| Outline |
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- Each state establishes the working plan for the region under-achieving the air standard with the authorization from the Environment Protection Agency (EPA)
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- The plan sets the emission standard (which is stricter than the emission standard guideline established by EPA) for each company.
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- Each pollution source will be classified as major or other sources depending on the amount of the emission of pollutant. The major source will be applied with stricter regulating standard.
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- A company which reduced standard level can sell the difference as Emission Reduction Credit internally or to other organizations.
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- Forms of transaction
[1] Offsets
When newly constructing a pollutant source in the under-achieving area, it is obliged to buy Emission Reduction Credit equaling 1.1 to 1.5 times as much as pollutant increase (linked with regulation).
[2] Bubbles
When the total emission of plural pollutant sources is within the total of emission standard of each source, entire sources are considered to meet the emission standard.
[3] Banking
This system allows the enterprise where the pollutant sources increase is expected to deposit and carry over Emission Reduction Credit against the occasion when the excess emission become necessary in later terms. The system, recognized in 1979, needs legal recognition by state law.
[4] Netting
When a pollutant source is to be sorted to the major sources with the emission increase, the source can remain as other sources if the increasing amount can be offset by the decrease at the other sources. This is applicable only within the same organization.
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- Initial distribution method
The company which could restrain the pollutant emission below the standard can hold the difference as Emission Reduction Credit.
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| Material to be treaded |
NOx, CO, SO2
Particle substance, Volatile organic substance
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- Trading unit and designation: Credit, t/year
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- Effective term of permit one year
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| Subject for control |
Air controlled areas |
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| Actual state trading |
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- Object of trading: Emitted volume of air pollutants
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- Trading method
Those who want to trade can access the banking register managed by the state government to find the partner who want to sell or buy its credit.
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- Actual transactions
| Results by 1985 (estimate) |
Internal trading |
External trading |
| Offsets |
1800 |
200 |
| Bubbles Permitted federal government |
40 |
2 |
| Permitted by state government |
89 |
0 |
| Banking |
100 or less |
20 or less |
| Netting |
5000 - 12000 |
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(Note)
- Internal transactions:
- Offset adjustment at the same emission source of enterprise
- External transactions:
- Transaction between different premises or different corporations
(Source)
Hahn and Hester (1989)
"Where Did All the Market Go? An of the EPA's Emissions Trading Program"
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| Pointed out problems, etc. |
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- An emission source to be newly constructed can not buy Emission Reduction Credit from other emission sources.
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- As the emission volume is not measured, it is difficult to confirm that the actual emission complies with the traded credit.
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- Each party must search for the partner for itself and complex procedures for examination and approval cost much.
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- Geographic concentration of pollutant sources through trading.
When the trading parties are apart from each other, the Federal Government applicant to conduct environmental impact assessment. However, as the assessment increase the cost and its efforts often result in vain (permission can not be gained), it is rare for the parties to enter into the trade which needs environmental assessment.
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