The Clean Air Act (CAA) of 1990 initiated pollution credits as an approach for industries to manage various regulations that seek to reduce air pollution. The Environmental Protection Agency (EPA) together with individual states formed a system that permits manufacturing plants and utilities to release a specific level of pollutants. Some companies are permitted to trade pollution credits whilst conforming to the required standards for a cleaner air. Cost-benefit analysis of trading pollution credits is significant in evaluating the gains and drawbacks of environmental protective regulations (EPA, 1995).
Trading pollution credits is an effective strategy in producing the very best environmental outcome for the least cost. For instance, the formation of a market by U.S. in 1990 to trade pollution credits has worked effectively to lessen acid rain and sulfur dioxide emissions emerging from coal-fired power plants. Reduction of Sulfur dioxide cap to the appropriate health would protect ecosystems and human health. Moreover, the EPA introduced a strategy that would regulate lethal air pollution from petroleum refineries. EPA’s aim was to reduce approximately 60 percent of chemicals which were prone to cause severe health effects such as cancer and thus save 4.5 million Americans. By utilizing trading pollution credits, EPA and consumers were able to save $ 2 billion annually and regulate cancer-causing air toxins. Hence, this was a successful and beneficial approach to cause an effective environmental and public health protection (Collin, 2006, p. 340).
According to Tietenberg (2006), during the period 1970-1990, United States government successfully conducted a cost-benefit analysis of air program. Within this period, the findings from the analysis concluded that air program trading pollution credits results, principally amounted to a total benefit amounting to approximately $ 22 trillion, a net benefit of $21.7 trillion and a total cost amounting to roughly $ 0.5 trillion. The analysis also concluded that that the economic cost of clean air programs was forty two times better contrasted to the total costs of air pollution regulation throughout the 20 year period .The study discovered that several positive consequences occurred in the U.S. economy due to CAA regulations and programs. Moreover, the study approximated that total agricultural benefits from the CAA amounted to roughly $10 billion. Thus, it is clear from the outcome conducted during this period that the benefits from regulating air pollution considerably outweighed the costs (67).
Hence, the goals of free trade and environmental protection properly interconnect with the new pollution trading methods which are founded on market mechanisms. Trading pollution credits has enabled large polluters to sell credits to companies that are unable to maintain their emissions within acceptable limits. For instance, if a plant lowered its SO2 emissions below its permitted level, it could afford to trade the leftover emission credits to other utilities that needed to purchase it. This rule has led to an economic gain by reducing pollution through low-carbon generation. The costs and benefits of trading pollution credit have led to major reductions in cases of smog, haze, acid rain, diseases and environmental effects (EPA 1995). For instance, the reduction of smog-levels resulted to a benefit of more than $ 150 million annually while the total cost amounted to roughly $ 95 million annually. The benefit was due to a 60% decrease from existing levels (Collins, 2006, p.340).
In Conclusion, It is clear that the quantifiable benefits of trading pollution credits overweigh the full costs that result from the environmental hazards. With regard to the environmental history, the rise of environmentalism and environmental awareness that emerged in the 1970s was a feasible option of environmental protection. Hence, the development of trading pollution credit has provided industries with an effective strategy of reducing pollution with the lowest cost.