Trading under attack

From California to New Jersey, environmentalists and politicians are rounding on emissions trading programmes. David Biello reports

Even as the Bush administration continues to build support for market mechanisms to solve air pollution issues – under his Clear Skies initiative – emissions trading schemes from California to New Jersey are under attack from environmentalists, citizen advocacy groups and state governments.

In New York State, Governor George Pataki is continuing a legal battle over the trading of sulphur dioxide (SO₂) allowances. The New Jersey Open Market Emissions Trading programme is under review by the US Environmental Protection Agency (EPA) following complaints from environmental groups. And environmentalists have challenged the legality of certain types of credits in California’s Regional Clean Air Incentive Market (RECLAIM).

Matthew Most, EMA:Acid Rain Program “not intended to be regional”

“Emissions trading programmes have been a resounding success, delivering real environmental benefits,” says Gary Hart, manager of emissions trading for Atlanta-based Southern Company and co-chair of the Clean Air Markets Group. “Is it these groups’ agenda to get rid of emissions trading?”

On 18 April,Governor Pataki and the state Office of the Attorney General renewed their battle to restrict the sale of SO₂ allowances from state power plants under the federal Acid Rain Program. This followed US District Court judge David Hurd’s ruling on 9 April that the state’s Air Pollution Mitigation Act of 2000 was unconstitutional. This attached a financial penalty to the sale of New York SO₂ reductions to 14 upwind states believed to contribute to the state’s acid rain problem.

The Clean Air Markets Group – a coalition of electricity generators, trade associations and emissions traders – had successfully argued that the state law interfered with the federal Clean Air Act, which established a national ‘cap-and-trade’ system in SO₂ allowances, and reduced the value of New York emission credits. “When Congress set up the programme, it was not intended to be regional,” says Matthew Most, president of the Emissions Marketing Association.

New York had pushed for a regional trading regime when the EPA was writing the regulations for the Acid Rain Program in 1990. And the governor and attorney general plan to continue the fight. “All New Yorkers deserve clean air, land and water, and this ruling will undermine our aggressive efforts to reduce acid rain pollution,” Pataki says in defence of the appeal.

Environmental groups, including the Sierra Club and National Audubon Society, applaud the governor’s decision. “The decision to appeal the judge’s ruling sends the message that our officials are serious about ending the damage of acid rain in the state,” says Bernard Melewski, acting executive director of the Adirondack Council, a New York environmental group.“None of this would be necessary if Congress would take prompt action to solve the acid rain problem.”

The EPA disagrees, arguing that the federal Acid Rain Program is working. “Acid rain is coming down,” says Rona Birnbaum, chief of the EPA’s acid rain assessment group. “That doesn’t mean the problem is solved, but the mechanism seems to be working well.”

Meanwhile, in neighbouring New Jersey, the EPA’s Office of the Inspector General, an independent, internal EPA watchdog, is conducting an evaluation of the state’s Open Market Emissions Trading programme.

This voluntary programme, first developed in 1996, allows companies to generate credits for reductions in nitrogen oxides (NOx), greenhouse gases or volatile organic compounds. These credits can be traded, with 10% of any transaction permanently taken off the market, according to state regulations.

Environmental groups, including the Sierra Club and Public Employees for Environmental Responsibility (PEER), had charged that the programme provided no means for verifying the accuracy of companies’ reported emissions and lacked the means for enforcement following violations.

“Were there any reductions?” asks Jeff Tittel, director of the New Jersey chapter of the Sierra Club. “Where was the monitoring or enforcement to ensure reductions?”

The Office of the Inspector General will not issue the findings of its evaluation until late this summer, says Kwai Chan, assistant inspector general. The evaluation also includes other states with similar open market trading programmes, such as Michigan.

In the meantime, trading in the scheme has slowed significantly, according to a spokesman for the New Jersey Department of Environmental Protection, which administers the programme.

On the west coast, California’s mandatory cap-and-trade programme to reduce NOx emissions in the southern part of the state has also come under fire.

Our Children’s Earth Foundation (OCE) and Communities for a Better Environment filed suit on 11 March against nine Los Angeles organisations for purchasing mobile pollution reduction credits to offset stationary source emissions in the RECLAIM market. Among the polluters named in the suit are the city of Burbank, Southern California Gas and United Airlines.

“On the credits there was documentation that said the credits had not been approved by the EPA and could be subject to a third party suit,” says Tiffany Schauer, executive director of OCE and a former EPA lawyer. While the EPA approved some mobile sources last May as part of a pilot programme, the agency did not rule one way or another on the specific credits used by the nine companies named in the suits.

The South Coast Air Quality Management District, which manages the trading scheme, had awarded the credits to corporations that had replaced standard vehicles with cleaner options, such as buses fuelled by natural gas. Mobile source credits became particularly attractive when prices for credits from stationary sources climbed as high as $62 per pound (lb) during the California energy crisis of 2000–01. Prior to that crisis, stationary source credits cost around $1/lb, with current prices in the range $2–4/lb.

The plaintiffs in the suit argue that allowing such credits into the market defeats its fundamental purpose. “Credits are supposed to become so expensive that it forces some companies to put on controls,” Schauer says. “We’re just enforcing the programme.”

The California, New Jersey and New York cases represent a serious challenge to emissions trading even as the Bush administration pushes the approach to reduce mercury,NOx and SO₂ pollution.

“Based on the evidence I’ve seen to date, emissions trading is working,” Southern Company’s Hart says. “It concerns me that these folks don’t see the environmental benefits.”