EXECUTIVE SUMMARY - THE CLEAR SKIES INITIATIVE
February 14, 2002
Today, President Bush proposed the most significant step America
has ever taken to cut power plant emissions, the Clear Skies
Initiative. This new proposal will aggressively reduce air
pollution from electricity generators and improve air quality
throughout the country. The Clear Skies Initiative will cut air
pollution 70 percent, using a proven, market-based approach that
will save American consumers millions of dollars.
America needs a clean, secure, affordable, reliable energy
supply in the years ahead. President Bush has often said that
environmental protection and energy production are not competing
priorities. This progressive plan shows how that objective can be
reached. We can meet our environmental goals while providing
affordable electricity for American consumers and American
businesses.
America has made great progress in reducing air pollution. Over
the last three decades, air pollution has declined by 29 percent,
while our economy has grown nearly 160 percent. These gains have
provided cleaner air for millions of people. Our understanding of
science, technology, and markets has improved since the Clean Air
Act was passed in 1970. We know more about the best way to reduce
pollution, and how to do it cost effectively. The acid rain cap and
trade program created by Congress in 1990 reduced more pollution in
the last decade than all other Clean Air Act command-and-control
programs combined, and achieved significant reductions at
two-thirds of the cost to accomplish those reductions using a
"command-and-control" system. It's time to take the best of what we
have learned and modernize the Clean Air Act. That's why President
Bush is proposing a new Clean Air Act for the 21st century.
The Clear Skies Initiative will:
Dramatically Cut Power Plants' Emissions of Three of the Worst
Air Pollutants.
� Cut sulfur dioxide (SO2) emissions by 73 percent, from current
emissions of 11 million tons to a cap of 4.5 million tons in 2010,
and 3 million tons in 2018.
� Cut emissions of nitrogen oxides (NOx) by 67 percent, from
current emissions of 5 million tons to a cap of 2.1 million tons in
2008, and to 1.7 million tons in 2018.
� Cutting mercury emissions by 69 percent, -the first-ever
national cap on mercury emissions. Emissions will be cut from
current emissions of 48 tons to a cap of 26 tons in 2010, and 15
tons in 2018.
� Emission caps will be set to account for different air quality
needs in the East and the West.
Use A New, Market-Based Approach To Clean Air:
� Protect Americans from respiratory and cardiovascular diseases
by dramatically reducing smog, fine particulate matter, regional
haze; and protect wildlife habitat and ecosystem health from acid
rain, nitrogen and mercury deposition. NOx and SO2 emissions both
contribute to fine particulate matter emissions and NOx also
contributes to ground-level ozone or smog.
� Save Americans as much as $1 billion annually in compliance
costs that are passed along to American consumers, while improving
air quality and protecting the reliability and affordability of
electricity for consumers.
� Cut pollution further, faster, cheaper - and with more
certainty - eliminating the need for expensive and uncertain
litigation as a means of achieving clean air.
� Build upon the 1990 Clean Air Act's acid rain program,
America's most successful clean air law in the last decade, and
encourage the use of new pollution control technologies.
President Bush has a strong track record on enacting
far-reaching clean air initiatives. In 1999, then-Governor Bush
signed legislation that permanently caps NOx and SO2 emissions from
older power plants in Texas starting in 2003. The legislation was
widely hailed as a model for the country. The Texas program is
designed to reduce NOx emissions by 75,000 tons per year, and SO2
emissions by 35,000 tons per year, while giving utilities
flexibility in determining how and where to achieve the
reductions.
This approach enjoys strong, bipartisan support throughout the
country:
"Congress should pass legislation to establish a flexible,
market-based program to significantly reduce and cap emissions of
sulfur dioxide, nitrogen oxides, mercury and voluntary reductions
of carbon dioxide from electric power generators. The legislation
should provide regulatory certainty by establishing reduction
targets for emissions, phasing in reductions over a reasonable
period of time and providing market-based incentives such as
emissions-trading credits to help achieve the required
reductions."
�Unanimous Resolution of the National Governors Association,
August, 2001.
The Environmental Council of the States approved a resolution in
February, 2001, supporting a cost-effective, efficient and
environmentally protective multi-pollutant proposal.
