Lessons Learned - The Acid Rain Program
Excerpt taken from "The U.S. Acid Rain Program: Key Insights from the Design, Operation, and Assessment of a Cap-and-Trade Program." (PDF) (12pp, 11.5 MB, About PDF) The Electricity Journal, Vol. 20 Issue 7, August-September 2007, pp. 47-58.
The lessons from the ARP provide insight into how to effectively design and operate cap-and-trade programs. Key lessons from EPA’s experience can help policymakers in the U.S. and abroad as they consider the implementation of cap-and-trade programs. The key lessons from the ARP are:
- Clear, comprehensive legislation makes it easier to implement the program and minimizes legal challenges that can introduce uncertainty, delays, and additional costs;
- A solid, but adaptable, program foundation is a substantial benefit, allowing room for new information, practices, and technologies;
- Flexibility in compliance approaches streamlines the decision-making process,fosters innovation, opens new compliance alternatives, and creates competition among emission reduction options, thereby reducing compliance costs—and lower costs make it possible to seek greater environmental protections where necessary;
- Accountability is a prerequisite for flexibility-regulated sources must be held accountable for accurately measuring and reporting all emissions, and complying with program requirements;
- Clear, simple rules are easier and less costly to implement; complexity may be required in some cases, but should be minimized whenever possible;
- Clear and strong incentives can encourage better monitoring and improve compliance with allowance holding requirements;
- Special provisions should be used sparingly and care should be taken to create sufficient incentive to achieve the objective;
- Information technology makes it possible to collect, quality assure, maintain, and disseminate large amounts of data and information with very low administrative expenses and burden;
- Regulators can create a cooperative relationship with industry by focusing on results and assisting regulated sources in complying with program requirements;
- Cap-and-trade programs can provide cost-effective, broad, regional reductions of air pollution and should complement efforts to attain and maintain local air quality;
- Transparency of data and program operation provide an additional level of scrutiny to verify enforcement and encourage compliance, and inform stakeholders, including the public, about the program and its results; and
- Assessment is an important tool to measure progress toward the goal of the program.
With more than 15 years of experience, the Acid Rain Program clearly demonstrates that market-based cap-and-trade programs are an effective means of achieving broad improvements in air quality by reducing emissions of regionally transported air pollutants and encouraging efficient solutions. For regional or larger-scale air pollution problems, experience suggests that a well-designed cap-and-trade program can be cost-effective, flexible, and easy to implement, with clear benefits sustainable into the future.