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Can pollution rights trading effectively control environmental problems?

Can pollution rights trading effectively control environmental problems?

admin / January 8, 2019

Tradeable emissions and pollution rights are increasingly finding use as an environmental policy tool to facilitate in the control of environmental pollutants.

Consequently, a number of firms are now in a position to acquire the rights to emit specific pollutants. This trend started with firms in the United States and the original aim was to enable them reduce their operational costs, in addition to enhancing economic growth, and more so for those companies that were located in highly polluted areas.

However, this trend appears to have changed lately, with more countries utilizing them for water and air pollution as well (O’Brien 2000). Proposals have even been presented that that pollution rights should be adopted in order to enable various countries meet the established greenhouse gas emissions targets by the Kyoto Protocol.

Already, such firms as Shell and BP have created internal systems to enable carbon trading (O’Brien 2000). On the other hand, Canada has already approved the establishment of an internet-based and privately run reduction exchange for greenhouse emission (KEFI-Exchange 2000).

Nonetheless, it is important to note that the aim of pollution rights trading is to reduce costs to organizations, as opposed to increasing environmental gains. In addition, past experiences reveal that environmental gains emanating from emissions trading are often not guaranteed.

At the moment, emissions trading remain one of the most fundamental and controversial issues that faces the field of environmental science. Perhaps what we need to ask ourselves is whether emissions trading are the answer to the various environmental problems that we are faced with.

The underlying principle of the emissions rights trading is that pollutants such as carbon dioxide and sulfur dioxide that are treated as air pollutants could in fact be also treated as tradeable commodities. What this appears to suggest is that when firms emit less pollutions than the maximum allowable limits, they are at liberty to sell the excess pollution in the open market.

On the other hand, firms characterized by high levels of pollution are then in a position to purchase these allowances. As a result, they can either opt to invest in advanced technological systems with the intention of helping clean up such pollutants, or they may decide to continue emitting similar levels of pollutants. The choice is often determined by the most cost-effective alternative.

Regardless of the choice made, neither firm is at liberty to emit pollutant levels that are above the limits mandated by law. In this regard, the onus is on the Environmental Protection Agency (EPA) to establish the desired pollutant targets and then leave the firms with the decision of arriving at the best mechanisms to help them comply with the set laws (Easton, 2008, p. 95).

We need to appreciate the fact that the emissions trading concept differs from the “command-and-control programs” whereby firms are often required to meet certain specific environmental standards.

In addition, firms are advised on the specific technologies that they need to create so that they can meet the established standards. Those in favor of emission trading are convinced that “command-and-control programs” only acts to compel firms to attain the minimum standard requirements, thereby stifling innovation.

When the requirements are establishment in such a way as to give a firm more leeway, such as the availability of incentives that enables it to contribute to a cleaner environment, consequently, such a firm shall be seen to work hard and develop advanced technology (Easton, 2008, p. 94-95).

Several decades ago, the eastern part of the United States was faced with the problem of acid rain. In 1990, the Clean Air Act was amended and as a result, the Acid Rain Program was established. Experts view it as more of a “cap-and-trade program” that has ensured a near four million tons reduction in sulfur dioxide emissions over the last decade.

Consequently, the Northeast region of the United States has witnessed nearly twenty five percent reductions in rainfall acidity. The reason behind the success of this particular program is due to its affordability and simplicity.

Following the success of this program, various companies have come together under the umbrella of the emissions trading scheme. In combination, such companies as DuPont, BP and Ford Motor Company are committed to ensuring that their greenhouse gas emissions reduces by nearly five percent below the levels set in 2005 (Easton, 2008, p. 96).

At the same time, we need to realize that there are various problems that impact on the emissions trading scheme. For example, there is the likelihood of the scheme being abused because of its open market trading policy. Several environmentalists are convinced that those firms whose levels of emission are below the maximum allowable levels are entitled to allowances that they can then opt to sell at a later date.

A majority of the environmentalists are of the idea that when the industry is given the mandate to establish emissions allowance standards, as opposed to leaving this responsibility with the regulatory agency, this will result in its abuse (Easton, 2008, p. 98). Already, there are several firms that have been seen to abuse this privilege.

For example, Duke Power, a company based in North Carolina, is reported to have purchased an equivalent of thirty five percent in the form of sulfur dioxide emissions allowances in the short term, and up to sixty percent of the same, in the long term.

Several other companies have even been reported to have purchase upwards of ninety percent both in terms of long term and short term allowances. One of the challenges that we need to be wary of is that those firms that are in a position to purchase the most allowances shall have the power to dictate the manner in which transactions are carried out in the open market for emissions trading.

In addition, there has been an apparent reduction in terms of credits value and this could perhaps explain why such firms may opt to purchase in large numbers (Easton, 2008, p. 102-103).

