Tietenberg Tom, Lewis Lynne. Environmental & Natural Resource Economics

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401Conventional Pollutants

Does Sound Policy Require Targeting New Sources

via the New Source Review?

One of the characteristics of the New Source Review program is that it requires

major stationary sources that are undergoing major modifications (not just

routine maintenance) to meet the same stringent standards as new sources,

while allowing old sources to avoid installing the more stringent control technology.

Due to the routine maintenance exemption, a number of older plants have

never triggered the major modification threshold and therefore have never been

upgraded. As a result, these older plants have become responsible for a larger

share of the total emissions.

One approach, taken by the Clinton administration, was to take enforce-

ment actions against individual companies, including numerous electric

utilities that own and operate coal-fired power plants in the Southeast and

Midwest. The lawsuits alleged that plants that should have been retired years

earlier were being modified and retained past their normal life under the cover

of “routine maintenance.” Using this exemption to prop up the plants was

seen as an evasion of the need to retire older plants and replace them with

modern plants meeting the more stringent (and costly) new source control

requirements.

Opponents of the New Source Review process argue that it has been

counterproductive, resulting in worse air quality, not better, and it should be

replaced, not merely better enforced. According to this view, not only has

New Source Review deterred investment in newer, cleaner technologies, but

it has also discouraged companies from keeping power plants maintained.

The solution, they argue, is to use cap-and-trade to create a level-playing field,

where all electricity generators (old and new) would have the same environmen-

tal requirements. Under this new approach policy, plant owners would pursue the

investment and/or retirement strategies that secured the required emissions

reductions at minimum cost. Artificial delay in replacing plants would no longer

make any economic sense with the new incentives created by cap-and-trade—

private and social goals would be harmonized.

Source

: Robert Stavins, “Vintage-Differentiated Environmental Regulation.” STANFORD ENVIRONMENTAL

LAW, 25(1), 2006, pp. 29–63.

DEBATE

15.1

For the primary (health-related) standard, this criterion is known as the health

threshold. In principle, this threshold is defined with a margin of safety

sufficiently high that no adverse health effects would be suffered by any member

of the population as long as the air quality was at least as good as the standard.

This approach presumes the existence of a threshold such that concentrations

above that level produce adverse health effects, but concentrations below it

produce none.

If the threshold concept presumption were valid, the marginal damage function

would be zero until the threshold was reached and would be positive at higher

402 Chapter 15 Stationary-Source Local and Regional Air Pollution

concentrations. In practice, this shape is not consistent with the latest evidence.

Adverse health effects can occur at pollution levels lower than the ambient

standards. The standard that produces no adverse health effects among the general

population (which, of course, includes especially susceptible groups) is probably

zero or close to it. It is certainly lower than the established ambient standards.

What the standards purport to accomplish and what they actually accomplish are

rather different.

The Level of the Ambient Standard. The absence of a defensible health threshold

complicates the analysis (see Debate 15.2). Some other basis must be used for

determining the level at which the standard should be established. Efficiency would

dictate setting the standard in order to maximize the net benefit, which includes a

consideration of costs as well as benefits.

DEBATE

15.2

The Particulate and Smog Ambient Standards

Controversy

During one of its periodic reviews of the ambient air-quality standards, the U.S.

EPA concluded that 125 million Americans, including 35 million children, were not

adequately protected by the existing standards for ozone and particulates. Newly

proposed standards were estimated to prevent 1 million serious respiratory

illnesses each year, and 15,000 premature deaths.

The proposed revisions were controversial because the cost of compliance

would be very high. No health threshold existed at the chosen level (some

health effects would be noticed at even more stringent levels than those

proposed) and the EPA was, by law, prohibited from using a benefit–cost justifi-

cation. In the face of legal challenge, the EPA found it very difficult to defend the

superiority of the chosen standards from slightly more stringent or slightly less

stringent standards.

