Improving Air Quality: Controlling Stationary Sources Chapter 12 © 2004 Thomson Learning/South-Western

2 Controlling Stationary Sources Stationary sources contribute to the emissions levels of all the criteria pollutants; this group includes:  Electric power plants  Chemical plants  Steel mills  Residential furnaces Regulated by technology-based standards

3 Controlling Stationary Sources Figure 12.1 National Emissions Estimates for Stationary Sources by Major Category, 1999

4 Controlling Stationary Sources Age-Specific Control Differences: New Versus Existing Sources  Defining technology-based emissions limits New source performance standards (NSPS) – technology-based emissions limits established for new stationary sources Dual-control approach New or modified stationary source – a source for which construction or modification follows the publication of regulations Existing stationary source – a source already present when regulations are published

5 Controlling Stationary Sources  Bubble policy – allows a plant to measure its emissions as an average of all emission points emanating from that plant Emissions banking – allows a source to accumulate emission reduction credits if it reduces emissions more than required by law and to deposit these through a banking program

6 Controlling Stationary Sources Location-Specific Control Differences: PSD Versus Nonattainment Areas  Defining Emissions Limits in PSD Areas Best available control technology (BACT) – a new source has to meet a standard that aligns with the maximum degree of pollution reduction available  Emissions trading in PSD areas Netting – developed for PSD areas to allow emissions trading among points within a source for the same type of pollutant, such that any emissions increase due to a modification is matched by a reduction from another point within that some source

7 Controlling Stationary Sources  Emissions Trading in Nonattainment Areas Offset plan – developed for nonattainment areas to allow emissions trading between new or modified sources and existing facilities such that releases from the new or modified source are more than countered by reductions achieved by existing sources To facilitate the plan, an emissions bank of accumulated emission reduction credits was set up where facilities could deposit and access offsets as needed

8 Controlling Stationary Sources  Sorting It Out Emissions limits for PSD areas are more stringent than in Nonattainment Areas Limits for New Sources are more stringent than those for Existing Sources within both types of areas

9 Controlling Acidic Deposition Regional pollution problem – source of the contamination is often hundreds of miles from where the detrimental effects are felt

10 Controlling Acidic Deposition The Problem of Acidic Deposition  Acidic deposition – arises when sulfuric and nitric acids mix with other airborne particles and fall to the earth as dry or wet deposits

11 Controlling Acidic Deposition The Policy Response: Title IV of the 1990 Amendments  SO 2 Emissions Allowance Program Tradeable SO 2 emission allowances – permits issued to stationary sources, each allowing the release of one ton of SO 2 which can be either held or sold through a transfer program

12 Economic Analysis of Stationary Source Controls Relative Cost of Using Command-and- Control Instruments  The lack of flexibility in a standards-based approach adds significantly to society’s costs and offers no incentive to low-cost abaters to clean up beyond the statutory level  In most instances society should realize important cost savings from a shift to more flexible policy instruments with no reduction in air quality benefits

13 Economic Analysis of Stationary Source Controls Uniform Technology-Based NSPS  Two potential problems with the new source performance standards (NSPS) Implemented uniformly Technology-based standards

14 Economic Analysis of Stationary Source Controls Figure 12.2 Cost-Ineffectiveness of the Uniform New Source Performance Standard

15 Economic Analysis of Stationary Source Controls Figure 12.3 Analysis of the NSPS in the 1977 Clean Air Act Amendments According to Perl and Dunbar (1982)

16 Economic Analysis of Stationary Source Controls The Dual-Control Approach and the New Source Bias  Dual-control approach gives states more direct supervision over those firms on which their economies have come to depend  Can generate market distortions

17 Economic Analysis of Stationary Source Controls Economics of Market-Based Trading Programs  Analysis of Emissions Trading Ultimately, all sources will control pollution to the point where the marginal abatement cost of doing so is equal across firms – a cost effective solution

18 Economic Analysis of Stationary Source Controls Figure 12.4 Analyzing the Dual-Control Approach and the New Source Bias: Marginal Abatement Cost Levels for New Versus Existing Sources

19 Economic Analysis of Stationary Source Controls  Analysis of the 1990 SO 2 allowance trading plan Firms with excess allowances become suppliers in the market Firms unable to match their emissions level to their number of held allowances become demanders On net, buyers and sellers will trade for allowances, and emissions levels should reach the level where MACs are equal across firms

20 Economic Analysis of Stationary Source Controls Figure 12.5 Cost-Effectiveness of the SO 2 Allowance Trading Plan

21 Economic Analysis of Stationary Source Controls Figure 12.6 Comparison of Intrautility and Interutility SO 2 Allowance Trades through 2001