Other Approaches to Air Quality - Market-Based Incentives

Market-Based Incentives

• Emissions cap: a limit on the total amount of pollution that can be emitted (released) from all regulated sources (e.g., power plants); the cap is set lower than historical emissions to cause reductions in emissions.
• Allowances: an allowance is an authorization to emit a fixed amount of a pollutant.
• Measurement: accurate tracking of all emissions.
• Flexibility: sources can choose how to reduce emissions, including whether to buy additional allowances from other sources that reduce emissions.
• Allowance trading: sources can buy or sell allowances on the open market.
• Compliance: at the end of each compliance period, each source must own at least as many allowances as its emissions.

In the next years more widespread and effective use of incentives will be used to influence behavior and reduce pollution-causing practices. Regulatory requirements themselves create a powerful market incentive to find cheaper and better control techniques. Market-based incentives will increasingly be used in combination with regulation (for example, trading and banking programs) to give facilities an extra incentive to undertake reductions beyond those required by regulation, often at a lower cost.

Specific examples in the market-based incentives program include the U.S. SO2 Allowance Trading Program (also known as the Acid Rain Program), the Regional Clean Air Incentives Market (RECLAIM) in Southern California, and the Ozone Transport Commission (OTC) Regional NOx Trading Program in the Northeastern United States.

More information on market-base incentives can be found at: http://www.epa.gov/airmarkets/trading/index.html