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Pollution Credits

Pollution credits

Pollution credits emerged from the federal Clean Air Act of 1990 (CAA) as a way for businesses to deal with the regulations that attempt to lower air pollution . The Environmental Protection Agency (EPA) and individual states have created a "cap and trade" system (in practice since 1995) allowing utilities and manufacturers allowances to emit a certain amount of specific pollutants. This system offers companies some flexibility in their compliance while helping to maintain the standards required for cleaner air.

A company can earn pollution credits by voluntarily reducing polluting emissions below limits dictated by the EPA. Earned credits can then be sold to another company that has trouble keeping its emissions within permissible limits, or saved for future use. According to Dean S. Sommer writing for The Albany (New York) Business Review in March 1999, "The 'cap' portion of the system refers to the specific amount of emissions that may be discharged within a state, region or the nation as set forth by the EPA and the CAA. The 'trade' portion refers to a participant's ability to buy or sell the allowances. States, or the EPA, allocate emission allowances to affected sources in specified amounts to ensure that the cap is not exceeded by emissions from all participants."

Different "cap and trade" allowances apply to the most common pollutants, sulfur dioxide and nitrogen oxides , which contribute to acid rain , smog , and ozone depletion. Each allowance, or credit, is a trading unit equivalent to one ton of air emissions. The EPA exacts annual penalties to those companies whose emissions exceed the number of allowances.

According to the EPA, the practice of pollution credits bartering has proven beneficial not only in reducing air pollution, but in providing an incentive for companies to meet environmental goals. For example, the EPA's national acid rain program to reduce sulfur dioxide resulted in a decrease of six million tons of emissions a year compared to 1980 levels. Nitrogen oxide levels were reduced by 50% compared to 1990 levels as a result of a program undertaken by numerous northeastern states.

Critics of the trading program, however, have suggested that the system is flawed. They contend that although it was meant to be a way of encouraging industry to find ways of producing less pollution, the system provides a way of merely transferring responsibilitythe one polluting is not held responsible for the poor quality of air it has affected.

In 2000, for example, the state of New York identified several midwestern and southeastern statesDelaware, Illinois, Indiana, Ohio, Michigan, Kentucky, Maryland, New Jersey, North Carolina, Pennsylvania, Tennessee, Virginia, West Virginia, and Wisconsinas the major sources of its acid rain, a serious problem undermining natural resources and wildlife . Between 1995 and 2000, the state had accumulated more than 700,000 pollution creditsproviding the New York businesses selling them with a total of approximately $37.5 million. The result was that pollution within New York had declined only to be blown back over state lines by other states that had purchased the credits. According to a May 2, 2000 report of the Environment News Service (ENN) by writer Cat Lazaroff, "Despite the state's efforts to reduce sulfur dioxide emissions, many high altitude lakes in New York's Adirondack Mountains remain too acidic to support many native species . Some government studies estimate about half of the region's 3,000 lakes and ponds may become too acidic to support life if acid rain is not reduced." The state fought back with legislation authorizing the fining of utility companies that sell their pollution credits to the polluting states.

Attempts to regulate less and provide more incentives have been met with suspicion by program critics, who fear an increase in pollution, and applause by businesses, who view the reduction in standards as a possible financial relief. In any case, pollution credits had become a valuable commodity on the open market by the early twenty-first century, in the United States and throughout the world.

[Jane E. Spear ]



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U.S. Environmental Protection Agency, 1200 Pennsylvania Avenue, NW, Washington, DC USA 20460 (202) 260-2090, <>

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