Emissions’ trading is also faced with the problem of establishing emissions levels often required by individuals companies in order to allow for the trading to take place. Setting up a very low baseline level would result in less pollution rights on offer for purchase.

This is because companies shall be in a position to lower their level of pollution below the established standard. On the other hand, a high baseline level will result in less pollution rights buyers. This is because a majority of the companies shall be in a position to meet the established standards.

Either way, the end result is low trading levels. The setting of baselines could be accomplished via several ways (Beder, 2001, p. 153). Previously, the setting of baseline levels took place in the United States and the experts ensured that it was similar to the already existing license limits. However, those opposed to emission trading argue that the established since limits do not allow states to realize air quality goals (Beder, 2001, p. 153).

In addition, opponents of emission trading argue that even as we required additional reductions in emissions, we need not trade in surplus rights. On the other hand, advocates of emissions trading opine that the licensing system is to blame, further arguing that such challenges need not hinder the ensuing savings in cost realized by emissions trading.

Another issue that we need to explore in as far as the emission trading scheme is concerned is that although there is the possible reduction in the emission levels of specific pollutants (for example, carbon dioxide and sulfur dioxide), this would still not be at the same level as would have been the case with the ‘command-and-control standards’.

Although there is the possibility of reducing the average air concentration levels in a particular area, on the other hand, if a firm is only interested in the purchase of credits only, as opposed to improving its technology as well, this means little to the issue of environmental sustainability.

Companies often opt to do this owing to the exorbitant costs of technology. Such countries as Germany and Italy have had their sulfur dioxide levels reduced by as much as 87 percent and 62 percent respectively, for the past 11 years (Lipow, 2007).

This is in comparison with the United States that has witnessed a 31 percent reduction in its sulfur dioxide levels over the same period). Notwithstanding these figures, advocates of emissions trading argue that the project is still in its infancy stage, and this could probably help to explain the slow progress that we have witnessed thus far.

On the basis of the foregoing arguments, perhaps what we need to be asking ourselves at this point is whether pollution rights trading effectively control environmental problems.

On the one hand, we have the advocates of emissions trading scheme who are convinced that indeed, trading of emissions can effectively result in the management of environmental problems. On the other hand, opponents argue that the scheme is a total waste.

One wonders whether this position is likely to change any time soon. However, there are signs that the Congress could be in support of the program, given the increase in the number of Senators who have sought to introduce bills on pollution rights trading.

On the other hand, problems still persist on how best to establish baselines for such emissions. There is a dire need therefore to decide on “how the setup of a program would affect the distribution of the cost” (Support Grows, 2007, para. 3).

In addition, there are also some important questions that need to be addressed. For example, the manner in which the allowances are to be distributed, the firms that are most likely to receive permits, and the best method to compute baseline levels.

It is also important to consider the finance because it is central to the inception, implementation and sustainability of such a program. A number of the members of the Congress, along with a majority of the presidential candidates have demonstrated their support for the pollution rights trading but they would also wish to integrate it with pollution tax (Support Grows, 2007, para. 10).

Actually, the introduction of a pollution tax could result in a faster reduction in pollution since companies would normally be encouraged to lower their emissions to the bare minimum.

Consequently, this may “help reduce pollution beyond regulatory levels” (Easton, 2008, p. 105). In addition, the tax would also acts as a source of revenue, thereby facilitating funding of green technology production research (Support Grows, 2007, para. 10).

On the other hand, Congress will not just support any tax proposal (Support Grows, 2007, para. 8). Not many companies would be willing to pay the hefty cost associated with expensive green technology. From a logical point of view therefore the flexibility often associated with emissions trading shall acts as a source of motivation for firms to seek cheaper forms of innovation.

Reference List

Beder, S. (2001). Trading the earth: the politics behind tradeable pollution rights.

Environmental Liability, 9(2), 152-160.

Easton, T. (2008). Taking sides: clashing views on environmental issues. Dubuque: McGraw-Hill.

Lipow, G. (2007). Emissions trading: a mixed record, with plenty of failures. Retrieved
February 03, 2011, from http://gristmill.grist.org/story/2007/2/18/205116/813

KEFI-Exchange. (2000). KEFI-Exchange — Canada’s first green house gas emission

reductions exchange is open for business!’, E-Wire. Retrieved February 03, 2011, from
http://ens.lycos.com/e-wire/May 00/01May0002.html

O’Brien, F. (2000). ‘UK emissions market could be worth 900 mln stg’, Reuter,s News

Service, 5 May. Retrieved February 03, 2011,

Support Grows. (2007). Support grows for capping and trading carbon emissions.

(2007). Issues in science and technology. Retrieved February 03, 2011, from Academic Search Premier Database.

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