NCPA - National Center for Policy Analysis

Emissions-Trading Turned Out To Be A Wild Success

May 31, 2002

Because the federal government in 1990 allowed electric generating companies to trade emissions permits among themselves, rather than forcing them to conform to strict regulatory rules, targeted emissions have been reduced at a fraction of the cost estimated a decade ago.

  • The government had estimated that eliminating emissions of 10 million tons of sulfur dioxide (SO2) would cost companies up to $15 billion a year.
  • But under the market-based trading program, the job has been done at a cost one-fifth to one-tenth that amount.
  • Leaders of an organization of state and local air pollution officials have called the program one of the most effective pieces of environmental legislation ever put in place.
  • Now the White House wants to extend that approach to other pollutants under the "Clear Skies" initiative -- which environmentalists oppose, arguing that it would leave certain "hot spots" in the country.

Under the trading system, power companies buy and sell "allowances" to emit a pollutant. Companies that figure they than reduce their emissions relatively cheaply and easily sell their pollution allowances to companies that face hefty costs for doing so. Each year the number of allowances drops, with the goal of halving emissions by 2012.

Source: Daniel Altman, "Just How Far Can Trading of Emissions Be Extended?" New York Times, May 31, 2002.


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