NCPA - Daily Policy Digest - The Successes of Emissions Trading

NATIONAL CENTER FOR POLICY ANALYSIS
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The Successes of Emissions Trading

The trading in rights to pollute has been an enormous success. Sophisticated markets have developed in ways no one envisioned at first. And there is cause for environmental glee, because trading actually does clean things up.

There are now markets for everything from dirty water to methane to hog manure.

Whole industries have an incentive to reduce their emissions faster than required, because their surplus pollution rights have a value which they can sell and realize income.

To take just one example, sulphur dioxide emissions have fallen faster, further and at far less cost than anyone ever expected and the trading system has been extended to more than 2,000 power plants -- the goal now is to cut such emissions to half their 1980s levels by 2010.

The $4 billion a year emissions-trading market has evolved to incorporate such financially sophisticated features as swaps, forwards, puts, calls and options.

The U.S. already trades such valuables as wetlands and fishing rights.

The trading idea has been such a success it has spread abroad. China and Slovakia have sulphur dioxide cap-and-trade programs. Chile trades total suspended particulates. Australia has a renewable trading market. Canada trades sulphur dioxide, nitrogen oxide and volatile organic compounds. Europe is working on a cap-and-trade system for carbon dioxide.

Source: Cait Murphy, "Hog Wild for Pollution Trading," Fortune, Sept. 2, 2002.

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