Michael Giberson
The EPA has implemented regulation of Nitrogen Oxide (NOx) emissions with a cap-and-trade market scheme that seeks to achieve environmental goals in a way that minimizes the costs of compliance. Regulated companies are required to have permits to cover the amount of pollution emitted ? a company with a low cost of compliance can reduce the output of pollutants and sell the excess permits, a company with a high cost of compliance can buy permits instead of engaging in costly compliance efforts. The expected result is that the reduction in emissions will be done by the companies that can do it most efficiently.
Under the basic cap-and-trade approach, it doesn?t matter where or when the emissions (or the reduced emissions) take place, at least within the geographic footprint of the program. This is the approach taken by the EPA?S current trading program for NOx. A fixed amount of emissions is set for the season, and a permit is a permit is a permit. But when it comes to the environmental effects and economic damages of NOx emissions, it does matter where and when emissions happen.
An article soon to be published in the journal Atmospheric Environment seeks to measure the variable effect on ground-level ozone (O3) of a fixed amount of NOx emissions, depending on temperature and local hydrocarbon emissions. The article then estimates the relation between the resulting health damages and the size of the exposed population. According to the abstract:
The investigation is relevant to the increasingly widely used ?cap and trade? approach to NOx regulation, which presumes that shifts of emissions over time and space, holding the total fixed over the course of the summer O3 season, will have minimal effect on the environmental outcome. By contrast, we show that a shift of a unit of NOx emissions from one place or time to another could result in large changes in resulting health effects due to O3 formation and exposure.
The article suggests that shifting 11 tons of NOx emissions from a high-damage location to a low-damage location over a ten-day period could avoid the loss of, as they put it, ?approximately one life (on average).? Similarly, they said that the ?mortality impact of emissions from a single location may vary by a factor of nearly two as the temperature varies within a short span of time.?
As an alternative approach to regulations with cap-and-trade markets, the authors suggest that environmental modeling of the sort they used to estimate damages could be used to calculate emission fees that would vary according to the costs imposed by the emissions ? a kind of Pigovian fee for pollution.
I found the article through a brief news item in the Washington Post, which doesn?t appear to have been posted online yet.
The news item cites a ?utilities lobbyist? as saying ?an approach that sought to minimize emissions at particular times would penalize plants that ?have to operate 24 hours a day, seven days a week, 365 days a year?.?
The lobbyist?s claim is off point. NOx emissions tend to be most damaging ? and the fees would be highest ? when the weather is hottest. A unit operating 24 hours a day would operate under both the high-environmental cost/high fee hot afternoons and the low-environmental cost/low fee nights. It would be the rarely used peak generation units ? usually operated on only the hottest days ? that would be hit hardest (and then only if they emit NOx).
SOURCES:
Washington Post, “Link from Weather to Pollution”; May 9, 2005; page A7.
The Atmospheric Environment article is available online from the publisher via ScienceDirect: NOx emissions from large point sources: variability in ozone production, resulting health damages and economic costs, by Denise L. Mauzerall, Babar Sultan, Namsoug Kim and David F. Bradford.
The EPA website contains information on its ?Clean Air Markets,? including additional information on the Cap and Trade approach and specific information on its NOx rules.
Monetizing and internalizing environmental externalities costs is an extremely contentious issue. There was very high level interest in this approach about 15 years ago; but, there was no agreement on the approach to calculating the costs, which vary tremendously depending on the calculation basis – control costs vs. damage costs.
Focusing on NOx control ignores the other controllable variable, “local hydrocarbon emissions”. Granted, the NOx control approach allows dealing with a much smaller population of controllable emitters. However, it may not address the more significant of the emissions.
Finally, the suggested approach does not reduce NOx emissions, it merely increases the costs of those emissions to the emitters, which are then passed on to the emitters’ customers in higher rates or fees. Absent real time pricing, the demand which causes the on-peak operation does not see the full cost of the on-peak emissions fees, thus minimizing the incentive to reduce on-peak consumption to control costs.
One must question whether the article’s authors are more interested in higher total fee collections or reduced NOx emissions.
I have no opinion on the plan. I found one small part entertaining though – the utility guy didn’t like the plan that sounded hugely similar to the way the, uh, utility industry itself charges industrial and sometimes residential customers a capacity charge or peak load charges that effectively penalize (rightly, I think from an economics standpoint) customers that operate 24 hours a day and can’t cut back on usage during peak hours. I think its fairly disengenuous for a utility guy to pretend he does not understand peaking problems when half their business challenge is to manage the costs of peaks.
Governments have been using monetised values for risk for quite some time to assess air quality policy. There are many ifs and buts – but it is done here in the EU for air quality rules (I’m not saying it drives the precise rules… simply that it is done).
For the EU national emission ceiling directive (a version of the cap and trade approach, with national caps) there was a lot of modelling done on the Nox effects and the ozone. So the geographical differences in emissions were modelled and taken into account.
The detais are all in my past…. but this site has some of the studies done (the one on national emission ceilings is the one I mentioned above) :
http://www.europa.eu.int/comm/environment/enveco/studies2.htm
and yes… the lobbyist completely fails to see the point of the system and raises a straw man argument – – so what’s new ? 😉
and yes… the lobbyist completely fails to see the point of the system and raises a straw man argument – – so what’s new ? 😉