BACKGROUND � THE SUCCESS OF THE CLEAN AIR ACT
POLLUTION HAS DECLINED BY 29 PERCENT WHILE OUR ECONOMY HAS GROWN
NEARLY 160 PERCENT
In the U.S., power plants emit significant amounts of air
pollution: 67 percent of all sulfur dioxide (SO2) emissions, 37
percent of mercury emissions, and 25 percent of all nitrogen oxide
(NOx) emissions. These pollutants contribute to a variety of health
and environmental problems, such as smog, acid rain, nitrogen
deposition and visibility impairment.
Current law addresses each of these pollutants independently, on
different timetables, through several different programs. These
laws are uncoordinated and often inconsistent. Power plants might
install equipment one year that is rendered obsolete the next.
Implementation and enforcement usually requires years of
litigation, leaving the fate of America's air to the uncertainties
of the courtroom.
After 30 years of experience in regulating air pollution,
America has proved that there is a better way to accomplish our
clean air goals.
The 1990 Clean Air Act Amendments, proposed and signed into law
by President George H.W. Bush, have significantly reduced air
pollution, especially through the innovative "cap-and trade" acid
rain control program. The acid rain program has been a resounding
success, cutting annual sulfur dioxide emissions in the first phase
by 50 percent below allowed levels. Emissions were reduced faster
than required, and at far less cost. Industry compliance has been
nearly 100 percent, and the program only requires a handful of EPA
employees to operate. This approach is vastly more effective, and
cheaper - two-thirds cheaper - than the traditional
"command-and-control" approach.
This program is clearly a model for success. President Bush
wants to expand this program to include two new pollutants -
nitrogen oxides and mercury - while also dramatically reducing the
SO2 emissions allowed by current law.
THE CLEAR SKIES INITIATIVE � BUILDING ON THE CLEAN AIR ACT
The President's Clear Skies Initiative is designed to help us
meet our national air quality goals. A new Clean Air Act for the
21st century must build on this founding principle -modernization
and better technology will mean a progressive new way to accomplish
these long-standing environmental goals. The Clear Skies Initiative
will continue to bring Americans:
� Improved Air Quality: Reducing air pollution will bring clean
air to tens of millions of people, saving them from smog
(ground-level ozone) and fine particulate matter (dust) that cause
respiratory and cardiovascular distress.
� Improved Health: Reducing emissions of fine particulate matter
will prolong thousands of lives and prevent thousands of new cases
of chronic bronchitis, hospitalizations and emergency room visits.
Reducing the formation of ground-level ozone, or smog, will bring
healthier air to tens of millions of people, and reduce the number
of ozone-related health problems such as respiratory infection,
asthma attacks, and chronic lung damage. Reducing mercury emissions
will reduce the risk of toxic effects from mercury exposure to
children exposed during their mother's pregnancy.
� Better Environmental Protection from Acid Rain, Smog, Haze,
Mercury and Nitrogen Deposition: Reducing SO2 and NOx emissions
will save hundreds of northeastern lakes and hundreds of thousands
of acres of forests from acid rain, particularly in the Adirondacks
and other parts of the Appalachian Mountains. It will also improve
visibility over much of the country, particularly the scenic vistas
in national parks such the Grand Canyon. Reducing emissions of
nitrogen oxides will also reduce nitrogen deposition in water,
improving coastal ecosystem health along the East and Gulf coasts.
Reducing mercury emissions will reduce mercury deposition in lakes
and streams.
� Secure, Affordable Power: The Clear Skies Initiative will keep
electricity costs low for consumers by saving as much as $1 billion
each year in compliance costs. Power generators will have the
flexibility to reduce emissions in the most cost-effective way. It
will also encourage the continual improvement in technology to
reduce emissions from coal-fired power plants in concert with the
Department of Energy's Clean Coal Technology program and incentives
for power plants that install "scrubbers" early in the program.
Under the Clear Skies Initiative, America will continue to have a
diverse fuel mix that ensures a reliable, affordable energy
supply.