In its ruling on the issues raised in this case, the U.S. Court of Appeals for the

District of Columbia Circuit overturned the proposed revisions. In a 2–1 ruling,

the three-judge panel rejected the EPA’s approach to setting the level of those

standards:

the construction of the Clean Air Act on which EPA relied in promulgating the

NAAQS at issue here effects an unconstitutional delegation of legislative

power. . . . Although the factors EPA uses in determining the degree of

public health concern associated with different levels of ozone and PM are

reasonable, EPA appears to have articulated no “intelligible principle” to

channel its application of these factors . . . . EPA’s formulation of its policy

judgement leaves it free to pick any point between zero and a hair below

the concentrations yielding London’s Killer Fog.

Although the threat to the EPA’s authority from this decision was ultimately

overturned by the U.S. Supreme Court, the dilemma posed by the absence of a

compelling health threshold remains.

403Conventional Pollutants

The current policy explicitly excludes costs from consideration in setting the

ambient standards. It is difficult to imagine that the process of setting the ambient

standard would yield an efficient outcome when it is prohibited from considering

one of the key elements of that outcome!

Unfortunately, for reasons that were discussed in some detail in Chapter 4, our

current benefit measurements are not sufficiently reliable as to permit the identifica-

tion of the efficient level with any confidence. For example, an early EPA study of the

Clean Air Act found that the total monetized benefits of the Clean Air Act realized

during the period from 1970 to 1990 range from $5.6 to $49.4 trillion, with a central

estimate of $22.2 trillion. That is a very large band of uncertainty.

The study further noted:

The central estimate of 22.2 trillion dollars in benefits may be a significant underesti-

mate due to the exclusion of large numbers of benefits from the monetized benefit estimate

(e.g., all air toxics effects; ecosystem effects; numerous human health effects). [p. ES-8]

These figures suggest that a high degree of confidence can be attached to the

belief that government intervention to control air pollution in the United States

was justified; but they provide no evidence whatsoever on whether current policy

was, or is, efficient.

Uniformity. The same primary and secondary standards apply to all parts of the

country. No account is taken of the number of people exposed, the sensitivity of the

local ecology, or the costs of compliance in various areas. All of these aspects of

the problem would have some effect on the efficient standard and efficiency would,

therefore, dictate different standards for different regions.

Timing of Emissions Flows. Because concentrations are important for criteria

pollutants, the timing of emissions is an important policy concern. Emissions

clustered in time are as troublesome as emissions clustered in space. One circum-

stance that gives rise to this concern involves those relatively rare, but devastating,

occasions when thermal inversions prevent the normal dispersion and dilution of

the pollutants. The resulting concentration levels can be quite dangerous. How

should these circumstances be handled?

From an economic efficiency point of view, the most obvious approach is to

tailor the degree of control to the circumstances. Stringent control would be

exercised when meteorological conditions were relatively stagnant, and less

control would be applied under normal circumstances. A reliance on a constant

degree of control, rather than allowing intermittent controls, raises compliance

costs substantially, particularly when the required degree of control is high. The

strong stand against intermittent controls in the Clean Air Act, however, rules

out this approach.

Concentration versus Exposure. Presently ambient standards are defined in

terms of pollutant concentrations in the outdoor air. Yet health effects are

closely related to human exposure to pollutants and exposure is determined not

404 Chapter 15 Stationary-Source Local and Regional Air Pollution

The most obvious major policy response to indoor air pollution has been the large number of states

that have passed legislation requiring “smoke-free” areas in public places to protect nonsmokers.

only by the concentrations of air pollutants in each of the places in which people

spend time, but also by the amount of time spent in each place. Since in the United

States only about 10 percent of the population’s person-hours are spent outdoors,

indoor air becomes very important in designing strategies to improve the health

risk of pollutants. To date, very little attention has been focused on controlling

indoor air pollution despite its apparent importance.

Cost-Effectiveness of the Command-and-Control

Approach

While determining the efficiency of the ambient standards is difficult at best,

determining cost-effectiveness is somewhat easier. Although it does not allow us to

shed any light on whether a particular ambient standard is efficient or not, cost-

effectiveness does allow us to see whether the ambient standards are being met in

the least costly manner possible.

