NEWS SOCIETY Utilities cut pollution, save money, but few trade allowances By most measures, the 1990 Clean Air Act's acid rain control program is a success: coal-fired utilities are cutting emissions and doing so for a lot less money than expected. The Act's unique pollution allowance trading provisions have been given credit, but a recent Resources for the Future (RFF) study tempers that conclusion. The Act's crafters created the pollution trading system as a linchpin to help utilities cut 10 million tons in annual sulfur dioxide emissions by 2001. They theorized that some utilities will find it cheaper to overcomply with emissions reductions, generate tons of extra reductions, and sell them to other utilities that
find it cheaper to buy pollution allowances than to buy pollution control hardware. And indeed utilities have cut pollution and saved money, but they aren't trading S0 2 , according to Dallas Burtraw, an RFF fellow and the study's author. "We have a paradox here. There is relatively little real allowance trading, but compliance costs are way down." Citing a General Accounting Office study, Burtraw said compliance will cost about $2.5 billion a year in 2001, less than even the most optimistic estimates of 1990. By real trades, Burtraw means trading between utilities. His study found that at best 1-2 million tons of allowances are real
"Unfunded mandate" costs questioned A new Congressional Budget Office (CBO) study found that the cost to local governments of implementing the Safe Drinking Water Act (SDWA) is less than $20 annually per household. The study raises questions about the true impact of "unfunded federal mandates," a rallying cry for state and local governments and politicians critical of high costs of federal regulation. Released in September, the study states that annual drinking water treatment and monitoring costs were $20 or less for more than 90% of U.S. households in 1993 and projects that 80% of households will pay less than $20 in 1997. Despite the generally low costs, CBO found small systems to be hit hardest by water treatment costs and, for a small number of households, costs may exceed $100 a year. The long-run effect, CBO says, may be to drive small water-supply systems to join larger ones to benefit from economies of scale. CBO's study relied on surveys by the U.S. Conference of Mayors and the National Association of Counties as well as data from EPA. It found surprising agree-
ment between EPA and association data, once the material was corrected and made consistent, according to the study's author, Terry M. Dinan of CBO's Natural Resource and Commerce Division. The study noted that several proposed rules, if implemented, could triple current costs, and CBO found huge cost variances. Overall, Dinan said, CBO faced difficulties in assessing large variances in basic cost estimates and determining incremental costs for regulatory requirements. This uncertainty may be particularly important in the future because CBO has been charged by the Unfunded Mandates Reform Act to provide Congress with estimates of proposed federal legislation costs to state and local governments and private industry. Michael J. Pompili, assistant health commissioner of the Columbus (OH) Health Department and an early critic of unfunded mandates, said the study was too limited. "You can't look at one law at a time. When you add the '$20 per person' here and '$50 per household' there, all of a sudden you are into serious money on the part of the taxpayer." —JEFF JOHNSON
trades, about 5% of all trades cited by EPA. The bulk of the EPA-cited trades are record-keeping changes in which utilities consolidate ownership, he said. But even without trades, Burtraw said the flexibility inherent in the acid rain control program has created a dynamic marketplace, putting pollution control alternatives into direct competition with one another. The result is competition and innovation among coal marketers, coal rail transporters, and scrubber manufacturers, and utilities are the beneficiaries. Burtraw documents that all costs have dropped, but fuel switching and blending with lowsulfur coal is the most popular compliance option for more than half of all U.S. utilities, followed by scrubbers (10-15%) and trading coupled with other options (3-15%). From 1990 to 1994, production of low- and medium-sulfur fuels expanded by 28%, while high-sulfur fuel production fell by 18%. Possibly most important, he said, is a nearly 50% reduction in transportation costs for moving Western low-sulfur coal from the Powder River Basin to the East. "This is now the busiest rail line in the world." Burtraw conjectured that fuel switching/blending was selected because it was cheapest, not capital intensive, and offered little risk. The trading option, however, is seen as "insurance" to be used if more familiar options fail. Declining costs for low-sulfur coal may have developed without trading, he said, but trading "sped it up. You only have to look at problems in other Air Act titles and past attempts to cut S0 2 emissions to see how much better this has worked." The lesson, he said, is not to "micromanage" trading markets but to set a "firm, tight cap" to accommodate environmental concerns and then broaden the size of the market, remove guidelines and barriers, and "let them trade." —JEFF JOHNSON
VOL. 29, NO. 12, 1995 / ENVIRONMENTAL SCIENCE & TECHNOLOGY • 5 4 7 A