HOW THE CLEAR SKIES INITIATIVE WORKS
To improve air quality for millions of Americans, the Clear
Skies Initiative will adopt the lessons learned from 30 years of
environmental regulation by:
1. Establishing Emission Reduction Targets, Based on Sound
Science, That Will Significantly Improve Air Quality, Protecting
Human and Environmental Health: By reducing air pollution, and
conducting constant monitoring of emissions, the Clear Skies
Initiative guarantees that America's power plants will meet
ambitious air quality goals, even as they bring new power plants on
line to meet growing demand. During the first phase, the EPA
Administrator will review new scientific, technology and cost
information and, if necessary, adjust the phase two targets. This
will include a vigorous research program to further understand the
fate and transport of pollutants in the atmosphere.
2. Adopting a Comprehensive, Integrated, Multi-Pollutant
Approach: By reducing emissions of the three key sources of air
pollution at the same time, the Clear Skies Initiative will produce
environmental results more effectively and efficiently than the
current labyrinth of overlapping and uncoordinated single-pollutant
requirements. The current approach is inefficient and ineffective,
imposing unnecessarily high costs due to: (1) stranded capital
investments from the installation of controls that later become
obsolete when additional requirements are promulgated; (2) reduced
lead time for complying with those requirements; (3) limited or
non-existent flexibility for emissions trading to allow
cost-efficient control options; and (4) a reliance upon lengthy,
expensive, and uncertain litigation to sort out regulatory
ambiguity and compliance with the law.
3. Improving Environmental Performance at Lower Cost Using
Market-Based Mechanisms That Create Incentives for Innovation:
Using the market-based mechanism of a cap-and-trade program, the
Clear Skies Initiative will establish national, federally
enforceable emissions limits for each pollutant. Allowances are
distributed to electricity generators, and the cap declines at
specific intervals, 2010, and then again in 2018. Generators
respond by gradually reducing their emissions - reducing more than
the cap requires early in the program in order to save allowances
for use later in the program when the caps decline. That is,
generators respond to declining allowance caps just like people
respond to declining income when they're planning for retirement:
they do more now, investing and saving for the future. Individual
generators can choose when to reduce their emissions in response to
their particular circumstances and the price of allowances they see
in the market. This encourages the least expensive reductions over
time as well as across facilities.
At this point, the government only has to enforce the emission
limits, distribute allowances and verify that each facility has
sufficient allowances for their annual emissions. There's no need
for lengthy, costly, uncertain litigation to enforce the law.
Creative, innovative strategies to reduce emissions are immediately
rewarded: facilities save money by finding innovative ways to
reduce emissions more than a command-and-control law would require.
This creates an incentive for continual improvement in
environmental performance.
The flexibility in the process of allocating emission credits or
allowances will also accommodate the different air quality needs in
the East and the West while preserving fair competition. Western
states have already made significant headway in identifying future
SO2 reductions necessary to meet air quality goals in the Western
Regional Air Partnership ("WRAP") agreement between EPA, Western
states, tribes, industry and environmental groups. SO2 allocations
will track this agreement. NOx reduction caps for the East and West
will also be set to accommodate these different needs, and separate
East and West trading regions will be created.
4. Ensuring a secure, affordable energy supply: By setting firm
caps while offering flexibility in how utilities can meet those
caps, the Clear Skies Initiative preserves a diverse fuel mix that
supports economic growth with reasonably priced energy. The firm
caps and the adequate lead time create a predictable climate for
long-term planning and capital investment in power generation,
which will ensure an adequate energy supply. This will also create
substantial cost savings to consumers.
THE CAP AND TRADE SYSTEM IN THE CLEAR SKIES INITIATIVE
HOW DOES IT WORK?
The Clear Skies Initiative will deliver substantial health and
environmental benefits through a market-based approach that rewards
innovation, reduces costs, and ensures results. Instead of the
government telling electricity generators precisely where and how
to reduce their emissions
- the old command-and-control approach - this market-based
program tells them when and how much to reduce pollution by
establishing a firm, maximum "cap" on emissions. The trading
program creates incentives for electricity generators to reduce
their emissions even more than the law requires, and more quickly
than required. Electricity generators must hold an "allowance" for
each ton of pollution they emit - one ton, one allowance. The
government controls the number of allowances that are distributed
and reduces them over time. Electricity generators must continually
monitor and report their emissions.
