Cap and Trade in Perspective: Stopping Acid Rain

At the heart of the Waxman-Markey American Clean Energy and Security (ACES) bill is a national program to cap carbon dioxide emissions, with an accompanying market where polluters can buy and sell an increasingly limited number of pollution allowances.

Over the next few days, we’ll look at three cap-and-trade programs already in place – what works about them, what doesn’t, and what the U.S. government can learn.

Getting the U.S. Congress to consider a cap-and-trade program to reduce greenhouse gas emissions is no easy feat, but the fact it is even being considered at all owes much to the U.S. Acid Rain Program.

Created under Title IV of the 1990 Clean Air Act Amendments, the Acid Rain Program defied critics who saw it as a costly mistake that would burden the economy and concentrate pollution in regional “hot spots.” Instead, emissions of sulfur dioxide (SO2) and nitrous oxide (NOx), which mix with water, oxygen and oxidants in the atmosphere to cause acid rain, have declined dramatically nationwide at far lower costs than expected.

The reductions have had a significant health impact, too: The annual health and welfare benefits of the program are estimated to be $122 billion, in year 2000 dollars, and the prevention of “tens of thousands of premature deaths each year,” says Sam Napolitano, director of the U.S. Environmental Protection Agency’s Clean Air Markets Division. The annual cost of the program is $3 billion.

The program works because its central purpose is to reduce emissions, analysts say.

Unlike previous clean air laws that considered the rate of pollution coming from individual plants, the ARP created a permanent cap on nationwide SO2 emissions at 8.95 million tons by 2010, which was 50% below 1980 levels, and the program allowed utilities to trade “allowances” to emit SO2, which made reducing those emissions and then selling then unneeded allowances lucrative.

By 2008, SO2 emissions had fallen to 7.6 million tons, according to the EPA, well below the 2010 cap.

“Cap-and-trade is a very efficient way to do things,” says Byron Swift, executive director of World Land Trust-US. “It’s far better than rate-based standards, which had been the normal way of regulating emissions.”

The Acid Rain Program also worked because power plants were given flexibility to figure out the most economical and technologically feasible way to cut emissions given their own particular circumstances.

According to the EPA’s Napolitano, companies are still coming up with innovative technologies for cutting emissions at low costs. “They are able to put controls on more cheaply than we thought possible,” he says.

EPA Commissioner Lisa Jackson reminded lawmakers in April that “beltway corporate lobbyists” had tried to thwart passage of the ARP by insisting it would be bad for business. Instead,

“Our economy grew by 64 percent even as the program cut acid rain pollution by more than 50 percent,” Jackson testified.

The ARP addresses both SO2 and NOx emissions, but in different ways.

The cap-and-trade approach was only for SO2 emissions, which were considered a bigger problem than NOx emissions at the time, Swift says. The SO2 program was implemented in two phases: phase I, begun in 1995, affected mostly coal-burning electric utility plants in eastern and Midwestern states; phase II tightened emission caps on large, high emitting plants and set limits on emissions from smaller plants burning oil, gas and coal.