The theory covered in Chapter 14 makes it clear that the CAC strategy will

normally not be cost-effective. What it does not make clear, however, is the degree

to which this strategy diverges from the least-cost ideal. If the divergence is small,

the proponents of reform would not likely be able to overcome the inertia of the

status quo. If the divergence is large, the case for reform is stronger.

The cost-effectiveness of the CAC approach depends on local circumstances

such as prevailing meteorology, the spatial configuration of sources, stack heights,

and the degree to which costs vary with the amount controlled. Several simulation

models capable of dealing with these complexities have now been constructed for a

number of different pollutants in a variety of airsheds (see Table 15.2).

Since for a number of reasons the estimated costs cannot be directly compared

across studies, it is appropriate to develop a means of comparing costs that

minimizes the comparability problems. One such technique, the one we have

chosen, involves calculating the ratio of the CAC allocation costs to the lowest cost

of meeting the same objective for each study. A ratio equal to 1.0 implies that the

CAC allocation is cost-effective. By subtracting 1.0 from the ratio in the table and

multiplying by 100, it is possible to interpret the remainder as the percentage

increase in cost from the least-cost ideal due to relying on the CAC system.

Of the nine reported comparisons, eight find that the CAC policy costs at least

78 percent more than the least-cost allocation. If we omit the Hahn and Noll

(1982) study (for reasons discussed in the next two paragraphs), the study involving

the smallest cost savings (sulfur dioxide control in the Lower Delaware Valley) finds

that the CAC allocation results in abatement costs that are 78 percent higher than

necessary to meet the standards. In the Chicago study, the CAC costs are estimated

to be 14 times as expensive as necessary, while in the Lower Delaware Valley they

are estimated to be 22 times more expensive than necessary.

The Hahn and Noll finding that the CAC strategy was close to being cost-

effective was somewhat unique in a couple of respects. Because we can learn something

405Conventional Pollutants

TABLE 15.2 Empirical Studies of Air Pollution Control

Study and Year

Pollutants

Covered Geographic Area CAC Benchmark

Assumed

Pollutant Type

Ratio of CAC Cost

to Least Cost

Atkinson and Lewis

(1974)

Particulates St. Louis Metropolitan

Area

SIP Regulations Nonuniformly Mixed 6.00

Roach et al. (1981) Sulfur Dioxide Four Corners in Utah,

Colorado, Arizona, and

New Mexico

SIP Regulations Nonuniformly Mixed 4.25

Hahn and Noll (1982) Sulfates Los Angeles California Emission

Standards

Nonuniformly Mixed 1.07

Krupnick (1986) Nitrogen Dioxide Baltimore Proposed RACT

Regulations

Nonuniformly Mixed 5.96

Seskin, Anderson,

and Reid (1983)

Nitrogen Dioxide Chicago Proposed RACT

Regulations

Nonuniformly Mixed 14.40

McGartland (1984) Particulates Baltimore SIP Regulations Nonuniformly Mixed 4.18

Spofford (1984) Sulfur Dioxide Lower Delaware Valley Uniform percentage

Reduction

Nonuniformly Mixed 1.78

Particulates Lower Delaware Valley Uniform percentage

Reduction

Nonuniformly Mixed 22.00

Maloney and Yandle

(1984)

Hydrocarbons All Domestic DuPont

Plants

Uniform percentage

Reduction

Uniformly Mixed 4.15

O’Ryan (1995) Particulates Santiago, Chile Uniform Percentage

Reduction

Nonuniformly Mixed 1.31

CAC = command and control, the traditional regulatory approach.

SIP = state implementation plan.

RACT = reasonably available control technologies, a set of standards imposed on existing sources in nonattainment areas.