Most importantly, these allowances can be traded freely. That
means that if you're smart and creative, and you figure out a
better way to reduce emissions, you get rewarded by making those
reductions and selling unneeded allowances in the market. And, if
you unexpectedly can't reduce emissions as much as planned, you
have the flexibility to go out and buy more allowances in the
market - all without any government interference, and without
undermining air quality. This flexibility lets businesses figure
out the cheapest way to reduce emissions while government sticks to
setting the overall emission cap at a level that guarantees that
industry meets ambitious air quality goals.
WHY DOES IT WORK?
The cap ensures that the reductions in SO2, NOx and mercury
required by the Clear Skies Initiative are achieved and maintained
over time even as new power plants are built. The open trading
program gives power plants the flexibility to choose how they meet
their target emission reductions, which minimizes compliance costs
and lowers consumer electricity prices.
WHAT ARE THE RESULTS?
Cost savings
- The acid rain cap and trade program passed
by Congress in 1990 achieved reductions at two-thirds the cost of
achieving the same reductions under a command-and-control system.
This program reduced more pollution in the last decade than all
other Clean Air Act command-and-control programs combined during
the same period.
Innovation
- Trading under the acid rain program created
financial incentives for electricity generators to look for new and
low-cost ways to reduce emissions and to do so early.
Integrity
-The acid rain cap and trade program has high
accountability and transparency. Electricity generators must
install monitors to prove that they have sufficient allowances to
match their actual emissions.
Regional Effect
- The acid rain program resulted in emission
reductions well below the cap in the areas that contribute most of
the sulfur in acid rain. Comparing emissions from the 263 power
plants regulated in the first phase of the program in 1999 with
those in 1990, the North Central, Southeast and Mid-Atlantic
regions achieved 49 percent, 48 percent and 43 percent reductions
in SO2 respectively. Several analyses of trading under the acid
rain program have concluded that the program did not result in
local areas with higher emission levels ("hot spots").
Guaranteed Results
- The Acid Rain program enjoys nearly 100
percent compliance and only takes 75 EPA employees to run - a track
record no command-and-control program can meet. Reductions in the
early years averaged 25 percent below the required cap. Emission
cuts resulted in air quality improvements over a broad area of the
U.S. and significant reductions in acid rain.
Emissions From Power Plants in the First Phase of the Acid Rain
Program
10 9 8 7 6 5 4 3 2 1 0
Sulfur dioxide emissions were far below allowable levels during
Phase I.
1980 1985 1990 1995 1996 1997 1998 1999
WHAT THE EXPERTS SAY ABOUT THE ACID RAIN CAP AND TRADE
PROGRAM
"The data confirm a general prediction about cap-and-trade
programs, that they will tend to create incentives for the dirtiest
plants to clean up the most, as the per-ton cost of emissions
reductions may be expected to be the least. …The data show that, if
anything, trading may be expected to cool hot spots and not create
them."
--Byron Swift, Environmental Law Institute, "Allowance Trading
and Potential Hot Spots - Good News from the Acid Rain Program" 31
Environment Reporter, pp. 954-959, May 12, 2000.
"The superior environmental and economic results of ...the
Program are precisely what should have been expected of a program
that matched an explicit emissions limit with a market that turned
pollution reductions into marketable assets."
--From "Obstacle to Opportunity: How Acid Rain Emissions Trading
is Delivering Cleaner Air", Environmental Defense, September 2000,
p. 2.
"The flexibility of the trading program has encouraged utilities
to capitalize on advantageous trends, such as changing fuel prices
and technological innovation that might have been delayed or
discouraged by traditional regulatory approaches."
--Curtis Carlson, Dallas Burtraw, et al., "Sulfur Dioxide
Control By Electric Utilities: What are the Gains from Trade?"
Resources for the Future, July 1998, Revised April 2000.
"[The] simplicity [of the Program] has kept transaction costs
low and helped to create efficiencies that might otherwise not
exist."
--Daniel Chartier, Former Emission Trading Manager, Wisconsin
Electric, Congressional Testimony, July 1997.
"This grand experiment [emissions trading under the Acid Rain
Program] has demonstrated that the government can be effective and
non-intrusive."
--Danny Ellerman, Executive Director, Massachusetts Institute of
Technology Center for Energy and Environmental Policy Research,
remarks at the 21st Conference of the International Association for
Energy Economics, Quebec City, Canada, May 1998.
