This is a nice follow-on application of the ideas just articulated … over the past couple of days, the new EPA Administrator, Mike Leavitt, has been making his first public statements about the direction he intends to take at the EPA.
The first issue he is tackling is mercury. This Chicago Tribune story (registration required) nicely summarizes the issues. In short, in the 1990s the EPA proposed to follow a mercury policy that was in keeping with their historic command-and-control techniques: mandate quantity reductions, and mandate the means by which companies achieve those reductions by mandating the types of control technologies that they install. Now Leavitt is proposing that instead of following that enforcement technique, the EPA adopt a mercury emissions cap-and-trade program, similar to the EPA’s extremely successful sulfur dioxide emissions trading program.
EPA air pollution rules generally require companies to install a “maximum achievable” pollution-control technology. But EPA is proposing a trading system, allowing plants that cannot meet tough emissions standards to pay other companies to reduce their emissions further than required so that the national goal is achieved.
EPA has implemented similar trading schemes for other pollutants, arguing that it allows the market to determine the cheapest way to achieve the desired emissions reductions.
Earlier in the same article, the authors note the environmentalist reaction to the proposal:
The proposal has infuriated environmental groups, which accuse the agency of sidestepping the Clean Air Act’s requirement that companies install the strictest controls possible on mercury pollution.
This quote, from an article in the Seattle Times, will reveal more about the mindset of the various approaches to this issue:
Last night, Leavitt confirmed the EPA might reverse the Clinton-era ruling in favor of a more flexible enforcement system.
The alternative, the document says, would be a mandatory “cap and trade” program, similar to the successful program to combat acid rain that was begun in 1990. It would allow utilities to buy emissions “credits” from cleaner-operating plants to meet an overall industry target.
The approach, environmentalists say, would save the utility industry hundreds of millions of dollars while ensuring a relatively high level of mercury pollution for years to come. Most utilities, they say, could achieve the reduction targets as a “co-benefit” or byproduct of reducing carbon dioxide and nitrogen oxide, without having to add special equipment to cut mercury emissions.
OK, now let’s begin. First, note how the traditional EPA command-and-control approach, mandating quantity reductions and mandating the specific technology to use, assumes away all of the knowledge problems that are inherent in human society and that were the focus of my immediately previous post. How does the EPA know what is the “right” amount of mercury reduction? By law they are requiring companies to make the maximum achievable reductions. How do we, collectively, define “maximum achievable”?
This is precisely where the so-called environmentalists have been so rhetorically successful, saying that the Clean Air Act calls for maximum reductions, and notwithstanding the fact that we currently do not have any mercury-specific reductions, any reduction plan that falls short of the most draconian interpretation of the Clean Air Act will amount to an increase in mercury emissions. Note that this is the same rhetorical bait-and-switch as the federal budget folks use when they claim that a reduction in the growth rate of their program’s budget is a reduction in their budget.
Opponents of this proposal want the maximum reduction in mercury emissions. This claim completely ignores the fact that the benefits of mercury reduction come at a cost, and that in order to make us better off, we have to evaluate those costs relative to the benefits of reduced mercury emissions.
Another thing that the old command-and-control maximum reduction approach ignores is the knowledge problem and incentives regarding emission abatement technology. When the EPA decides on our behalf what is the “best available control technology”, they stifle innovation and creativity in finding novel and cheaper ways to achieve the same emission reduction. Such a policy freezes technology at that snapshot point. Even if we make the most generous assumptions about how informed the EPA is regarding technologies, and if we assume that there is no lobbying to influence their technology choice, once they make that choice they give polluters and technology entrepreneurs no incentive to engage in further innovation. Yet the so-called environmentalists believe that this specific command, to use Hayek’s phrasing, is going to be beneficial into the future. It is precisely this logic that saddles us with smokestack scrubbers when gas flue desulfurization is actually cheaper and easier to implement in many cases.
Second, note something interesting in the Seattle Times quote:
The approach, environmentalists say, would save the utility industry hundreds of millions of dollars while ensuring a relatively high level of mercury pollution for years to come. Most utilities, they say, could achieve the reduction targets as a “co-benefit” or byproduct of reducing carbon dioxide and nitrogen oxide, without having to add special equipment to cut mercury emissions.
Put another way, these folks don’t want the utilities to be able to get a two-fer — they do not want them to be able to reduce mercury in the process of pursuing other emission reductions. They want a separate mercury redution technology.
This is absolutely ludicrous, and illustrates the utter disconnect between the control-and-manage, top-down imposition of order mindset and the dispersed knowledge, spontaneous order mindset. How can anyone logically claim that having utilities achieve multiple types of emission reduction through the same process makes us worse off? In reality, in the face of tradeoffs and budget constraints, this emission reduction twofer is called more bang for your buck, and to my mind such things are to be rewarded, not punished!
It is precisely these technological innovations and “more bang for your buck” emission reduction twofers that an emissions trading system promotes, and it does so because they are flexible and cheaper ways of meeting emissions objectives than mandating specific technologies pollutant-by-pollutant. Just because they are flexible and take the form of “we don’t care how you achieve the reduction, just do it, and here’s a permit market to make it more efficient” does not make them inferior to command-and-control maximum reduction. Indeed, markets take into account all of the dimensions that matter to people, including the tradeoffs that must be made to reduce mercury emissions, and they enable people to evaluate for themselves just how much they value mercury emission reductions.