406 Chapter 15 Stationary-Source Local and Regional Air Pollution

Controlling SO

Emissions by Command-

and-Control in Germany

Germany and the United States took quite different approaches to controlling SO

emissions. Whereas the United States used a version of cap-and-trade, Germany

used traditional command-and-control regulation. Theory would lead us to believe

that the U.S. approach, due to its flexibility, would achieve its goals at a consider-

ably lower expense. The evidence suggests that it did, but the reasons are a bit

more complicated than one might suppose.

Due to the large amount of forest death (Waldsterben) in Germany in which SO

emissions were implicated, the pressure was on to significantly reduce SO

emission

from large combustion sources in a relatively short period of time. Both the degree of

control and the mandated deadlines for compliance were quite stringent.

The stringency of the targets meant that sources had very little control flexibility;

only one main technology could meet the requirements, so every covered combus-

tion source had to install that technology. Even if firms would have been allowed to

engage in allowance trading once the equipment was installed, the pretrade

marginal costs would have been very similar. Since the purpose of trading is to

equalize marginal costs, the fact that they were very similar before trading left little

room for cost savings from trade.

The main cost disadvantage to the German system was not due to unequal

marginal costs but rather to the temporal inflexibility of the command-and-control

regulations. As Wätzold (2004) notes:

The nearly simultaneous installation of desulfurization equipment in LCPs

[Large Combustion Plants] all over Germany led to a surge in demand for this

equipment with a resulting increase in prices. Furthermore, because Germany

had little experience with the necessary technology, no learning effects were

achieved; . . . shortcomings that should have come to light before the

systems were introduced in the entire fleet of power stations . . . had to be

remedied in all power stations. [p. 35]

This was quite different from the U.S. experience with its sulfur allowance

program. In the U.S. program (described later in this chapter), the ability to bank or

save allowances for subsequent use, which provided an incentive for some firms to

comply early, and the phased deadline allowed much more flexibility in the timing of

the installation of abatement controls; not all firms had to comply at the same time.

Source

: F. Frank Wätzold, “SO

Emissions in Germany: Regulations to Fight Waldsterben.” CHOOSING

ENVIRONMENTAL POLICY: COMPARING INSTRUMENTS AND OUTCOMES IN THE UNITED STATES

AND EUROPE by W. Harrington, R. D. Morgenstern, and T. Sterner, eds., (Washington, DC: Resources for

the Future, 2004), pp. 23–40.

EXAMPLE

15.1

from this study about the conditions under which CAC policies may not be far off the

mark, we study it closely.

Los Angeles, the city studied by Hahn and Noll, had a large sulfate problem,

necessitating a very high degree of control. In effect, virtually every source

407Conventional Pollutants

was forced to control as much as is economically feasible. When that is true, the

possibilities for trade (and cost savings) are small or nonexistent.

As Example 15.1 points out, the command-and-control program to control

emissions in Germany had a similar outcome (quite cost-effective) for

similar reasons (stringent controls resulting in similar marginal control costs). In

that case, most of the excessive cost resulted from the policy’s lack of temporal

flexibility.

Air Quality

Each year, the U.S. Environmental Protection Agency publishes air-quality trends

using measurements from monitors located across the country. Table 15.3 shows

the national improvement in air quality (the pollutant concentrations in the

ambient air) as well as the reduction in emissions from the criteria pollutants that

have occurred over the 26 years from 1980 to 2006.

During that 26-year period, improvements have occurred for all six pollutants;

however, note that reductions in air-quality concentrations do not always match

reductions in nationwide emissions. The EPA identifies the following reasons for this:

●

Most monitors are located in urban areas, so air quality is most likely to track

changes in urban air emissions, rather than in the total emissions measured in

the table.

●

Ozone is formed after directly emitted gases [NO

and volatile organic

compounds (VOCs)] react chemically, so its concentration depends on the

chemical reactions as well as on emissions. And those chemical reactions

depend on the weather. For example, peak ozone concentrations typically

occur during hot, dry, stagnant summertime conditions.

