Comment by Carlos A. Gavilondo
In 1990, Congress enacted legislation creating a new type of tradable commodity. While not as alluring as pork bellies, soy beans, or frozen concentrated orange juice, the new commodity will significantly affect utility operations, electric rates, and pollution control schemes. This new commodity is sulfur dioxide, and the law creating the commodity is Title IV of the Clean Air Act Amendments of 1990.
Title IV, which has become known as the Acid Rain Program, creates an emissions rights allowance system for sulfur dioxide (SO2). Sulfur dioxide is a primary precursor of acid rain and is of major environmental and economic concern. Congress, in its “findings” supporting amendment of the Clean Air Act, expressly recognized that “the problem of acid deposition is of national and international significance.” Title IV therefore has as one of its principle objectives the reduction of acid-rain-causing SO2 emissions. With the Act, Congress seeks to reduce the nation's annual total SO2 emissions by ten million tons from 1980 emission levels before the year 2000.
To accomplish its objective, Title IV regulates SO2 emissions by placing a maximum, total annual emissions cap on coal-fired electric power plants, the largest source of SO2 in the country. In contrast to most regulatory schemes that employ traditional command and control regulation to achieve reduction goals, Title IV provides flexibility through an “allocation and transfer system” of tradable emissions allowances. The SO2 allowance system is expected to provide the most efficient and cost-effective means of SO2 control by letting the free market dictate how required emissions reductions will be achieved and distributed. The Environmental Protection Agency (EPA) estimates that “harnessing the power of the marketplace with a system of tradable allowances and market incentives . . . will save $1 billion per year compared to traditional” command and control regulation. The environmental community, which contributed significantly to the drafting of the EPA's proposed rules implementing Title IV, is also enthusiastic about the program's novelty and its potential for success: “‘There will be auctions, a futures market, insurance pools-all the bells and whistles of a sophisticated market. And for the first time, all of these market mechanisms usually associated with profit and pollution will actually be working to clean up the environment.”’
Conceptually, the Title IV program works by identifying the subject sources—the nation's large, coal-fired electric utility units—and setting a nationwide cap on their total SO2 emissions. The units are then allocated a number of tradable emissions allowances, each of which authorizes the unit to emit one ton of sulfur dioxide annually. The sum of all allowances available equals the nationwide cap on emissions, an amount significantly less than the current total emissions from all the affected units. Therefore, to avoid exceeding their respective allocations, power plants will either need to reduce emissions or acquire additional allowances. The scarcity of allowances created by the program in turn makes the allowances valuable. Rather than pay the price for additional allowances, some utilities will choose to reduce their emissions and then sell or trade their excess allowances to utilities that cannot reduce emissions as efficiently or economically. This market process will thereby provide the cost-effective means of distributing emissions reduction requirements needed to achieve the nationwide cap.
The acid rain provisions, like most past amendments to the Act, work as an overlay to the existing Act; unless otherwise expressly provided, the affected units under Title IV still have to comply with any preexisting Act requirements. By retaining the requirements of the old Act, Title IV assures that the atmospheric SO2 situation can only improve. The Title V permit program, another creation of the 1990 amendments, will implement the Title IV provisions. These permits seek to integrate affected units' Title IV requirements with all existing emissions limitations. “Nothing in the Acid Rain program or the Title V permit program would excuse non-compliance with any other requirements of the Act.”
This Comment will examine the unique features of the market-based acid rain provisions and investigate the EPA's initial proposal to implement the program. In addition, this Comment will consider how the system is likely to operate in practice and the initial responses to the program by various concerned sectors. Last, this Comment will highlight some possible secondary effects of Title IV.
About the Author
Carlos A. Gavilondo.
Citation
67 Tul. L. Rev. 749 (1993)