Energy Efficiency and Emissions Trading: Experience from the Clean Air Act Amendments of 1990 for Using Energy Efficiency to Meet Air Pollution Regulations

Dan York, Ph.D.

June 2003

Abstract

The Clean Air Act Amendments of 1990 (CAAA) created a national "cap and trade" system as a means to reduce emissions of sulfur dioxide (SO₂) nationwide via a flexible, market system. Based on the relative success of this system, there are numerous national proposals to establish similar types of emissions trading systems for other air pollutants, which may include nitrogen oxides (NO_x), mercury, and carbon dioxide (CO₂), depending on the specific proposal. Such multi-pollutant proposals are said to offer numerous advantages over more traditional "command-and-control" approaches, including lower compliance costs, greater flexibility, and greater stimulus for technological innovation. Energy efficiency can reduce energy use, which can thereby yield lower emissions. CAAA included provisions to award emissions control credits for qualified energy efficiency measures. This report examines the experience with CAAA and energy efficiency in order to develop recommendations for including energy efficiency as acompliance option within multi-pollutant proposals being considered by Congress and Administration.

20 pp., 2003, $16.00, U034