REGULATORY FOCUS
EPA's new bubble and banking policies
Michael R. Deland
More "bubbles" and increased "banking" are the foundations of a new emissions trading policy recently announced by EPA Administrator Anne Gorsuch. She predicts that "savings from bubble trades alone could top $1 billion by the end of this year, with equal or better air quality results." The bubble policy, developed in 1979 by the Carter administration, places an imaginary "bubble" over a plant and then applies a single emission limit to it in lieu of traditional stackby-stack controls. It thus gives plant managers the flexibility to develop less costly ways to meet air quality requirements. The "banking" policy, developed concurrently with the bubble, enables a company to get credit for emission reductions by storing them in a "bank" in a legally protected manner. Three air pollution control districts— Louisville, Ky., the San Francisco Bay area, and Puget Sound—opened banks in 1980. Thus far, their business hardly has been booming. Seventeen firms have made deposits in the Puget Sound bank, 10 in Louisville, and five in the Bay area bank. The only withdrawals have come from the Louisville bank. Meanwhile, the bubble policy has been slowly gaining acceptance. EPA has approved 18 bubbles involving a variety of industries and several different pollutants. More than 90 addi-
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tional bubbles are in various stages of review or are being actively developed by companies. The bubbles have resulted in substantial savings. For example, a bubble in New Jersey saved Du Pont more than $12 million in capital expenditures and several million dollars in annual operating costs. In Louisville, General Electric paid $60 000 to lease 445 tons of VOC (volatile organic carbon) credits banked by International Harvester. GE also retains an option to lease additional credits until its VOC emitting lines are phased out in two years. GE thereby avoided the need to spend $1.5 million to construct an incinerator that it wouldn't have needed after 1983. New initiatives EPA's recent initiatives are the first major proposals developed by its regulatory reform staff and are an attempt to stimulate further the slow but successful start to bubbling and banking. The new "policy statement" became effective as "interim guidance" upon publication in the Federal Register on April 7, 1982, and will be final following the close of the comment period July 6. The policy provides industry and the states far greater flexibility in the use of the bubble. Among the more significant changes are to extend the use of bubbles to nonattainment areas and to allow firms that are pollution sources to use bubbles to come into compliance with regulations. The states are urged to adopt generic trading rules for all criteria of pollutants, thereby eliminating the need for a state implementation plan revision for each bubble. The policy has built-in safeguards such as a requirement that each bubble must result in no greater ambient impact than the original emission limits. It also specifies that only reductions
© 1982 American Chemical Society
that are "surplus, enforceable, permanent, and quantifiable" can qualify as emission reduction credits and thus be banked or used in an emissions trade. Reaction to the policy Industry applauds the policy, characterizing it as "an excellent example of what regulatory reform is all about." The states also are generally enthusiastic. EPA had already approved a generic VOC rule for New Jersey and Massachusetts; rules for more than 20 other states, several involving multipollutants, are in the process of approval or development. However, some states are concerned that the proposal will increase their administrative costs at precisely the time EPA is substantially slashing their federal monies. Environmental groups under the leadership of the Natural Resources Defense Council (NRDC) strongly object to the new policy. NRDC's main concern is that by extending the bubble policy to nonattainment areas, compliance will never be achieved. NRDC also fears that the dramatic reduction in federal oversight is an invitation for states to enact less stringent regulations and to ignore their enforcement in the hopes of luring industry to relocate. EPA's proposal, which will be further debated in the coming weeks, is the first major test of environmental regulatory reform. The policy provides the states and industry the opportunity to reduce reliance on the traditional "command and control" approach to regulation and to explore creatively whether market-oriented techniques can control pollution more cost effectively. Deland writes this monthly column and is employed by ERT, Concord, Mass.
Environ. Sci. Technol., Vol. 16. No. 6, 1982
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