●

In these data, some portions of emissions are estimated rather than measured,

while the air quality is directly measured.

TABLE 15.3 Emissions and Air-Quality Trend in the United States

Percent Change in Emissions

1980 vs 2008 1990 vs 2008

Carbon Monoxide (CO)

-56 -46

Lead (Pb)

-99 -79

Nitrogen Oxides (NO

)

-40 -35

Volatile Organic Compounds (VOC)

-47 -31

Direct PM

-68 -39

Direct PM

2.5

—

-58

Sulfur Dioxide (SO

-56 -51

(

continued

)

408 Chapter 15 Stationary-Source Local and Regional Air Pollution

How typical has the U.S. experience been? Is pollution declining on a world-

wide basis? The Global Environmental Monitoring System (GEMS), operating

under the auspices of the World Health Organization and the United Nations

Environment Program, monitors air quality around the globe. Scrutiny of its

reports reveal that the U.S. experience is typical for the industrialized nations,

which have generally reduced pollution (both in terms of emissions and ambient

outdoor air quality). Some of the reductions achieved in countries such as Japan

and Norway have been spectacular. However, the air quality in most developing

nations has steadily deteriorated, and the number of people exposed to unhealthy

levels of pollution in those countries is frequently very high.

Since these

countries typically are struggling merely to provide adequate employment and

income to their citizens, they cannot afford to waste large sums of money on

inefficient environmental policies, especially if the inefficiencies tend to subsidize

the rich at the expense of the poor. Some cost-effective, yet fair means of

improving air quality that work in the developing country context must be found.

For sulfur oxides, for example, the GEMS study estimates that only 30–35 percent of the world’s

population lives in areas where the air is at least as clean as recommended by World Health

Organization guidelines.

TABLE 15.3 Emissions and Air-Quality Trend in the United States

Percent Change in Air Quality

1980 vs 2008 1990 vs 2008

Carbon Monoxide (CO)

-79 -68

Ozone (O

) (8-hr)

-25 -14

Lead (Pb)

-92 -78

Nitrogen Dioxide (NO

)

-46 -35

(24-hr) —

-31

2.5

(annual) —

-19

2.5

(24-hr) —

-20

Sulfur Dioxide (SO

)

-71 -59

Notes:

1. — Trend data not available

2. PM

2.5

air quality based on data since 2000

3. Direct PM

emissions for 1980 are based on data since 1985

4. Negative numbers indicate improvements in air quality

Source

: USEPA Air Quality Trends website: http://www.epa.gov/airtrends/aqtrends.html

RACT = reasonably available control technologies, a set of standards imposed on existing sources in

nonattainment areas.

(continued)

409Innovative Approaches

Innovative Approaches

Fortunately some innovative approaches are available. Since various versions of

these approaches have now been implemented around the world, we can learn from

the experience gained from their implementation.

Smog Trading (RECLAIM)

Whereas the Clean Air Act transferred a considerable amount of power to the

federal government, the newest programs have arisen from state initiatives. Faced

with the need to reduce ozone concentrations considerably to come into compli-

ance with the ozone-ambient standard, states have chosen trading programs as a

means of facilitating rather drastic reductions in precursor pollutants.

One of the most ambitious of these programs is California’s Regional Clean Air

Incentives Market (RECLAIM), established by the South Coast Air Quality

Management District, the district responsible for the greater Los Angeles area.

Under RECLAIM, each of the almost 400 participating industrial polluters is

allocated an annual pollution limit for nitrogen oxides and sulfur dioxide, which

decrease by 5–8 percent each year for the next decade. Polluters are allowed great

flexibility in meeting these limits, including purchasing credits from other firms

that have controlled more than their legal requirements.

The cap-and-trade approach has fundamentally changed the nature of the

regulatory process as it was practiced in the command-and-control regime.

The burden of identifying the appropriate control strategies has shifted from the

control authority to the polluter. In part, this shift was a necessity (traditional

processes were incapable of identifying enough appropriate technologies to

produce sufficiently stringent reductions) and was, in part, motivated by a desire to

make the process as flexible as possible.

