23. Buying and Selling Permits to Pollute

Source: SAN FRANCISCO CHRONICLE, Date: 3/21/94, Title: "Selling Dirty Air Is Big Business: One firm's smog is another's gold," Author: Jonathan Marshall

SSU Censored Researcher: Jennifer Burns

SYNOPSIS: Where "plastics" was once the hot word for young business entrepreneurs, the word today might be "pollution."

Under a national initiative, passed into law in the 1990 Clean Air Act amendments, it is now possible to make a good living helping companies buy and sell permits to pollute.

Joshua Margolis, director of the Air Trade Services Group at Dames & Moore, a nationwide environmental consulting firm, is making such a living buying and selling dirty air credits. His clients include oil refineries, electric utilities, cogeneration firms, printers, wood products manufacturers, and many other industries covered by air pollution laws.

As Jonathan Marshall, economics editor of the San Francisco Chronicle points out, this is no small business. "Firms pay hundreds of thousands of dollars for the right to spew some pollutants into the air sometimes more per pound than the price of filet mignon."

Under federal law, a polluting company that seeks to move into or expand in a polluted area must first obtain emissions reductions, or "offsets," from existing plants in the same locale. In some areas, it is possible for a company to reduce its polluting emissions and then "bank" those credits for later sale to a company that needs them.

And the process seems to be working. In 1994, a New Jersey utility, which was cleaning up its exhaust, sold credits to emit smog-forming nitrogen oxides to another utility expanding in Connecticut. And when Shell Oil (like other refineries) came under state and federal mandates to modify its Martinez, California, refinery to produce cleaner gasoline and diesel fuel, it bought 55 tons of sulfur dioxide credits from Gaylord Container. Gaylord had acquired the credits when it purchased and eventually closed a pulp paper plant several years earlier.

Marshall reports that prices for credits vary widely because there are relatively few big transactions in any given year. "In the Bay Area last year," Marshall reported, "credits for nitrogen oxide emissions sold for $6,500 to $20,000 a ton, according to William de Boisblanc, an official at the air district. Shell paid about $5,500 per ton for its sulfur dioxide credits."

David Ryan, spokesman for the Environmental Protection Agency supports the concept. "Acid rain emissions are now a commodity, like a stock or bond," he notes. "We think this market will bring down the cost of meeting national acid rain objectives."

Margolis is optimistic about the future for selling pollution. He said such programs to achieve pressing environmental goals at the least cost to industry and consumers are the wave of the future. However, not everyone agrees. Some critics charge that the process amounts to a license to kill, or at least to pollute.

Like they say, it's a dirty business but someone's got to make a profit out of it.

COMMENTS: Investigative journalist Jonathan Marshall said, "I think media attention has been discouragingly slight considering the revolution underway in environmental regulation that my article discusses.

"There are at least two key issues raised by the introduction of markets for pollution 'permits.' One is the tremendous potential such markets have for giving polluting firms an incentive to clean up their emissions at the lowest possible costs to themselves, their workers and their customers. The other is whether it is desirable to give firms, in effect, a license to pollute and whether their compliance can be monitored. Unless the public is informed about these tradeoffs it cannot contribute intelligently to a debate that has profound implications for their pocketbooks and their health."

Marshall notes that while no one has an obvious interest in suppressing coverage of this subject, its technical nature deters a lot of journalists. "That's one reason I chose to profile one of the key players in these markets rather than offer a more general and abstract account of how they work. However, one-sided discussions of this topic are, all too common: industry neglects to talk about the potential for abuse in these markets and some environmentalists neglect to talk about the costs and failures of traditional 'command and control' regulation."

Marshall adds that he continues to follow and write about little publicized developments in this field including a proposal by the Environmental Defense Fund to clean up selenium contamination in the San Joaquin River by establishing a water pollution market and auctions of air pollution credits in southern California that could help clean the air without costing large numbers of jobs.

Meanwhile, a New York Times story on November 17, 1994, reported that the domestic concept of trading air pollution allowances may eventually lead to an international trade in pollution allowances.