Buying Acid Rain Right Out of the Air

April 13, 2004 7:54 PM

Buying Up the Right to Pollute."Power companies that release more SO2 than their permits allow must attempt to buy more allowances at the auctions, or purchase them at a premium from companies that have allowances to spare. Those that can't gather enough allowances or that go beyond certain emissions limits in a given year face strict fines from the EPA." (from a 4/7 Wired article) You may have heard of these "allowances" before, but the Acid Rain Retirement Fund, a non-profit, is doing something about them: *buying* them and simply letting them expire. Search NetworkForGood for "ARRF" to make a donation. [via our own CTP's Recursive Irony]
posted by scarabic (12 comments total)

Pointless. The government will just increase the allowances.
posted by five fresh fish at 8:21 PM on April 13, 2004

so....the overall amount of SO2 emissions are meeting EPA rules? And that's bad?

It's not like the overall emission of SO2 emissions are increasing. And the SO2 emissions are lowered over time so these companies can't rely on this always.

It's a system in place that allows environmental emissions to be set and lowered at a gradual pace and allows companies to have time to adopt to the new requirements. It's not perfect but I find it to be pretty acceptable.

And if ACRF keeps buying up the allowances, these companies won't have the opportunity to change (because they're using old equipment and it takes money to change) and the overall price of the allowances will increase and force several companies to shut down operations (and ACRF would need to buy A LOT of shares to drive the price high enough).

also, the industry appears to like this situation because it allows them the time to change their companies, protects their employees and jobs, and helps fight pollution. most companies don't want to pollute because it's expensive to clean up. DOW is currently building a new plant that emits 97% less emissions than current low polluting plants.

this isn't a perfect system but it has legs and industries appear willing to accept it. the only thing that can kill this setup is if administrations try to destory the current system. that really can't be allowed to happen.

a couple of links:
Acid Rain Program SO2 Allowances Fact Sheet

1997 paper on the SO2 Allowance system

2004 market prices

market price for now...nice explanation of system (show's the amount of so2 is reduced every year)
posted by Stynxno at 8:35 PM on April 13, 2004

Interesting idea/intentions.

fff, I don't think the gubment can just increase the allowances, willy nilly. [naive] Can they? [/naive]
posted by shoepal at 8:36 PM on April 13, 2004

You articulate a good defense of the current system, Stynxno. I guess some folks are willing to put the squeeze on these corporations to improve their air quality. And the system you're talking about gives them the ability to do that. Apparently, this feature has been built into the system for a decade.

Corporations respond to nothing faster than cost, as you point out. By raising the price of allowances, does one put them out of business, or simply hurt profits and pressure them to convert to cleaner technologies sooner?

Drawing either conclusion as a broad generalization is probably a mistake.
posted by scarabic at 9:17 PM on April 13, 2004

While they might not arbitrarily increase allowances, what the Feds might conceivably do is deny environmental groups the right to buy them. An analogous situation exists in the area of grazing permits, where conservation groups have attempted to buy grazing rights in order to allow the land to go fallow and recover.

In the linked case and many similar ones, the Feds have simply said that the grazing rights only go to people who want to actually graze the land. In the same way, the government might proclaim that pollution credits are only available if you actually intend to pollute.

You'd think that money would talk, at least -- but apparently people's money still talks louder than others.
posted by George_Spiggott at 9:33 PM on April 13, 2004

Pointless. The government will just increase the allowances.

AFAIK, the allowances hold steady or decrease every year.

While they might not arbitrarily increase allowances, what the Feds might conceivably do is deny environmental groups the right to buy them.

Maybe, but the idea that green groups might buy the pollution credits to not use them has been around for yonks. It's hardly a surprising development. ISTR that it's part of the original arguments that set up the cap-and-trade systems, but I'm far too lazy to go look it up.

BTW: your linked case goes to the Arizona government being silly, not the Feds.
posted by ROU_Xenophobe at 9:49 PM on April 13, 2004

AFAIK, the allowances hold steady or decrease every year.

So far. Since the current administration is basically gutting the clean air legislation passed over the last 30 years, it would be no big surprise if they just increase or get rid of the allowances altogether. They have already made the programme somewhat moot - by changing the criteria for when allowances are even needed,.
In fact, the title of an article on this subject in last Sunday's NYT Magazine is entitle "Changing all the Rules" (NYT link.)
It's essential reading for anyone at all interested in this subject.
posted by sixdifferentways at 10:16 PM on April 13, 2004

WorldChangeing is a great Blog I read it daily very upbeat and positive about offering solutions to problems.
posted by stbalbach at 10:39 PM on April 13, 2004

Corporations respond to nothing faster than cost, as you point out. By raising the price of allowances, does one put them out of business, or simply hurt profits and pressure them to convert to cleaner technologies sooner?