As a result of this flexibility, many new control strategies began to emerge.

Instead of the traditional focus on end-of-pipe control technologies (where the pol-

lution is still created, but it is captured before being emitted into the environment),

pollution prevention (where the pollution is not created in the first place) has been

given an economic underpinning by this program. All possible pollution-reduction

strategies could, for the first time, compete on a level-playing field.

The RECLAIM program also illustrates a couple of potential problems with

cap-and-trade markets. Compromises designed to gain political feasibility of the

system may affect the level of the cap, at least initially. This was certainly the case

with RECLAIM as initial allocations were inflated (Harrison, 2004). An early

evaluation of the program by EPA concluded that due to these inflated initial

allocations in the earlier years of the program, fewer emissions had been reduced

by RECLAIM than would have been reduced by more traditional regulation.

The effects over the longer term remain to be seen.

The second problem with RECLAIM arose from a confluence of adverse forces.

Due to electric deregulation and a shortage of imported power, power plants in the

RECLAIM area were required to run full tilt. These abnormally high production

410 Chapter 15 Stationary-Source Local and Regional Air Pollution

levels generated an abnormally large amount of emissions. Since the supply of

allowances that determined the level of authorized emissions was fixed by the cap,

which had been set without anticipating these increases, the price of these

allowances shot up to politically unsupportable levels.

The very large price increases triggered the use of a “safety valve” mechanism

that had been built into the program. RECLAIM procedures specified that if

allowance prices went over some threshold (as it did in this case), the program

would be temporarily suspended, and an alternative fee per ton would be imposed

until the normal operation of the program could resume. This alternative fee, of

course, in essence replaced the unacceptably high market price with a somewhat

lower, administratively determined price that was politically acceptable. This fee

was designed to retain some financial pressure on the plants to reduce emissions

without straining the system beyond its tolerance limits and the revenue was used

to secure emissions reductions from other sources.

This experience provides some insights about both the nature of the problem

and a potential solution. When prices rise to levels that jeopardize the integrity

of the program (due to the fixed supply of allowances), it is possible to switch to a

fee-based system until more normal conditions once again prevail. In fact some of

the newer cap-and-trade programs now routinely build a safety valve feature into

their design.

Emissions Charges

Air pollution emissions charges have been implemented by a number of countries,

including Sweden, France, and Japan. The Swedish nitrogen charge was discussed

in the previous chapter. The French air pollution charge was designed to encourage

the early adoption of pollution control equipment, with the revenues returned to

those paying the charge as a subsidy for installing the equipment. In Japan, the

emissions charge is designed to raise revenue to compensate victims of air pollution.

The French charge system has been in effect since 1985. Originally designed to

operate until 1990, it was renewed and expanded in that year. The charge is levied

on all industrial firms having a power-generating capacity of 20 megawatts or

more, or industrial firms discharging over 150 metric tons of taxable pollutants.

Some 1,400 plants were affected. Some 90 percent of the charge revenue was

recovered by charge payers as a subsidy for pollution control equipment, while the

remaining 10 percent was used for new technological developments.

While data are limited, a few highlights seem clear. The prevailing charge level

is too low to have any incentive impact. Analysis suggests that total revenues are

only about one-tenth of the revenue that would result from a charge sufficient to

bring French industries in line with the air pollution control directives of the

European Community (Millock and Sterner, 2004).

Economists typically envision two types of effluent or emissions charges. The

first, an efficiency charge, is designed to force the polluter to compensate completely

for all damage caused. The second, a cost-effective charge, is designed to achieve a

predefined ambient standard at the lowest possible control cost. In practice, the

French approach fits neither of these designs.

Tietenberg Tom, Lewis Lynne. Environmental &amp; Natural Resource Economics

Подождите немного. Документ загружается.

Tietenberg Tom, Lewis Lynne. Environmental & Natural Resource Economics