NCPA - National Center for Policy Analysis


June 15, 2004

Trading pollution credits between U.S. industries has helped reduce sulfur dioxide emissions and has accelerated the elimination of ozone-depleting chemicals, says the New York Times.

Pollution credits are a major part of the Kyoto treaty, which will not become binding unless Russia agrees to sign it. While the United States opposes Kyoto, both supporters and opponents of Kyoto do endorse pollution credits.

While the debate continues, countries and states are already establishing their own pollution credit programs:

  • The European Union has already begun an emissions program that matches the treaty's terms, and emissions credits have traded between 9 euros and 14 euros for the past few months.
  • California and some northeastern states are considering emissions caps and trading programs of their own.
  • A group of private companies called the Chicago Climate Exchange has formed an agreement to reduce emissions by one percent annually for the next four years through pollution-reduction projects and the trading of pollution credits (which started in December), but the credit has never been worth more than $1 per ton of emissions.

Pollution credits allow companies to choose between spending money on the purchase of pollution abatement equipment or using the money to purchase unused pollution credits from other companies that have reduced their emissions. In conjunction with mandatory emissions caps, they provide an incentive for companies to act efficiently.

Some environmental advocates say opposition from the Bush administration to emissions caps has heartened companies that are trying to roll back the emissions limits in Europe. In this view, prices for the credits have declined in Europe this year because of market fears that European policy makers will retreat, reducing the incentive for companies to invest in emissions cuts.

Source: Barnaby J. Feder, "A Hamstrung Market Fights Global Warming," New York Times, June 13, 2004.


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