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Fight Both Local and Global Pollution, But Separately

Since discussions of California’s cap and trade program for greenhouse gases (GHGs) began more than a decade ago, many environmental justice (EJ) leaders have voiced concerns about the fairness of cap and trade to disadvantaged communities.  Like most environmental economists, my reaction to these concerns was simple or, I would now say, rather simplistic.ejvsghg_1 The standard economist view goes something like this:

  • Greenhouse gases are global pollutants, causing damage everywhere on earth regardless of the point of emission. A cap and trade program for GHGs is not designed to address local pollutants (nitrogen oxides, volatile organic compounds, sulfur dioxide, and sometimes heavy metals, which do most of their damage near their source) that are emitted from major energy-using facilities, such as electricity generators, oil refineries, and cement manufacturers.
  • Emissions of GHGs from these facilities are imperfectly correlated with emissions of local pollutants. More importantly, the change in total GHG emissions when these sources respond to climate policy, is very imperfectly correlated with the change in local pollution.  In fact, lowering one type of emissions could quite possibly raise the other. (More on that below.)
  • So, we should not count on, or expect, GHG policies to control local pollution emissions. We should pursue separate policies to reduce those local pollutants.

My views on these points haven’t changed, but over the last year I’ve realized that the relationship between GHG and local pollution policy is not that simple.   While listening to EJ leaders in the recent debate over extending cap and trade through 2030, two points have persuaded me that in order for California to make real progress on GHG emissions, addressing the effect of local pollution in disadvantaged communities must be part of the process.ejvsghg_2

First, while it is clear there are more direct ways to control local pollution than through GHG regulation, these communities feel that they do not have the political power to achieve those direct measures.  Absent greater political clout, the rational EJ strategy may well be to climb on the GHG-reduction train and try to bend its path towards addressing local pollution.

Second, most of these emitting facilities are not shutting down.  They often generate higher-paying jobs and in some cases are the center of a community’s economy.  But, if they are to continue operating, the surrounding communities deserve detailed public emissions monitoring, reliable scientific analysis of the impact of those emissions, and compensation for the damage that is still done.

Yet, in talking to EJ leaders, academic researchers, managers at emitting facilities, and air quality regulators, I have heard widely divergent claims about the amount of monitoring, level of emissions, and damage from local pollution, an issue Meredith touched on in October.  Agreeing on the current facts is a necessary first step to diagnosing the local pollution problems and reaching equitable solutions.

Besides the obvious public policy imperative to mitigate local pollution, doing so is also critical because the alternatives — which tie local pollution abatement to GHG reduction — would undermine the state’s climate policies.

For instance, one alternative circulating in various forms has been dubbed “cap and tax.”  The idea is to establish GHG caps on existing facilities — no trading allowed, just limits at each facility — and then have them pay a tax for their GHG emissions.  Now I’m all for a GHG tax as I have written previously, but there is no good argument for capping GHGs from particular facilities. It’s a global pollutant.thumb.php

In contrast, there are clearly good arguments for capping local pollutants from a particular facility, and taxing those pollutants that are emitted. And for distributing at least some of that revenue to individuals who may be harmed by the local pollution, particularly when they are already disadvantaged.

Ironically, one of the primary ways facilities that burn fossil fuels reduce their local pollution is by using “scrubbers” that remove the pollutants from the effluent stream. But scrubbers themselves consume substantial energy, so they increase GHGs while lowering local pollution.

If caps on GHGs at specific facilities are binding, they would likely reduce the overall level of operations at those sites, and thus reduce local pollution.  But that would most likely do little or nothing (or less than nothing) to reduce total worldwide GHGs, which is all that matters for climate change.

If, for instance, a California oil refinery has to scale back operations, the overwhelming evidence is that the gasoline and diesel shortfalls will be imported from refineries outside the state.  This “leakage” offsets any in-state GHG reductions, and possibly even increases the total, due to additional shipping.  The same is true for electricity generation, cement production, and other industrial production.

Some advocates of GHG caps respond to the leakage argument by saying that we just need to find lower-GHG ways of providing transportation, electricity generation, and other energy intensive goods and services.  That is surely true, but we are not going to accomplish it by capping GHGs at specific California facilities. California doesn’t — and under the U.S. Constitution California can’t — control trade across its borders.  Reducing in-state supply without reducing demand will just increase imports.