The underlying basis for the programme is that by forcing polluters to pay for their pollution you internalise to the corporations production costs what was previously a cost borne by society in general. Essentially the way it works is that companies that pollute less have to pay out less to get permits (or can sell their excess permits and thus further reduce overall costs). Obviously a competitive company acts to reduce its costs to stay in business. If companies can get permits more cheaply than they can change their production processes to reduce their SO2 output they will do so. As the costs of getting hold of permits increases (because there is a limited supply and environmental groups buying up permits increases demand or because the supply of permits decreases annually) then the economics switches so that spending money to reduce emissions becomes the more attractive (ie economically efficient) solution for the company.
Essentially the cost of meeting SO2 regs is just another business cost, the companies that respond with the greatest innovation/superior management application will bear less cost and will have a business advantage. Generally, all companies will see an increase in their costs but some will likely bear heavier costs than others with an implied reduction in their competitiveness; this tends to mean reduced profit and at the extreme less competitive companies can go out of business.

Its worth remembering in all this that polluting companies are essentially only paying for the pollution they create and that they (and their customers) have been getting a free ride from the taxpayer right up until the regulation was introduced.
posted by biffa at 2:42 AM on April 14, 2004

Reuben Bolling did a great cartoon years ago called "tales of market-driven crime." Basically it was about a guy who caught a guy breaking into his house, thereby legally having the right to shoot him. Instead he sold that right to the mob for $100,000. No additional murders were performed, yet everyone got what they wanted by the excess allowance for crime being sold to an interested party.

I'm glad to hear the AARF is fighting this equivalent stupidity, but this feels kind of like paying ransom. Imagine if you knew that someone would always pay your late video fees... would you care about getting to the drop slot by the deadline anymore? If the AARF just provides a profit, what's to stop the limits from being raised, with the forethought of the bill just going to the good-intentioned AARF?
posted by XQUZYPHYR at 4:46 AM on April 14, 2004

Since the current administration is basically gutting the clean air legislation passed over the last 30 years

Except the current administration isn't gutting any such thing.
posted by techgnollogic at 8:49 AM on April 14, 2004

Oh, really, techgnollogic? Please explain right here for us how the following fine policies from the Bush environmentalists don't gut the clean air legislation passed over the last 30 years. Explain how each of the following Bush moves really help make the air cleaner.

The so-called "Clear Skies" initiative expands the pollution trading system that results in some communities getting cleaner, but many communities losing out on cleaner air.

The EPA estimates that enforcement of existing toxic air pollution protections in the Clean Air Act will limit mercury pollution to 5 tons per year by 2008. The Bush Administration's plan weakens the limit to 26 tons per year by 2010, allowing 520 percent more mercury pollution.

Nitrogen Oxide (NOx) is a major contributor to smog that is linked to asthma and lung disease. Current Clean Air Act programs could result in nitrogen oxide (NOx) pollution levels of about 1.25 million tons by 2010. But the Bush plan calls for loosening the cap on NOx pollution to 2.1 million tons by 2008, effectively allowing 68 percent more NOx pollution.

Clean Air Act programs could reduce SO2 pollution levels to 2 million tons by 2012. The Bush Administration plan weakens protections to allow 4.5 million tons of SO2 by 2010, allowing 225 percent more SO2 pollution.

Despite repeated claims during the 2000 election that he would put forth legislation that would address CO2 emissions, the Administration's plan fails to set any limit on carbon dioxide emissions. Instead the Administration has called for a voluntary approach that will likely increase heat-trapping CO2 that causes global warming.

By the 15th year of the Bush plan: 450,000 more tons of NOx, one million more tons of SO2, and 9.5 more tons of mercury would be allowed than under strong enforcement of existing Clean Air Act programs.

The Bush plan creates a loophole exempting power plants from being held accountable to the Clean Air Act's New Source Review (NSR) standards and from being required to install cleanup technology (best available retrofit technology or BART). NSR standards require new power plants and upgraded plants to comply with modern federal emissions limits. BART protects communities from persistent haze and other air quality problems by reducing the pollution emitted from antiquated power plants.

Clear Skies" delays the enforcement of public health standards for smog and soot until the end of 2015.

The Bush plan restricts the power of states to call for an end to pollution from upwind sources in other states. The plan prohibits any petitions of this sort from even being implemented before 2012.
posted by fold_and_mutilate at 2:21 AM on April 15, 2004