Environmental Policy

1. Class 17: Environmental Regulation CofC Fall 2010 Environmental Policy

2. Regulation Strategies • Command & Control Regulation (“standards & enforcement”) gov’t applies uniform limits to pollution (standard or threshold), and in exceeding this limit, a fine is imposed. • Market-Based Regulation: Behavior to protect environment is incentivized through the market • “bubble policy” • “cap & trade” • Economic incentives • Pollution taxes • Input/output taxes • Subsidies • Permits (market) • Liability • Voluntary • “a combination of both approaches often seems more effective than one alone.” (p179).

3. Command & Control • 5 phases of pollution policy: goals, criteria, quality stnds, emission stnds, and enforcement • Goals: often vaguely worded and broad. • Criteria: technical data indicating what pollutants are leading to enviro damage • e.g. what levels of pollution are health risk • May be fragmentary or absent, may be controversial • Quality Stnds: estab water & air quality standards, i.e. the max levels of permitted pollutant • Defining “acceptable risk”  a political decision • Emission Stnds: prescribe acceptable pollutant discharge • 1. emission limited to extent necessary to meet quality stnds • 2. based on available technology • PROBLEM: Quality stnds determined by Feds handed to states who have to assess “load” (tot amt) for airshed, then determine responsibility at source for that “load” • Enforcement: Accomplished through permits to dischargers (specifying permissible emission levels and technological controls & penalties for noncompliance.

4. Limits of C&C • 1. few economic incentives for polluters to comply rapidly and efficiently • Penalties fail to motivate • Penalties are not assessed or weakened by negotiation • Can be more profitable to pollute and pay • 2. Require Fed Govt to specify appropriate technologies to be used • Highly complicated, lack info and lack training • 3. incentive approaches can be administered more simply and economically—too much bureaucracy • 4. Markets are easier for public to understand

5. “Bubble Approach” • Move away from C&C • An imaginary bubble is put over industrial plant, from which max allowable emissions is established  A firm within this bubble would be “free to use more cost-effective pollution controls than usually allowed.”(p187) • Also, allows for “banking” or credits from being under the prescribed emissions’ level

6. “Cap & Trade” • 1990 CAA amendments (“Acid Rain Program”) • Goal: To reduce sulfur (oxide) emissions  by 2010, reduce to 8.5m tons below 1980 level • Method: Mandatory “cap” on total sulfur dioxide emissions annually (from nation’s utilities) • Cap: Each “source” (utility) is granted an annual allowance, which at end of yr, they must be below • Trade: Each source can bank, sell or carry over allowance left over • Firms may “select whatever method it chooses to control emissions” • National emissions trading market established for allowances

7. Benefits & Limitations of C&T • EPA: early evidence suggests that “impressive enviro & econ results”  in first 4 yrs power plants reduced emissions “far below legal allowances” & at same time drove down costs • Some studies have shown benefits, but substantially less than EPA’s assertion and less than anticipated • Value added: demonstrates that it can be done without tons of lawsuits and administered with relative simplicity • Qs remain: Many utilities have not expanded (yet), results? Additional emission sources will become regulated, effects? Will trading remain attractive if firms must also bear add’l costs of “new controls”. Finally, can it be used for climate change—many skeptical that it can be scaled up?