Emissions trading: An improved technique for air quality management

The emissions trading program was one of the first major regulatory reform efforts at the U.S. Environmental Protection Agency under the Reagan Administration. This program is a set of guidelines for the states to develop federally approved transactions in discharge permits, called an Emission Reduction Credit. The rules governing emissions trading apply within a total ambient constraint or “pollution budget.” This paper provides a discussion of the emissions trading program as an improved technique for air quality management. The paper begins with a discussion of the concept of emissions trading and how the EPA emissions trading program fits into the U.S. Clean Air Act. It is then argued that emissions trading provides a more cost-effective set of implementation incentives in comparison to a “command and control” regulatory system. A number of important attributes of the emissions trading program are discussed, and estimates of cost reductions are provided. The current status of the implementation of the emissions trading program is discussed. The paper concludes with a discussion of several legal, technical, and administrative obstacles to obtaining the efficiencies of emissions trading.