2. How the U.S. judges air quality Clean Air Act of 1970 – First Federal Act to set air quality standards National Ambient Air Quality Standards (NAAQS): Legal ceilings on the allowable concentration of the pollutant in the outdoor air for a specified period of time. Judged annually and daily. Two standards: Primary – protect human health Secondary - protect aesthetics, physical objects and vegetation.

3. AAQS Standards set for 6 pollutants Carbon Monoxide (CO) Nitrogen Dioxide (NO 2 ) Ozone (O 3 ) Lead Particulate Matter (aka “soot”) Sulfur Dioxide What’s not included?

4. Why do we care? Health Effects: breathing symptoms, aggravation of existing respiratory and cardiovascular disease; impairment of and immune system; damage to lungs, impairment of visual perception, carcinogenesis, premature mortality Non-Health Effects: contributes to ozone formation and acid rain, reduction in crop yields, damage to trees, damage to ecosystems, visibility impairment Studies (by health experts) suggest approximately 50,000 people die each year due to air pollution in the U.S. Millions more suffer non-lethal health conditions.

5. Non-attainment/compliance Like a speed limit If over limit, subject to penalties. If noncompliant, states must design state implementation plans (SIPs) and submit to the EPA. 1990 CAA Amendments gave EPA Power to: prevent construction of new sources of pollution or deny federal transport or sewage grants. halt construction of major new or modified pollution sources in non-attainment areas enforce monetary penalties for noncompliance establish pollution permits to reduce SO2(we’ll talk about)

6. Has air quality improved in U.S. since 1980? Yup.

7. Percent Change in Air Quality since CAA Millions of Tons Per Year 19802013% change Carbon Monoxide (CO)17859 -66.9% Lead0.0740.001 -98.7% Nitrogen Oxides (NO x )2713 -51.9% Volatile Organic Compounds (VOC) 3014 -53.3% Particulate Matter (PM) PM 10 63 -50.0% Sulfur Dioxide (SO 2 )265 -80.8% Totals26794 -62%

8. Relative to Economic Indicators

9. Air Quality Changes Substantial Improvements have occurred for all six pollutants since Clean Air Act was enacted. Change in quality does not equal change in emissions Quality is not just based on emissions Most monitors are in urban areas. Emissions are sometimes estimated, air quality is always measured.

10. So what? EPA study suggests the costs of the CAA to the U.S. economy are approximately $65 billion!

11. So what? Health Effect Reductions (PM2.5 & Ozone Only) Pollutant(s)Year 2010Year 2020 PM2.5 Adult Mortality PM160,000230,000 PM2.5 Infant Mortality PM230280 Ozone MortalityOzone4,3007,100 Chronic BronchitisPM54,00075,000 Acute BronchitisPM130,000180,000 Acute Myocardial Infarction PM130,000200,000 Asthma ExcaberationPM1,700,0002,400,000 Hospital AdmissionsPM, Ozone86,000135,000 Emergency Room Visits PM, Ozone86,000120,000 Restricted Activity Days PM, Ozone84,000,000110,000,000 School Loss DaysOzone3,200,0005,400,000 Lost Work DaysPM13,000,00017,000,000

12. Efficiency of Clean Air Act Studies suggest PVNB gained from Clean Air Act are substantial (Hundreds of billions to Trillions of dollars). Central estimate is $1.9 trillion. Annual net benefits exceed $200 billion http://www.epa.gov/air/sect812/prospective2.html Clean Air Act does not allow balancing of costs and benefits! Relies instead on the “threshold concept”—that there IS some level of pollutant below which the stuff is not harmful. Efficiency in the standards would be only accidental, since net benefits cannot be calculated.

13. Inefficiency of Clean Air Act Clean Air Act does not allow balancing of costs and benefits! Relies instead on the “threshold concept”—that there IS some level of pollutant below which the stuff is not harmful. Efficiency in the standards would be only accidental, since net benefits cannot be calculated. For everything except SO2 and NOx, used command and control to achieve reductions

14. Problems with CAA Uniformity: Same primary and secondary standards apply everywhere, which sounds fair but must be inefficient. No account is taken of “exposure” (# of people affected), sensitivity of ecological systems, or costs. MSB/MSC of abatement will be different in different areas. Timing: Would be less costly to have tight controls when conditions are bad, looser ones when absorptive capacity is greater. Outdoor vs. Indoor Air pollution: Only 10% of time is spent outdoors. Growing evidence that while NAAQS limit outdoor exposure to pollutants, there is little monitoring of indoor air hazards (can be even more harmful).

15. Cost-(in)effectiveness of CAA Least costly method of abatement requires that MAC of all polluters are equalized. The ratio of CAC cost to least cost suggests widely varying differences in cost-effectiveness of CAC policies Most found it’s at least 78% more costly then minimum cost approach. CAC will be close to cost-effective only if a high degree of control is necessary (stringent controls resulting in similar marginal costs).

16. Studies of efficiency of CAA All find Total Social Benefits > Total Social Costs by substantial amount Most find Marginal Social Costs > Marginal Social Benefits by substantial amount. What does this mean?

17. Understanding Uniform/Timing Inefficiency. Know the graph with two MD curves, and be able to indicate inefficiency areas if one standard is applied to both.

18. Summary of CAA Substantial Net Benefits overall (Total Benefits >Total Costs by trillions of dollars) Could be even better (higher net benefits) if they allowed consideration of MSB and MSC and quality to vary across regions.

19. Acid Rain Program (ARP)

20. Acid Rain Caused primarily by SO2 and Nox, which is generated largely by coal fired plants Harmful to trees and crops (and statues)

21. How it works? Title IV of the 1990 Clean Air Act – The Sulfur Allowance Program National cap and trade Allowances can be bought or sold without restriction anywhere in the US – Program was intended to cut sulfur dioxide and nitrous oxide emissions to about half their 1980 levels. Starting in 1995 emissions are monitored constantly ($100,000 annual costs/unit). 100% compliance from utilities

22. Program History Allowances were given to utilities rather than sold (no way auction could pass Congress). Allowances can be used or banked for use in future years (or sold to other firms) – Important to have firms invested in the program for it to succeed. Done in two phases – In the early 1990s, analysts expected prices to be about $250-350/ton in Phase I and $500-$700 in Phase II (generally under that price). Initial permits went as low as $63. Suggests abatement costs were lower than expected (innovation)

23. The effects of banking allowances 2 million more permits were purchased in 2010 than total emissions. Some purchased by environmental groups (why?), others by investors (why?). Most purchased by energy companies. – Can use them or sell them later – Expect emissions will be higher later. – If 1,000 permits are sold from American Electric Power to Ohio Valley Electric Corp for $100/permit, what do we know is true?

24. Price history –SO2

25. Specifics on auctions today http://www.epa.gov/airmarkets/participants/ allowance/auction.html http://www.epa.gov/airmarkets/participants/ allowance/auction.html Why is the price so low today?

26. SO2 Emissions, 1980 - 2007

27. Nobody wants our pollution permits!

29. Air Quality in Ohio/Youngstown – http://www.epa.state.oh.us/dapc/ http://www.epa.state.oh.us/dapc/ – http://www.mahoningvalleyair.org/ http://www.mahoningvalleyair.org/

30. International situation Air quality has improved substantially in virtually all developed countries over last 3 decades. Air quality has gotten much worse in most developing countries (especially India and China) Relationship shown by the Kuznets Curve – Per capita income on horizontal axis, pollution or environmental degradation on vertical axis