Case Study #1:  Reducing Acid Rain in the United States (cont.)

Under cap and trade, Plant C can purchase 1,000 allowances from Plant A, giving Plant A extra revenue (a reward for better performance) and allowing Plant C to cover every ton of SO2 with an allowance (5,000 assigned allowances plus 1,000 purchased allowances). Plant A can bank its remaining 2,000 allowances for future years. With flexibility to choose their own solutions, all 3 plants have met the new limit.

Another key ingredient-- strict federal oversight:
While the government was giving businesses the freedom to find their own way, it closely monitored their progress. Plants had to install devices in each smokestack to monitor and regularly report their emissions, and if they failed to comply with mandated cuts they faced stiff fines or even criminal penalties.

The results:
The cap and trade program under Title IV of the Clean Air Act has been in effect for 3 years. The results thus far speak for themselves:

• All power plants involved in the first phase of the program have fully complied (which is not always the case with air pollution control programs.)
• So far, sulfur dioxide emissions have been cut by 30% more than the original mandate (which means an extra 7.98 million tons of SO2 were kept out of the atmosphere between 1995-1998.)
• The cost of reductions, originally estimated to range from $4-billion to $8-billion per year, will be approximately $1-billion per year.
  

"The story of US acid rain control offers a case study in the successful regulation of a wide-ranging pollutant. Economists agree that at least partial credit must go to the unusually flexible US regulations and their use of the free market."

Science Magazine, November 1998