Rick's (Persistent) Question Puzzles Me

Well, not so much the question as Rick's asking it:  "So, Michael . . . what about cap-and-trade regimes as a way of controlling and reducing pollution?"

Did I say something--or did the NYT article say something--against a federal cap-and-trade strategy?  Rick seems to think that one can't consistently support a federal cap-and-trade strategy and, at the same time, support leaving the states free to impose stricter controls on mercury pollution in their own neighborhoods--which, presumably, a state would want to do (even my own "red" state of Georgia) if there were an especially severe problem of mercury pollution in one or more of its neighborhoods.  After all, recall that

A neurotoxin linked to learning disabilities, mercury is most dangerous to fetuses, infants and small children, usually when pregnant women or children eat mercury contaminated fish. The National Academy of Sciences estimates that 60,000 newborns a year could be at risk of learning disabilities because of mercury their mothers absorbed during pregnancy.

But, in fact, we needn't choose.  We could have *both* a federal cap-and-trade strategy *and* freedom for the states to pursue a stricter strategy.  (Yea, federalism!  Yes, subsidiarity!)  Here's what my friend/colleague Bill Buzbee has to say, by way of explanation:

You could have both.  A cap and trade scheme merely caps the level of some pollutant, then allows trading among polluters so more cost-effective pollution controllers can sell unused pollution allowances allocated to them in some way.  Cost-effectiveness is the main argument for embrace of cap and trade schemes in the environmental regulation arsenal.

A cap and trade can victimize some and advantage the wealthy, but won’t invariably do so.   The literature is too voluminous to do justice to, but basically a trading scheme threatens to move pollution around, with high polluting clunkers most likely to buy pollution rights to avoid having to shut down or invest in costly pollution control.  If the pollutants in question, or the polluting activity itself (say, industrial operations, trucks, noise, etc) create localized effects, then “hot spots” of high pollution or nuisances can result.   Industry virtually always likes the possibility of cap and trade schemes, as often will environmentalists in settings where concentrated harm hot spots won’t result.  If EPA’s ill-fated mercury cap and trade scheme would have resulted in such hot spots of mercury or industry concentration w/attendant discomforts, then industry would avoid costly cleanup of their operations while the poor, who often live in lower value neighborhoods near factories, would be vulnerable to mercury harms or discomforts of adjacency to possibly expanded industrial operations.  In addition, a debate exists whether cap and trade schemes really encourage innovation as do performance standards that can push industry to ratchet back pollution.  A cap and trade scheme, if the cap is set too high, will not prompt innovation.  As Michael Wara’s job-market paper on greenhouse gas trading shows, a trading scheme can easily slow down the pace of innovation where the cap is too high or gains from trade are too easy and hence most polluters have no incentives to improve their performance.   GHG emissions, however, do not pose a hot spot risk.  In the mercury pollution setting, where much of harm is to health due to air deposition into waters and bioaccumulation in fish (look out eaters of bluefin tuna), a trading regime with an inadequate cap could result in many additional years of such mercury harms.  Whether that would harm the poor or wealthy sushi mavens, I don’t know.

A state could impose its own performance standard on a mercury emitter that is more stringent than would otherwise be allowed by a cap and trade scheme alone.  Early arguments for trading about 10-15 years ago often assumed some minimal level of pollution control, but advocated allowing those who could do better to sell their excess pollution reductions.   A state performance standard would serve to limit or constrain the market for trades, but could co-exist w/out any direct conflict.