CRP 438 POLLUTION PREVENTION & CONTROL

WINTER 2013

Assignment #4 ______________________________________________________________________________

Briefly explain how a tradable permit (i.e., cap and trade) system might be used to control effluent discharges (liquid) to Lake Tahoe and identify the advantages/disadvantages of using such an approach instead of command and control. Program Structure It is typical to protect surface water quality using command and control methodsdictating specific technologies or processes. In the case of Lake Tahoe, this means that identified point source polluters, usually industrial and commercial centers, are identified and rules established for the particular methods of how they use to store, process, and dispose of their liquid waste. However, in the face of changing political tides, and pressures to have more market friendly regulation, a cap and trade program may be appropriate for implementation as an alternative protection for water quality. The proposed cap and trade program would establish a comprehensive effluent discharge permit trading market for the larger Lake Tahoe region. As the name implies, the first step in this process is establishing an appropriate cap. The cap is the total amount of effluent that is considered an acceptable amount for Tahoe Lake ecosystems and human health standards for both drinking water and recreational use of the lake. This will translate into quantity limits on specific pollutants, such as nitrogen and phosphorous, that can be discharged into Tahoe Lake, its standard flood plain, and its direct tributaries over a given time period. These amounts should be determined using biological and toxicology analysis. Standard EPA concentration levels of pollutants should be used to determine safe amounts of each pollutant. Based on these analysis it can also be determined whether the cap should remain constant or should ratcheted down over time in order to improve the Lake quality to the level desired; if pollutant concentrations are currently too high, a ratcheting method should be applied. Once the cap has been established, certain effluent amounts can be pegged to a single permitin other words, how much effluent a party holding that permit is allowed to discharge legally. Enough permits should be produced to equal to the established cap.

Once the total number of permits have been established, they can be made available for sale to the power plants, wastewater facilities and other industries, as well as farmers and major commercial institutions within the larger Lake Tahoe region (see Figure 1 below). Pricing could be established through a set of pilot trades. Once the initial permits have been sold, they enter the voluntary market, in which any entity within the region can buy or sell permits.

Potential Advantages The primary value of instituting this market based permit system to control effluent into Tahoe Lake is that it provides flexibility, and thus efficiency, in compliance not available through command and control mechanisms. The trading program is meant to enable facilities facing high discharge control costs to buy reduction from other facilities with lower control costs. This trade then results in the same level of effluent reduction (and resulting environmental benefit) at lower overall cost for both parties. Further, because the trading system allows for multiple methods of effluent reduction, as long overall discharge meets standards, it also allows for innovation. Controlled entities might be motivated to develop innovative methods or new technologies because doing so will allow them to sell additional permits on the market for profit.
Figure 1: Lake Tahoe Basin-Cap-and-Trade Regulatory Area

A secondary benefit of the cap and trade system is that it establishes a clear overall goal for how much effluent should be allowed to end up in the lake based on health on environmental evidencethe established cap. This might be but is not necessarily true of command and control, which generally just establishes a particular technology or behavior that is required of all entities. While an estimation of total reduction can be made based on the technologys results, the overall reduction is secondary rather than primary to the regulatory structure. Consequently, the overall achieved reduction may not directly reach the threshold level that has been established as the best for human and environmental health.

Potential Disadvantages While the cap and trade system discussed above could provide overall reductions at lower cost, there are is a potential substantive problem and several procedural problems. A dominant substantive problem is the potential for higher concentrations of effluent in certain parts of the lake, even if the overall area is below the cap. This would cause additional harm to wildlife in those areas and for human health, since higher concentrations tend to have more extreme consequences. Thus, despite lower discharge overall, the damage caused by pollutants might actually be higher than that which would occur under command and control.

A major procedural problem of cap and trade is the difficulty in ensuring compliance. While command and control can typically allow for fairly simple enforcement checkssuch as checking a certain technology is installed or a certain procedure followedcap and trade essentially requires actual analysis of total effluent discharged, to ensure it is in keeping with the amount of permits issued. Because its extremely difficult to actually measure effluent discharge from specific entities, cap and trade would depend largely on self-reporting from entities. With dozens of power plants and industrial facilities, and many hundred famers and commercial entities in the Lake Tahoe region, checking the accuracy of self-reports could only be conducted for a very small number of entities each year. A secondary procedural concern, is setting and controlling the market price of permits. While in concept the price of permits should be entirely determined by market factors, other implemented cap and trade programs reveal that permit markets are sometimes highly volatile, resulting in permits being virtually worthless or, conversely, shooting up thousands of times in value over a short period of time. In either case, the permit market becomes inoperable and faces complex difficulties, resulting in poor pollution control. A final procedural concern is that of multijurisdictional cooperation. The Lake Tahoe region includes producers of effluent in many local and regional jurisdictions across two states, as Figure 2 illustrates. A most effective cap and trade market would have a cap for the entire region and allow trading for all effluent producing entities. But such a Figure 2: Lake Tahoe Area's multiple jurisdictions system
include cities, counties, state parks, and national forest land in both California and Nevada

would require consistent enforcement and standards, and thus close coordination between the various governing bodies, which is likely to raise a number of challenges. Additional Considerations This system also raises the conceptual concern that some entities can simply buy their way out of reducing pollution. While the company may be still paying, it throws out the fairness concept of everyone having responsibility to reduce harm, and the concept of cleaning up the mess you create. Conclusion While the proposed cap and trade may provide substantial benefits, the range of barriers, especially procedural challenges, requires careful consideration. The technical details of the system will make or break the success of the system. Consequently, a number of pilots should be run within the region before any system change is undertaken.