April 29, 2021

Critically Examining Environmental Justice Critiques of GHG Auction-Cap-and-Trade

Posted on April 29, 2021 by Robert B. McKinstry, Jr.

The Biden Administration has pledged to put the nation on track to achieve carbon neutrality by 2050 and simultaneously to promote environmental justice. Both goals are achievable and, indeed, are complementary. Their complementary nature is exemplified by the two existing North American regional programs for capping and reducing greenhouse gas (GHG) emissions. Those programs, the Regional Greenhouse Gas Initiative (RGGI) governing the power sector and the California-Quebec program, have reduced GHG emissions while creating job growth and funding alternative energy programs to assist homeowners. Both promote environmental justice.

Michael Gerrard and John Dernbach have identified over a thousand policy instruments that can be used to achieve deep decarbonization across the economy. For every sector they examine, they identify the key tool as putting a price on carbon through auction-cap-and-trade programs. The Biden Administration has yet to reveal its regulatory strategy for achieving deep decarbonization.  However, as demonstrated in articles published in response to the Paris Agreement, EPA could use its international air pollution authority under section 115 of the Clean Air Act to initiate a call for state implementation plans that employ GHG cap-and-trade programs similar to the California program. EPA has used cap-and-trade effectively to address interstate transport of pollution and the Supreme Court affirmed EPA’s use of cost as a basis for interstate allocation of responsibility. EPA v. EME Homer City Generation.

Given the critical need to reduce GHG emissions quickly, the importance of existing legal authorization for the auction-cap-and-trade tool, and its successful use in existing regional programs, it is important that its use not be derailed by false claims. Such claims underlay criticism of the existing RGGI and California programs, based on concerns regarding their perceived impact on environmental justice (EJ) communities. I examine these claims in a recent paper published by ABA SEER, which argues that these claims are both factually and legally unsupported and that an auction with trading represents the method that best effectuates the goal of distributive justice. 

My ABA article debunks claims that the existing programs disserve environmental justice by (1) increasing energy prices with a disproportionate impact on disadvantaged populations, and (2) causing hot spots that will concentrate air pollutants harming health in disadvantaged neighborhoods. The article demonstrates that criticism based on costs lacks empirical support and is inconsistent with utility pricing law. Further, auction revenues from existing programs has been directed to benefit low-income communities. 

The second line of attack suggesting that a GHG auction-cap-trade-and-invest program will result in concentration of health-harming pollutants in low-income neighborhoods has even less support in law and fact but has perhaps the widest following.

Existing auction-cap-trade-and-invest programs have the principal and critically important goal of substantially reducing GHG emissions to address climate disruption, which has disproportionately high adverse impacts upon disadvantaged populations worldwide. These programs impose emissions reduction requirements above and beyond the requirements to comply with health-based standards for criteria and hazardous air pollutants. Pricing GHG emissions is one of the most effective tools to reduce those emissions. Carbon dioxide dissipates rapidly in the atmosphere and will not, itself, cause hot spots that can lead to adverse health impacts.  To the extent that the GHG programs succeed in discouraging continued operation of fossil fuel fired power plants and other combustion sources, these programs  also reduce emissions of other harmful pollutants. These pollutants include acid gases and acid gas aerosols, fine particulates, and metals, all of which can have significant acute and chronic adverse health impacts. For example, current modeling shows that the expansion of the RGGI program to Pennsylvania will reduce emissions from fossil fuel-fired power plants and cause the closure of many fossil-fired power plants, which can be located in low-income areas. 

In fact, auction-cap-and-trade programs with descending caps will most likely reduce hot spots. To cause a hot spot, one would need to show that the programs will cause increases in emissions of these other pollutants or building of new plants that affect low-income neighborhoods. Neither is likely, since the worst polluting plants will shut down and, even if new plants are built, they will be subject to more stringent new source emissions standards under the Clean Air Act’s New Source Review provisions. Further, the inclusion of other sectors, such as transportation, in the California program will favor low emission or electric vehicles, which will have disproportionately high beneficial impacts on poorer communities that border highways.

Moreover, the fact that a power plant or other major emitting plant may be located in a disadvantaged area does not mean that its emissions are felt there. Current air pollution control regulations that base air permit emissions limitations on local air quality impacts require that those limits not exceed health-based National Ambient Air Quality Standards (NAAQS). This results in construction of tall stacks that carry pollutants miles away from the source rather than affecting the neighborhoods near the source. For example, in the Cross State Air Pollution Rule modeling, EPA determined that emissions from sources in Texas would affect air quality in places as far away as Michigan and Pittsburgh. 

The existing empirical evidence strongly suggests that GHG auction-cap-trade-and-invest programs do not result in hot spots of pollutants having adverse health impacts. The California Air Resources Board has reviewed the papers cited as evidence and found the claims unsupported and, in fact, inconsistent with the literature.  In fact, a 2020 study by the National Bureau of Economic Research found that “while the EJ gap was widening prior to 2013 [when the California program was initiated], it has since fallen by 21-30% across pollutants due to the policy.” Indeed, most of the significant “cancer alleys” in the United States occur in states that do not participate in GHG trading programs. For example, Louisiana, Texas, Mississippi, and West Virginia include these concentrations of adverse health impacts and do not participate in the existing GHG trading programs.

If emissions of pollutants that adversely affect health could be concentrated as a result of GHG cap-and-trade resulting in hot spots, that effect (for which there is no supporting evidence) should be addressed by tightening the NAAQS or other regulations governing conventional and hazardous air pollutants under the sections of the Clean Air Act governing those pollutants. That effect should not be used as an argument against an effective regulatory mechanism to reduce GHG emissions. 

            If an enforceable descended regulatory cap is established, distribution of allowances by way of an auction with a reserve price represents the regulatory methodology most consistent with principles of distributive justice. Other methodologies, such as permits, award permission to emit that is not open to all and usually fail to capture the cost of the future damages caused by the emissions.