Washington is buzzing. Old-style environmental protection--in which
people expected government to protect their clean air and clean water--
is out. A new "third wave" of environmentalism is coming into vogue.
This "third wave" relies less on confrontation between polluters and
their victims and more on cooperation between polluters and the big
environmental groups. The key concept of the "third wave" is market-
based incentives for polluters to clean up, rather than demands by
government to clean up. What are market-based incentives?
The only working example of a market-based incentive that we know of is
the trading of "emission reduction credits," also known as buying and
selling "pollution rights." This concept was invented by lawyer Fred
Krupp and economist Dan Dudeck, both with the Environmental Defense
Fund (EDF) in the late 1980s. EDF's "pollution rights" scheme was
written into the Clean Air Act of 1990. ("Pollution rights" is our
phrase for what EDF calls "emission reduction credits.") The idea is
basically simple: U.S. Environmental Protection Agency (EPA) sets a
nationwide "cap" on the total amount of a pollutant, such as sulfur
dioxide, that can be released. Then EPA gives out "pollution rights" in
the form of permits to companies that are emitting sulfur dioxide. The
amount of each permit is based on a company's past history of
pollution; the biggest polluters are given the biggest "pollution
rights." The polluters do not pay for these permits; they are handed
out free by the government. If a polluter manages to reduce his or her
pollution below the amount allowed by the permit, then a portion of his
or her "pollution right" is unused and can be sold for money to another
polluter. By allowing companies to "bank" the permitted pollution they
are NOT pumping into the atmosphere and sell it to other companies that
are unable to meet emissions standards, the government hopes to lower
toxic emissions nationwide without driving undercapitalized electric
utilities out of business. In practice, the concept is so popular among
polluters that the Chicago Board of Trade now conducts a brisk business
in "pollution rights," buying and selling the right to pollute.
Companies that need to comply with their "pollution-right" permit can
either install control equipment to comply, or they can buy someone
else's "pollution right" and continue polluting, whichever is cheaper.
According to economists like Dan Dudeck, the result is the "least cost"
way of keeping total pollution at or below the "cap" level.
According to Alice LeBlanc, an economist with EDF, since passage of the
Clean Air Act of 1990, other "emission trading schemes" have come into
use. She points to South Coast Air Quality Management District
(AQMD) in southern California which has adopted the RECLAIM program
(Regional Clean Air Incentives Market) which now gives out permits to
polluters giving them the right to release nitrogen oxides and sulfur
oxides into the air. The AQMD is now considering issuing "pollution
rights" for volatile organic toxics. Ms. LeBlanc mentions other
existing uses of the "pollution-rights" concept: "the trading of lead
rights among gasoline refiners" and "an allowance for the transfer of
production entitlement for CFCs." (CFCs are the chemicals that are
depleting the Earth's ozone shield). And lastly, Ms. LeBlanc mentions
that EDF is actively promoting the use of emission trading
internationally for carbon dioxide, the main "greenhouse gas" driving
the planet toward global warming. It seems evident that EDF's original
concept of buying and selling the right to pollute is becoming more
popular among polluters. In recognition of the usefulness of this
invention by EDF, President George Bush called Fred Krupp "my kind of
In his new book, LOSING GROUND, author Mark Dowie examines this concept
of "pollution rights" in some detail. Dowie and others are critical of
the underlying philosophy.
For example, lawyer Richard Ayres, one of the founders of the Natural
Resources Defense Council (NRDC) says, "There was no mention from
environmental leaders of the fact that the 1990 Clean Air Act was
giving people the right to pollute. The air is a public resource. It
should not have been given away to private operatives. Congress, with
the cooperation of environmentalists, was giving away a public
resource. The morality of that was never discussed." Elsewhere Dowie
notes that Congress [which was controlled by Democrats at the time, we
note] gave away the nation's air quality for free, so the public got
nothing but pollution in the bargain. Polluters on the other hand got a
valuable "right to pollute" which they are now buying and selling
profitably among themselves. Furthermore, because "pollution rights"
are allotted on the basis of previous fuel use and past emission rates,
the biggest polluters have been rewarded most.
Trading "pollution rights" does nothing to reduce pollution. The amount
of pollution is established by the "cap," which is set by EPA in an
old-style "command and control" decision. The buying and selling of
"pollution rights" ("trading under a cap") actually works AGAINST
pollution reduction because it reduces the incentive to search out, and
adopt, less-polluting technical innovations; at some point it becomes
cheaper to purchase the right to pollute than to prevent pollution.
Instead of reducing pollution, the market in "pollution rights" simply
moves pollution from one region to another, or from one neighborhood to
another. Since technically inferior, highly-polluting facilities are
often located in poor neighborhoods, those are the facilities most
likely to purchase "pollution rights," thus increasing the relative
pollution burden falling on the poor, and people of color. The buying
and selling of "pollution rights" changes the discussion from one of
fairness and public health to one of economics and high finance --thus
moving the discussion into the realm of monetary experts, masking the
ethical issues and removing them from public debate.
