During the toxic "green wars" of the 1990s, national progress
on both energy and environment was caught in the crossfire between those
opposing any changes in the environmental policies of the 1970s and those
seeking to relax standards altogether. Today, during a national emergency
that is producing bipartisanship and unity across political battle lines,
there's an opportunity for a breakthrough. It's time to form a new consensus
in energy and environmental policy that joins higher standards and market
forces in the battle for cleaner air. A comprehensive, four-emission trading
system is the right place to start.
The momentum for such a system has grown out of recent history. Called
"cap-and-trade," emissions trading was first introduced in 1989
to break the deadlock over reducing acid rain caused by sulfur dioxide
(SO2) emissions. Emissions trading showed that creating a cleaner environment
did not need to create inordinate costs. The model is simple: It sets
tough environmental standards -- an emissions "cap" -- then lets
companies that exceed the standards "trade" some of their emissions
allowances to companies that don't. The cap-and-trade system holds the
potential to address a controversy that promises to be far bigger than
the debate around acid rain: climate change.
Despite his campaign pledge to use market mechanisms to cap carbon dioxide
(CO2) emissions, President Bush abandoned that pledge and also unilaterally
withdrew the United States from efforts to reduce greenhouse gases internationally.
In both cases, the White House trotted out the acid rain argument: Controlling
emissions costs too much. Yet 180 countries have stuck to the Kyoto Protocol;
this clearly indicates that carbon will be capped and traded worldwide.
President Bush's pullout only means that U.S. companies will be left in
the cold as a global market develops to control greenhouse gas emissions.
In addition, many electricity-generating companies and members of Congress
now view the price of not developing a strategy to reduce power plant
emissions as too high. After all, electricity generators produce about
one-third of the total U.S. emissions of nitrogen oxide (NOX) and mercury
and an even higher share of its SO2 and CO2.
All this has generated momentum in Congress to create comprehensive cap-and-trade
schemes for the four "emissions": SO2, NOX, mercury, and CO2.
Along with acid rain and global warming, emissions of these four substances
are linked to various health and environmental concerns, including fine-particulate
exposure, smog, and regional haze. Legislators have introduced at least
four comprehensive emissions bills, and power utilities have proposed
two others. In addition, Sens. Joe Lieberman (D-Conn.) and John McCain
(R-Ariz.) plan to introduce legislation to reduce CO2 emissions from the
whole economy, not just those produced by utilities.
In developing the legislation, Congress should be guided by two key principles.
The first is the need to include carbon dioxide in any comprehensive
effort to cap and trade emissions from electricity generators. Current
legislative proposals as well as those proposed by industry include a
cap-and-trade system for three emissions: sulfur dioxide, nitrogen oxide,
and mercury. But a big fight continues about including the fourth of the
Big Four produced by electricity generators: carbon dioxide. Recent signals
that the Bush Administration would opt to drop carbon dioxide from new
anti-pollution standards have been, in fact, one of the big sources of
disagreement, both here at home as well as between the United States and
its European allies with respect to implementation of the Kyoto Protocol
on global climate change.
The second principle is that a comprehensive emissions reduction package
must integrate existing provisions for new sources under the Clean Air
Act's New Source Review (NSR) with a cap-and-trade program. Congress created
those provisions to ensure that air quality would not deteriorate when
industry built new facilities or "sources." The NSR provisions
require new plants to secure approval for major modifications that can
affect air quality.
NSR's provisions require sources to install the "best available"
and, in some instances, state-of-the-art technologies to reduce emissions.
Such requirements can reduce incentives to bring new power online and
to upgrade older generating facilities. To correct these deficiencies,
Congress should integrate the two standards by eliminating NSR standards
for those sources that are covered under the emissions cap. Once Congress
imposes stringent emissions trading caps, NSR becomes redundant -- it no
longer provides any significant emissions reductions. Eliminating NSR
provisions for new sources has the potential to actually boost cleaner
energy technologies by spreading the economic burden for pollution control
more evenly among all electricity generators, rather than just place it
on new sources.
In addition to including carbon and providing broad relief from NSR in
a comprehensive emissions trading bill, decisionmakers should follow four
key guidelines.
Make the strategy comprehensive. If the four emissions generated
by electric utilities are not addressed in one strategy, the Environmental
Protection Agency (EPA) must regulate the emissions individually, under
different provisions of the Clean Air Act, with differing standards applied
to different ages and classes of energy-producing technologies. Targeting
these emissions one by one makes it harder for generators to develop a
coherent investment strategy; moreover, the strategy does nothing to promote
the development of clean, efficient technologies to reduce emissions.
Use emissions caps, not technology control standards. Effective
market-based strategies such as emissions caps outperform "first-generation"
approaches. First-generation approaches control emissions with prescriptive
technologies only after emissions are created. In contrast, caps do not
tell companies how to reduce emissions. Instead, companies are free to
decide how to control emissions, provided that they meet stringent caps.
Establish phased reduction targets. We should adopt emissions
caps with integrity, but give sources reasonable time to meet them. Doing
so will help the United States to maintain a diverse fuel portfolio, including
advanced coal technologies, yet spur development of alternative fuel sources
and technologies.
Distribute trading allowances equitably. Select emissions trading
allowance distribution methods that cover sources equally -- old and new,
large and small -- and use methods that promote efficient energy production.
More than a dozen power generators have signed on to proposals to replace
individual new regulations promulgated by EPA with a comprehensive emissions
cap and allowance trading system. A number of these companies, including
Pacific Gas & Electric's National Energy Group, Exelon Corp., and
Northeast Utilities, favor mandatory strategies that add carbon to the
three-pollutant trading methods proposed by the White House. Others acknowledge
the importance of controlling carbon but favor voluntary approaches. Three-pollutant
strategies will only perpetuate old, end-of-pipe controls and postpone
inevitable retrofits to control carbon, ensuring that those retrofits
will cost more money than they otherwise would have. That's why a comprehensive,
four-emission trading system is the right choice in the changed climate
of our national debate.
