Sulfur Dioxide Cap and Trade Program Collapses - The American Spectator | USA News and Politics
Sulfur Dioxide Cap and Trade Program Collapses

Donald Marron points to a pair of stories in the New York Times and Wall Street Journal reporting on the collapse of the cap and trade regime for sulfur dioxide. 

The story is a little complicated, but what it boils down to is that regulatory uncertainty and changing environmental priorities have led to a precipitous drop in sulfur dioxide allowance prices, which are expected to stay low. The end result is that plants emitting the pollutants have little incentive to avoid releasing sulfur dioxide into the atmosphere. Marron highlights this passage from the Times:

With SO2 allowances trading at about $5 per ton, and little prospect of carrying over the permits into the new program, utilities have little incentive to bank allowances or add emissions controls for the time being, traders say. Because those controls have upkeep costs beyond the original investment, some plants might even find it more cost-effective to use allowances than to turn on scrubbers that have already been installed, traders said.

Here’s a graph of historical allowance prices from the Journal

The source of the problem seems to be the EPA’s dueling mandates to regulate the cap and trade program effectively and uphold the “good neighbor” provision of the Clean Air Act. The way cap and trade works, no one can predict where emissions will be curtailed and where they will increase — the market determines those outcomes. As a result, the geographical concentration of emissions became a concern as the market became more efficient, as cities or regions downwind from high-emissions plants lagged by Clean Air Act standards. The “good neighbor” provision protects such places, and in 2008 a federal court ruled that the provision prevented the EPA from increasing the scope of the cap and trade program in Eastern states. Foiled by its own mandate, the EPA has reversed course — a “catch-22” by the Times‘ source. According to the Journal, the EPA will now “limit the use of the market and instead require most of the emission reductions to come from changes at the plants themselves.”

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