The History of Pollution Trading and the Future of the Chesapeake
To meet federal pollution limits for the Chesapeake Bay, Maryland and other bay region states and counties are planning to rely on a politically fashionable --but questionable – scheme to reduce pollution.
That system is pollution trading. Pollution trading is a strategy conceived by Republicans in the 1980s, when Reagan Administration held up free markets and de-regulation as magic elixirs for all that ails America.
Back then, sulfur dioxide pollution from coal fired power plants was causing an increasing amount of acid rain that was ravaging forests and streams. But Reagan was not about to impose traditional government regulations, because he famously defined government as the problem, not the solution.
So Vice President George H.W. Bush’s legal counsel, an attorney named C. Boyden Gray, thought up a more politically palatable idea that carried the glow of Wall Street: Pollution trading. Power plants and other industries could buy and sell the right to pollute. But excessive emissions would be discouraged because they would come with a price tag.
Each power plant would be given a cap – or maximum amount – of sulfur dioxide it would be allowed to spew into the air. If plants wanted to release more than that, they would have to purchase credits from someone else on the free market. The concept was incorporated into 1990 amendments to the federal Clean Air Act signed by the first President Bush.
This pioneering “cap and trade” system worked to drive down sulfur dioxide emissions and reduce acid rain, and was a great success. However, the same reductions arguably could have been achieved more quickly and efficiently by simply requiring all power plants install pollution control devices. That was a top-down regulatory approach taken, by example, by Germany in the 1980s to achieve the same results.
Since the 1990s, cap and trade systems have been proposed as silver bullet for a variety of other pollutants. And in some cases, trading has worked – for example, to reduce carbon dioxide pollution from power plants in the Northeast under what is called the Regional Greenhouse Gas Initiative.
But the evidence so far suggests that trading only succeeds if both of the trading partners have smokestacks or waste pipes that are carefully monitored, so that regulators can make sure that an increase in pollution from one source is more than compensated by a decrease from the other.
However, the idea of pollution trades between even unmonitored pollution sources – like farms and cities – has been adopted by Chesapeake region states as central to their plans to meet EPA pollution limits for the bay.
The main argument in favor of pollution trading made by Maryland Governor Larry Hogan’s administration and others is that it can be more cost effective than traditional top-down regulation of polluters. Reducing a pound of nitrogen pollution in the stormwater pouring off of Baltimore, for example, can be tremendously expensive, because it requires construction to rip up streets and install filtration systems. Eliminating that same pound of nitrogen from farm runoff in Harford County can be much cheaper, simply requiring a farmer to move his fertilizer applications farther from his stream.
The problem is this: with pollution trades between farms and cities, waterways in Baltimore and other urban areas would get no cleaner, while the tax dollars of city residents would be shipped off to improve the water quality – and quality of life -- of wealthier rural residents.
That is, if the trading even works. In the case of agricultural pollution, monitoring is nearly impossible, because the pollution seeps between countless soil particles. To make matters worse, farmers demand secrecy for the records of their pollution control efforts.
Without monitoring and transparency, there can be no accountability and no therefore no legitimacy in pollution trading. If Maryland and the other bay states bank on trading to clean up the bay, the enforceability of the federal Clean Water Act – the backbone of the Chesapeake restoration effort – will break, because the trail of evidence will disappear.