The future of California’s climate policy will be front and center in 2017. As the U.S. federal government steps back from leadership on this challenge (and apparently closer to denying that it exists at all), it is critical that the Golden State presents policies that will have real impact on global GHG emissions, while at the same time treating fairly the most vulnerable in our society.

I’m still tweeting interesting energy news articles, research, and stats @BorensteinS

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Severin Borenstein View All

Severin Borenstein is E.T. Grether Professor of Business Administration and Public Policy at the Haas School of Business. He has published extensively on the oil and gasoline industries, electricity markets and pricing greenhouse gases. His current research projects include the economics of renewable energy, economic policies for reducing greenhouse gases, and alternative models of retail electricity pricing. In 2012-13, he served on the Emissions Market Assessment Committee that advised the California Air Resources Board on the operation of California’s Cap and Trade market for greenhouse gases. Currently, he chairs the California Energy Commission's Petroleum Market Advisory Committee and is a member of the Bay Area Air Quality Management District's Advisory Council.

12 thoughts on “Fight Both Local and Global Pollution, But Separately Leave a comment

  1. The article mentions California electricity generators (EG) as significant emitters of local pollutants. For EGs that burn natural gas, is that justifiable? EG emit NOx, which might best be considered a regional, not local, pollutant–it contributes to ozone formation miles downwind from the source. Natural-gas EG emit negligible amounts of volatile organics and no heavy metals. — FWIW, the South Coast Air Quality Management District ranked over 300 specific emitters in order of decreasing cancer risk to nearby populations (source below). Natural-gas-burning EG are far down the list. One of the worst EG is SCE’s tiny plant in Avalon on Catalina Island, which burns liquid fuel. (Through about 1990, many California EG burned residual fuel oil, which is filthy stuff. That may still contribute to current opinion regarding local impacts of EG.) (SCAQMD’s cancer-risk ranking is at pp. 23-32 at http://www.aqmd.gov/docs/default-source/planning/risk-assessment/ab2588_annual_report_2015.pdf?sfvrsn=6 )

  2. This is a useful article — clarifying and with a constructive tone. I’m confused on one key point, however: the idea that a carbon pollution cap (and perhaps a carbon tax as well?) might result in higher local (co-pollutant) emissions that are directly injurious to health.

    At least I read the post as conveying such a possibility. Yet I regard that as highly unlikely, in the extreme. A strict cap (without offsets) or an equivalent tax would create incentives to reduce emissions at all facilities. While the responses would vary across facilities, I can’t conjure a scenario in which emissions would *increase* at some facilities. Yet that seems to have been suggested in the piece.

    Perhaps I flipped the context, since there was a scenario in which scrubbers, presumably to reduce SO2 or some other largely local pollutant, would increase total energy requirements due to their auxiliary loads. And yes, that has happened broadly from the mid-seventies onward; as folks know, it has been expressed as a worsening of power plant heat rates, from, say, 9,000 Btu/kWh to 9,500 (those are approximations). But that increase in total fuel burn and the resulting rise in CO2 has, mercifully, been far more than offset by the massive shrinkage of coal-burning power generation overall. And certainly a carbon tax would contribute to the shrinkage, both by reinforcing the shift from coal to lower-carbon electricity sources and by diminishing electricity demand.

    In any event — and I apologize if this was just a minor point — I’m not seeing the adverse scenario laid out in the article. Have I missed something?

    Oh, this too. “Most of these emitting facilities are not shutting down,” the post says up front. Not so fast. With an aggressive enough carbon tax (or cap), the entire fossil-fuel enterprise will shrink. Not all at once, and not everywhere at the same rate, but combustion-based power plants, oil refineries, and so forth will, over time, disappear. That’s what we’re aiming for, isn’t it? So while not necessarily counting on it — especially where human health is directly at stake — let’s build that expectation into our mid- and longer-term scenarios.

  3. This is a very useful unpacking of conflated issues and approaches and why both local and global pollution require distinctive policies (that can be complementary). It is also useful to continue to emphasize the inherent problem of sub-national (state and regional) carbon pricing approaches that cannot effectively address leakage and border adjustment. Even with the scale of the European Union, the Emissions Trading System (EU ETS) struggles with leakage. The EU ETS approach of providing free allowances (as in California) to deal with leakage has resulted in windfall profits over $25 billion (Carbon Market Watch, November 2016). Similarly, the Regional Greenhouse Gas Initiative (RGGI) is pressured to keep allowance prices low ($4-5) due to the leakage threat posed by utilities in non-RGGI states.

