In 2002, President Bush proposed legislation to regulate three hazardous air pollutants: sulfur dioxide, nitrogen oxides and mercury. Dubbed the Clear Skies Bill, this legislation did not gain sufficient support in Congress to get off the ground. Bush is now looking to implement some of the bill's provisions by issuing executive orders and establishing a mercury-emissions trading program.
Under a cap-and-trade system, a certain number of pollution "permits" are distributed among polluting companies, and the corporations can then buy and sell these permits from one another.
"Tradable permits allow newer firms that are able to reduce emissions at lower costs to sell pollution permits to other firms where it is more costly," Associate Economics Professor Jeffrey Zabel said. "Overall pollution reduction becomes less costly."
The cap-and-trade approach is based on Title IV of the Clean Air Act, which, through instituting a cap-and-trade system, successfully reduced sulfur dioxide emissions and acid rain.
Though such a system is one of the most successful market-based strategies for reducing pollution and pollution costs, it is not flawless. "If newer firms are located in one area and older firms in another, then there will be a geographic transfer of emissions," Zabel said. "This leads to an equity problem - people get upset when their community becomes a pollution target."
The Clear Skies Bill divided power plants into two geographical groups to minimize this concern.
Title IV of the Clean Air Act did not owe its success completely to the tradable permits provision. Trading permits were only one of several options to reduce the cost of pollution reduction - and, according to Zabel, they were not the legislation's most fundamental feature.
"The most significant cost reduction under the legislation of Title IV should be attributed to the provision that allowed companies the flexibility to purchase coal from different locations," Zabel said.
Prior to the Title IV, which was implemented in 1990, all electric utility companies were required to reduce emissions by using scrubbers to clean their smokestacks. Because scrubbers do an equally good job of cleaning the air emitted from the burning of dirty coal (which comes from the Midwest) and clean coal (which comes from the West), companies had no incentive to buy cleaner coal from the West.
Title IV, however, gave companies more flexibility in choosing their methods for emissions reduction. As a result, power plants began to purchase cleaner coal rather than relying on scrubbers, and this transition accounted for the greatest cost reduction.
"The key is to give flexibility in terms of reducing emissions; to find the least [costly] way of reducing emissions," Zabel said.
During the debate over the Clear Skies Bill, Sen. Lincoln Chafee of Rhode Island explained that he would not vote for Clear Skies legislation because it did not regulate emissions of carbon dioxide, a potent greenhouse gas.
According to Zabel, Chafee's reasoning is flawed. "This objection doesn't make much sense in such a narrow context," he said. "Clear Skies legislation targets emissions by power plants. Carbon dioxide reduction would have to happen on a broader scale, seeing how carbon dioxide emissions come from a variety of sources, one of the most prominent being automobiles."
The Clear Skies bill aimed to reduce sulfur dioxide emissions by 73 percent - from the current level of 11 million tons to a cap of 4.5 million tons in 2010 and 3 million tons in 2018.
The second goal was to reduce nitrogen oxide emissions by 67 percent - from the current level of 5 million tons to cap of 2.1 million tons in 2008 and 1.7million tons in 2018. The legislation also hoped to reduce mercury emissions by 69 percent - from current levels of 48 tons to a cap of 26 tons in 2010 and 15 tons in 2018.
Clear Skies would have been the first federal legislation to regulate mercury emissions. The legislation targeted electricity-generating power plants as opposed to automobiles or other mobile sources of pollution. According to analysts, fossil fuel-burning power plants are responsible for 67 percent of the sulfur dioxide emissions, 25 percent of the nitrogen oxide emissions, and 37 percent of the mercury emissions in the U.S.
