Chapter V. More Applications for Cap and Trade
So far, the Handbook has discussed the basics of cap and trade and participation in emissions trading markets in the context of the U.S. Acid Rain Program. The remainder of the Handbook will provide an overview of two other programs that employ the framework of cap and trade systems. In addition, the Handbook will review two potential applications of cap and trade principles.
(A.) RECLAIM: Cap and Trade as Part of the Solution for Smog in L.A.
Smog has become a part of daily life in the Los Angeles region. Smog is known to affect children, the elderly and asthmatics. Recent studies are also linking it to long-term respiratory illness and impaired lung capacity. The smog in Los Angeles is a major health concern for the area's citizens.
The area is under pressure to meet national health standards for air quality by 2010. In turn, industries and businesses have been tasked to cut emissions of the smog producing pollutants nitrogen oxides (NOx) and sulfur oxides (SOx). The emissions cuts amount to fully 80% reductions by 2003.
Market-based Solution Sought
In 1993, the Regional Clean Air Incentives Market
or RECLAIM was established. It is the market-based policy tool that local governments are using to achieve reductions at
a select group of sources. Under RECLAIM, a market for
NOx and a market for SO2
have been created. The program is administered by the
South Coast Air Quality Management District
(SCAQMD), a governmental agency covering Los Angeles, Orange, and
Riverside counties and portions of San Bernardino county.
Stationary sources in the Los Angeles area emitting more than four tons of NOx and SO2 annually have their emissions capped to preserve environmental benefits. Those caps are then gradually decreased to ensure steady improvement in the overall air quality. Under the declining cap, these sources have been assigned three emissions targets for NOx and SO2 which include an initial allocation in 1994, the mid-point reduction in 2000, and ending allocations in 2003. Basinwide, by the year 2003, NOx emissions from RECLAIM sources are to be reduced by 75% and SOx emissions by 61%.
As with the U.S. Acid Rain Program, sources can conserve credits by reducing emissions to a level that is lower than their target. These RECLAIM Trading Credits (RTCs) then become an asset that is fully transferable and can be freely traded. Transparency is vital to the program's success. The SCAQMD maintains a registry and keeps a public bulletin board listing each facility's emissions record, allocations, and compliance activity.