At this point, we might ask, are there real consequences from living in
a polluted neighborhood? In the medical journal LANCET on April 8,
1995, a British researcher, Dick van Steenis, described children in the
town of Johnston, England, who live downwind from 3 oil refineries and
an oil-burning power plant. Thirty-five percent of the 8-and 9-year-
old children in the town have asthma so badly that they carry
medically-prescribed inhalers to school. Van Steenis writes, "To
localise matters and to reduce the influence of variation in diagnosis
and prescribing, it was decided to ascertain the proportions of primary
school children (5-11 [years old])... taking inhalers to school for
asthma. Some 1 in 5 [20%] took inhalers to school very close to the
Pembroke power station/Texaco refinery complex; some 1 in 7 [14%] took
inhalers to school directly downwind for about 72 kilometers [45
miles]; some 1 in 15 [7%] took inhalers to the schools receiving
outfall [air pollution] 1 to 2 days a week; and only some 1 in 50 took
inhalers to schools on the coasts not usually in any downwind [area].
The map is remarkably consistent," van Steenis wrote. He mentioned
similar effects observable in the towns of Kent near Richborough and
Ince on Merscyside. Thus we must conclude that transferring pollution
into particular neighborhoods has serious negative consequences,
especially for the children living there.
The sharpest criticisms of the "third wave" scheme for buying and
selling "pollution rights" come from the viewpoint of democracy and
justice. Peter Bahouth, former executive director of Greenpeace, told
the WALL STREET JOURNAL, "If you were trying to handle drug problems in
your community, you wouldn't be saying: 'Let's try to work this out
with the drug dealers.'"
Mark Dowie says, "The worst aspect of third-wave environmentalism is
that it is essentially anti-democratic. Environmental protection, to
the extent that it is achieved at all, is won through negotiation among
the powerful. When Fred Krupp, director of Environmental Defense Fund,
cuts a deal with General Motors over automobile emissions there is no
public participation. When he enters that board room in Detroit whom
does he represent? The 36 members of the EDF Board? The 120,000 passive
contributors? The donor foundations? Himself, or some vague principle
he believes will benefit the environment? More important than these
questions is whether or not he represents the public. And if he does,
where was the public hearing?" Dowie asks.
The intention of third-wave environmentalism is to protect the
environment while preserving economic prosperity and price stability.
But the hidden costs of cheap lumber, cheap energy, and cheap gasoline
are extinct and vanishing species, loss of farmland, an early death for
tens of thousands of city dwellers each year (see REHW #440), and
future generations of deformed children. Until those "externalities"
are dealt with in an open and democratic way, third-wave "market
incentives" won't make sense.
To gain support from most environmentalists, free market enthusiasts
would have to base their programs on charging the full, true
environmental costs for all resources used and all harms done. And it
would help if companies were required to seek out (and publicly
discuss) least-damaging technical alternatives, including the
alternative of doing nothing, thus requiring them to discuss the need
for their project.
In sum, we conclude that the free market has a potentially valuable
role to play in environmental protection, but that buying and selling
"pollution rights" does not.
Objections to the third-wave concept of "pollution rights" come into
sharpest focus if we consider that clean air and clean water are
fundamental human rights, in the same category as the right to be free
from arbitrary incarceration, or the right not to be tortured. It is
inconceivable that human rights activists would negotiate the right to
torture. ("You may torture 5% of your citizens, a 50% reduction from
the 10% you tortured last year.") But something similar is going on
when EDF and other third-wave environmentalists negotiate buying and
selling of the "right to pollute" and therefore the "right" to make
people sick. Such a right never existed until "third-wave"
environmentalists created it.
GET: Mark Dowie, LOSING GROUND (Cambridge, Mass.: MIT Press, 1995);
 Rose Gutfeld, "Environmental Group Doesn't Always Lick 'Em; It Can
Join 'Em and Succeed," WALL STREET JOURNAL August 20, 1992, pg. B1; and
Mark Dowie, LOSING GROUND; AMERICAN ENVIRONMENTALISM AT THE CLOSE OF
THE TWENTIETH CENTURY (Cambridge, Mass.: MIT Press, 1995), pg. 109.
 Alice LeBlanc, "The Third Wave," ENVIRONMENTAL ACTION (Winter,
1994), pgs. 24-26.
 Eric Mann, "Trading Delusions," ENVIRONMENTAL ACTION (Winter,
1994), pgs. 22-24.
 Dowie, cited above, pg. 117.
 Ayres quoted in Dowie, cited above, pg. 123.
 Dowie, cited above, pg. 111.
 Dowie, cited above, pg. 110.
 Dick van Steenis, "Airborne pollutants and acute health effects,"
LANCET Vol. 345 (April 8, 1995), pg. 923.
 Dowie, cited above, pg. 124.
 Dowie, cited above, pg. 245.
Descriptor terms: pollution rights; air pollution; electric power;
coal; fossil fuels; human health; edf; regional clean air incentives
market; chicago board of trade; emission reduction credits; fred krupp;
dan dudeck; cfcs; lead; ozone depletion; greenhouse effect; greenhouse
gases; global warming; carbon dioxide; losing ground; book reviews;
richard ayres; nrdc; mark dowie; asthma; oil refineries; petroleum
industry; democracy; human rights;