December 10, 1999

EPA's Economic Incentive Program Guidance

  • Susan Dudley

    Director, George Washington University Regulatory Studies Center
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Draft Guidance for Improving Air Quality Using Economic Incentive Programs

Stated Purpose:

"EPA drafted the guidance to encourage cost-effective and innovative approaches to achieving air pollution goals."

Summary of RSP Comment:

RSP supports EPA's goal of encouraging states to rely on economic incentive programs, such as emissions trading and effluent fees, to achieve air quality standards. However, we are concerned that EPA's approach is too prescriptive, and will actually hinder, rather than encourage, the development of innovative state programs.

EPA identifies three fundamental principles that must apply to all EIPs: integrity, equity, and environmental benefit. These three principles trump objectives of cost-effectiveness, efficiency, flexibility, and innovation.

The environmental benefit principle requires that states demonstrate that an EIP will provide either faster attainment, or greater emission reductions than traditional approaches to meeting air quality standards. However, if states develop innovative programs which cut costs of compliance significantly, they should not be forced to rely on traditional approaches simply because the new method is only equally effective.

The equity principle requires states to evaluate whether an EIP causes or continues an uneven distribution of emissions or non-emission effects, and to mitigate those potential effects by prohibiting trading or otherwise limiting participation in an EIP.

Emission fees and trading programs offer cost-effective alternatives to traditional command-and-control approaches largely because they permit facilities for which the cost of reducing emissions is high to compensate those for which the costs are lower. Constraining high-control-cost facilities from taking advantage of such opportunities could well halt any viable efforts at cost-effective programs.

Furthermore, contrary to the assumption implicit in the guidance, such restrictions may well harm the very people they are intended to protect.