Can self-interest improve a public good such as air quality? The state Department of
Environmental Quality (DEQ) has recently introduced a concept that may provide an
answerits called the Emission Reduction Credit (ERC) Trading Program. The
Program, which became effective last March, is voluntary and it allows for the generation,
use, averaging, and trading of ERCs statewide. The DEQ believes that the introduction of
market forces (such as competition and prices) will help improve overall air quality of
While the term "voucher" has become nearly synonymous with privatization in
education, public housing, and social services, few may realize that there is a growing
movement in the environmental community for "voucherizing" the right to emit
pollutants. By choosing markets in addition to mandates, the Department of Environmental
Quality (DEQ) hopes economic incentives will help job providers and consumers save money
and protect the environment.
Polluting is not an option. Every living organism pollutes in order to survive, just as
factories do. Even humans produce waste as a natural byproduct of living. It is ironic,
but businesses that produce products which help keep the environment clean must emit
pollutants in order to manufacture those goods. Emissions from all manufacturing processes
can be dramatically minimized; however, at what cost? Should we make polluting so
expensive that pharmaceutical companies cant afford to produce life saving drugs?
ERCs introduce greater incentives for balancing the need to pollute with the need to
protect the public good of clean air.
ERCs introduce greater incentives for balancing the need to pollute with the
need to protect the public good of clean air.
HOW IT WORKS
The ERC trading concept is simple: Create a market that allows people, nonprofits,
government agencies, and businesses to buy and sell credits that they have earned by
reducing their total emissions.
If my business is a source of pollutants, and I am able to reduce my emissions ten tons
below that of any previous occasion, I will file a notice of credit generation for the
DEQ. If acceptable, I may sell the right to emit nine of those tons to other
organizations, while the DEQ retires the tenth. (The DEQ will not guarantee the
authenticity and marketability of a credit.) If it is discovered that the company that
applied for the credit did not reduce its emissions by the amount claimed, it may be
subject to treble damages, and must either reduce its pollution output by three times the
credit, or purchase and retire an identical amount on the open market.
In addition, the ERC program also gives private citizens and organizations the option
to purchase credits for the specific purpose of denying polluters the opportunity to
employ them. For instance, an environmentally concerned citizen could purchase a credit
and present it to a friend as a gift. Regardless of how they are used, businesses, the
environment, and citizens can enjoy a win-win-win solution to protecting air quality. In
the past, solutions to environmental problems revolved around one-size-fits-all mandates
that often included severe penalties for noncompliance. ERCs provide the people nearest
the processes with an incentive and more flexibility to proactively reduce harmful
The program complements Michigans current air program by providing a market
incentive for pollution sources to reduce emissions on several fronts. For example,
credits may be used to comply with some Department of Environmental Quality regulations on
pollution control technology. In the future, credits may be used in place of emission
reduction technologies where the business demonstrates that the installation of additional
controls would be economically unworkable.
Some manufacturing processes require higher emission of one pollutant and less of
another. It may be less expensive to reduce emissions far below required levels on one or
two coating lines (when painting cars, for instance) than installing emission control
technology on all lines. Some companies that are subject to pollution reduction technology
requirements have the option of reducing some sources significantly more than others. The
term for this plan is "emission averaging." Imagine that an industrial site can
reduce one pollutant by twenty percent, but another to only five percent. Under DEQ rules,
the firm could average the two and remain in compliance. They are still required to
provide the same ten percent overall improvement in air quality.
The ERC provides operational flexibility to companies faced with an increase in
consumer demand for their product. Naturally, a production increase to accommodate that
demand could result in exceeding a permit limit. These organizations may have the option
of purchasing credits from other sources to compensate for the increased emissions to
remain in compliance.
The program rules contain key prohibitions and restrictions designed to protect air
quality. The massive purchase of environmental credits by one source, for example, cannot
result in the violation of a National Ambient Air Quality Standard for a criteria
pollutant (as determined by the EPA) like carbon monoxide or sulfur dioxide. Such rules
are intended to prevent one source, or one geographical location, from polluting or
becoming polluted due to the purchasing strength of one or more emission sources.
Many people believe that free-market incentives are an important factor to consider
when attempting to improve environmental quality. The DEQ ERC program applies incentives
to promote a positive environmental vision. It encourages voluntary association between
distinct groupsbusinesses, scientists, environmentalists, and private
citizenswhile making it easier to conserve scarce economic resources and allowing
the people of Michigan to breathe a little easier.