    Finally, experience over the last decade with caps as a policy, particularly large scale applications like EU ETS and RGGI, should be considered carefully for causality. Independent analysis indicates the caps have have had minimal causal impact on emissions reduction and essential long-term major clean energy investment, Economic factors (recession), energy trends (solar costs and natural gas expansion) and expansion of renewable energy have all undermined cap and trade allowance prices (around $5) and emissions reduction despite the menu of “flexibility” mechanisms.

  4. Severin,

    I think you should be more careful on the legal arguments at the end of this piece. We do precisely what you say we cannot do for both electricity imports (within cap-and-trade) and for biofuels imports (within the LCFS). In fact, the LCFS lifecycle accounting includes GHG emissions with transporting the fuels to the California market in addition to the GHG emitted during production. Finally, you may not be aware of this but the LCFS accounting framework was challenged on precisely the constitutional grounds you suggest are a barrier to BTAs several years ago. The ARB won that case in the 9th Circuit and the Supreme Court, including Antonin Scalia, denied Cert. So the law of the land, at least in the 9th Circuit, is that carefully designed, fair, BTAs are in fact legal. ARB in fact had a process to consider substituting a BTA for output based free allowances back in 2014 – after the LCFS decision came down.

    That’s not to say that a poorly designed BTA for cap-and-trade wouldn’t be struck down. Or that a BTA for cap-and-trade would be easy to get right. It would be hard. But it’s not obviously illegal, as you suggest in the second to last paragraph. And that matters a lot to the arguments you make in the paragraphs above it regarding import substitution.

    Best,
    Michael Wara

    • Thanks for that clarification, Michael. I’m not a lawyer, but my understanding was that California does not have unfettered authority to impose border tariff adjustments on imports into the state. If it did, would there still be a need for output-based free allocations to energy intensive trade exposed industries? (And it is important to note, as always in these discussions, that reshuffling of global supply is likely to undo most of the impact of basing border tariffs on the lifecycle emissions of the specific oil/gasoline/electricity/cement or other industrial commodity imported into the state so long as most of the country/world imposes less rigorous or no regulation of GHGs.)

      In any case, I don’t think this changes the argument about *capping* the emissions of in-state industrial production sites, such as refineries, cement manufacturers, or electricity generators. I’m pretty sure that California does not have the authority to block imports or to cap emissions from producers outside the state. Given that, capping emissions from in-state producers without reducing demand for the product will just increase imports and move the GHG (and local) pollutants to another location. Moving local pollution to another location may be a net improvement if the other site is less densely populated. But moving production out-of-state is almost certain to produce as great or greater total GHG emissions.

  5. Good points. In focusing on CO2, policymakers also risk overlooking “local” pollution that also has climate implications. NOx, for example, is a potent greenhouse gas. Moreover, in developing Asia, the emissions of black carbon that come from burning coal, dirty diesel engines, and cooking fires are not only shortening lifespans, but are increasingly recognized as a major contributor to global climate change.

    • NOx differs from nitrous oxide. NOx is the sum of three species, nitric oxide (NO), nitrogen dioxide (NO2), and dinitrogen tetroxide (N2O4). These species are formed during combustion of fossil fuels. They are reactive, participate in formation of ozone and photochemical smog, and have short residence times in the atmosphere before being transformed into nitrate particles. — Nitrous oxide (N2O) is unreactive and absorbs infrared, making it a potent greenhouse gas. Sources of N2O are described on the Air Resources Board website as follows: “Agriculture accounts for the majority of N2O emissions [in California], primarily from fertilizer and manure added to soil. Commercial and residential use of nitrogen fertilizer on turf and transportation are also important sources of N2O. Industrial sources of N2O include solid waste and wastewater treatment, manufacturing, refining and other sources.”

  6. This is an important article. Another egregious example is the myopic focus by the European Commission on CO2 emissions from vehicles, basing vehicle taxes only on those emissions. This, along with little or no enforcement of emissions standards for “local” pollutants, has led to order of magnitude increases in NOx emissions, increasing morbidity and mortality for tens of millions of Europeans, especially in major cities. Widespread cheating on emission testing is a related problem.

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