Global CO2 emissions trading: Early lessons from the U.S. acid rain program

The U.S. Environmental Protection Agency is implementing a program of SO₂ emission allowance trading as part of the Acid Rain Program authorized by the Clean Air Act Amendments of 1990. Electric utilities may use allowance trading as part of their compliance strategy to meet SO₂ emission reduction requirements, which begin in 1995. In the interest of a free market in emission credits, some utilities began trading in 1992. A strict but essential requirement for continuous-emissions monitoring was developed to support the trading program. This program is being widely watched and will be evaluated as part of an effort to determine if market concepts can be successfully extended to other environmental issues. One such issue is greenhouse gas emissions and their link with global warming and climate change. This paper focuses on the early lessons learned, issues, and challenges involved in going from a domestic electric utility SO₂ emissions trading program to inter-industry, inter-gas and international as well as national emissions trading and offsets programs. Prominent among these issues are CO₂ allowance allocations, equity, emissions monitoring, enforcement, and cost-effectiveness.Paper presented at the90th Annual Meeting of the Association of American Geographers, San Francisco, April 2, 1994, at the Air & Waste Management Association International Specialty Conference onGlobal Climate Change, Tempe, Arizona, April 8, 1994, and at a Cornell University Center for the Environment seminar on global climate change, April 25, 1994. I thank Michael Grubb, Joe Kruger, Elliot Lieberman, Brian McLean, Renee Rico, Richard Schuler and two anonymous referees for helpful comments on previous drafts of this paper. The views and opinions expressed herein are those of the author alone, and do not necessarily represent the policies of the U.S. Environmental Protection Agency.