Giving Greed a Chance

By Dick Thompson

The pell-mell pursuit of profits by businesses has long been a major source of pollution. But could such greed be used instead to help preserve the environment? A growing number of politicians and economists think so, and they have come up with the idea of allowing companies to buy and sell the "right" to pollute as part of a plan to encourage them to clean up their operations. Ultimately, there could be a national or even global market that would treat pollution permits like stocks and bonds.

The strategy is not so strange as it sounds; the Environmental Protection Agency has used it since the 1970s to curb pollution in selected cities. Now President George Bush has made the trading of pollution rights the centerpiece of his plan to combat acid rain across the U.S. His proposal has attracted an ideologically diverse band of supporters, from conservative economists, who despise standard types of Government regulations, to environment-minded legislators, who are ready for a fresh approach to pollution control. Says Senator Timothy Wirth, a Colorado Democrat: "We're not going to be able to make a dent in environmental problems unless we can harness the forces of the marketplace."

Under Bush's plan, the Government would set a national limit on emissions of sulfur dioxide, a prime cause of acid rain. But, instead of dictating how to meet the target, the Government would let the marketplace determine the cheapest, most efficient way to get the job done. Each company would be allotted an acceptable level of SO2 production, amounting to its fair share of the national limit. If a company managed to pollute less than its share, it could receive permits representing the shortfall, which it could sell to firms that could not meet their target. That is where the power of greed comes in: companies would have an enormous incentive to cut their emissions so they could profit from peddling their surplus permits.

While the EPA has experimented with the trading of pollution rights within metropolitan areas, the Bush plan would make the practice more widespread. At first, pollution permits could be bought and sold throughout a state, and eventually the market would be nationwide. Though Bush's current target is SO2, such a trading system could be set up for just about any kind of pollutant. Last year the Government decreed at least a 15% reduction in the production of ozone-destroying chlorofluorocarbons. But Washington is letting the four CFC manufacturers decide how to allocate the pain; they can buy and sell CFC production rights. Senator Wirth thinks that global warming could be countered by international trading of permits to emit carbon dioxide and other greenhouse gases.

Environmentalists are divided on the merits of setting up a market in pollution rights. Among the skeptics is Richard Ayres, chairman of the National Clean Air Coalition. Says he: "This program takes a public resource and turns it into something that can be traded as if it were property." Sherwood Rowland, a chemistry professor at the University of California at Irvine, feels uncomfortable with a program that seems to say "a certain amount of pollution is O.K." He points out that the quantity of pollution permits issued must be reduced periodically if the U.S. expects to improve its air quality. Even then, the market might distribute the permits in such a way that some cities would get more pollution, while others get less.

Some environmentalists applaud the flexibility that such a program would give industry. A plant found to be violating air-quality standards would not have to shut down immediately if its owner could buy time by obtaining extra pollution permits. Observes Daniel Dudek, an economist with the Environmental Defense Fund: "The beauty of this approach is that it provides environmental performance without great bloodletting in the economy."

Even the most enthusiastic advocates admit that a market in pollution rights would present an accounting challenge. It would be difficult to make sure every company had enough legal permits to cover all its pollution. Nonetheless, Congress is likely to pass some form of the Bush plan. "Let's not let perfection be the enemy of the practical," says Republican Senator John Chafee of Rhode Island, who strongly supports the idea. Anything that promises to make business a more willing partner in the fight against pollution is probably worth a try.