.

Lets say that we have all the information we need to set these limits. We implement the caps and allowances for each industry and we see change in a few fields. We see new technology and designs. We then decide to change the caps/allowances. Doing that alone makes planning for the future more difficult. Not all firms and industries are capable of reaching our new cap because the new designs do not work for everyone. Then we have industries moving in different directions. We may have big gaps in terms of technology and emissions. Then we have a bigger problem. Those industries behind are polluting more than the industries that have improved technology. We now have to worry about putting too much pressure on the industries and possibly destroying it. We are treading on very unsure ground.

I think its one of the best ideas we have come up with to better controlling the amount of emissions and the pollutants in the air. However I do see some major flaws in the implantation of it. Again it would require a good deal of research. Which they do not talk about how that will be paid for. I know that the initiative is only based on 3 pollutants, which is another downfall to it. Why only 3? Yes I know this is only a “start” and they are said to be the most harmful ones, but I think we could try to broaden the amount. I’m pretty sure that there are more than 3 harmful pollutants. I suppose that in the LR the technology will allow companies to produce more, as well as more efficiently. But what happens when we do reach our efficient level? Will we become stagnant? What if the EPA push it further and go past the efficient amount of pollution? We all know the government can tend to be “over achievers” and do what is not always in the best interest of the economy.

Seems like the are moving in the right direction though.


Larry Eubanks said...


I suspect by now you may be able to answer your questions since we've discussed a marketable pollution permit system in class.

But, this cap and trade approach to policy is the specific way in which the idea of a marketable permit system for the pollutants in question.

As such, I ask you to note that the point is not really to try to get the efficient or optimal level of pollution, i.e., the level that is pareto optimal. Rather, it truly is an effort to mirror with real policy what we discussed in class. That is, let's try to use policy approaches that will get whatever pollution results Congress decides to achieve at least cost. Much of your discussion in your post is relevant if the effort is to get pareto optimal pollution, but the policy itself really is interest merely in least cost.

Katie Bodden said...

when we write our own policy do we want to go to optimal or least cost?

Is is good to go for least cost or not?

Larry Eubanks said...

You term paper policy analysis probably needs to discuss both optimal pollution and least cost pollution policies.

I suspect you will find some policy proposals will lend themselves to key issues related to least cost while others may well lend themselves to key issues involving proper incentives to correct market failures.