Emission Trading in the United States

Emission Trading in Environmental Law

Any method of reducing emissions from one source to compensate for new emissions from another. Trading may be limited to one facility, or it may stretch as far as anywhere within an air district. The owner of the original emission limits (the permitted amount) may use trading to meet his own limits, yet still expand a facility, or sell or trade reductions (called credits) to another facility.

Four major categories of emissions trading exist: bubbles [see bubble concept], netting, emission offsets, and emission reduction banking. Bubbles, most common of the four, allow existing plants or groups of plants to increase emissions at one source in exchange for decreasing them at another. The bubble concept comes from imagining a bubble enclosing an entire facility, then measuring total emissions instead of focusing on one discharge point. Example: A plant has four stacks. The manufacturing process makes it difficult to control emissions for stacks 1 and 2, but the plant can make stacks 3 and 4 perform better than is required by the permit. If the controls on stacks 3 and 4 can make up for the excess emissions at stacks 1 and 2, the entire plant may be treated as a bubbled facility. Total emissions cannot exceed the aggregated amount for the four stacks.

Netting applies to modifications of existing major facilities. The Clean Air Act requires facilities of certain sizes to go through New Source Review before they modify. If the modifications will not increase emissions or the increase will be insignificant, the source does not have to go through all of the requirements for New Source Review. Instead, the net effect is considered. A preconstruction review must take place, and the source is not exempt from the New Source Performance Standards or the regulations for hazardous air pollutants. See national emission standards for hazardous air pollutants.

Emission offsets are used by states to allow growth in an area. An offset requires a reduction in one source to offset the increase in other emissions The sources need not be in the same immediate vicinity, but they must be in the same air quality region. Depending on the status of the air quality for the pollutant involved, different standards will apply.

Emission reduction banking is aptly named. It means that a facility accumulates emission reduction credits, which can be stored for later use ir. bubbles, offsets, or netting transactions. If the state allows it, the owner of the credits can also sell or trade the credits.

Purpose of Emissions Trading

The ultimate goal of emissions trading is to provide flexibility for industry. At the facility level, the operator may shift resources to control emissions without increasing the total amount released, so emissions trading can sometimes result in innovative approaches to pollution control. The netting approach reduces agency review requirements but puts the burden on the facility to control emissions and avoid triggering the requirement for full review. Emission offsets and banking give the state flexibility in allowing new sources without sacrificing air quality. They also introduce marketing into air pollution: sources can sell their reductions, trade them, use them, or give them away. Numerous restrictions apply to these mechanisms, however, and the EPA maintains ultimate responsibility for approval.

Restrictions on Emissions Trading

Emission reduction credits are specific to the pollutant involved. (For example, sulfur dioxide credits can only be used for sulfur dioxide emissions.) The EPA also requires that emission reduction credits meet four criteria: they must be surplus, enforceable, permanent, and quantifiable. Only reductions that are not required, relied upon by the state to meet federal requirements, or used to meet other regulatory requirements are considered surplus. The reductions must be established in relationship to the baseline emissions allowed for the area.
Based on “Environment and the Law. A Dictionary”.