and, most important, there is no mechanism for a company to profit from innovations that achieve emission reductions beyond the standard.

The choice between a design and a performance standard is often made as part of a rule-making process. In some cases, such as fugitive emissions, it is simpler to set a design standard because of the complexity of measuring the actual emissions. However, design standards do not provide the same limit on emissions that performance standards do; they simply provide a reduction over a set of baseline emissions. In either case, the standards are related to the output of the facility. Performance standards are usually expressed in such terms as pounds of pollutant emitted per million British thermal units of fuel heat input. In these cases, the actual amount of emissions is permitted to increase as the amount of fuel is increased.

In response to the limitations of both design and performance standards, a new approach (a market-based approach) based on cap and trade has emerged in the last decade. In this approach, each source category (or every source) in a given geographic area has its total emissions of a particular pollutant capped at a level below its current level, and each individual source is assigned an emissions allotment consistent in the aggregate with the overall emissions cap. The novel aspects of this total-emissions-based performance standard are (1) that it does not presume any particular technology or emissions standard for the sources, and (2) that it allows market forces to minimize costs and reward innovation. Each facility is allowed to achieve the required reductions in a variety of ways, including conventional pollution control, process change, and product substitution, as well as purchase of reductions at a more economical rate from other facilities that have exceeded their reduction target. Even with a cap-and-trade standard, an emission limit must be set that is based on feasible control technology or process operations. However, the ability to trade removes one of the problems faced by regulators when dealing with a range of existing sources. A greater control requirement can be set, and companies that cannot easily meet the requirement can trade emission-reduction credits to comply with the cap-and-trade requirement. There are challenges in applying this emission-control mechanism in every situation, as discussed later in this chapter. The mechanism does, at least in theory, offer the possibility of achieving substantial reductions while allowing individual sources to minimize costs and optimize efficiency.

PERMITS AND STANDARDS FOR NEW OR MODIFIED MAJOR STATIONARY SOURCES

The CAA mandates that the states implement and EPA oversee permit programs to control and regulate pollutant emissions from major stationary sources in National Ambient Air Quality Standards (NAAQS) attainment and nonattainment areas. Under these programs, each new major stationary source of air pollutants must apply for a permit before beginning construction and, within the permit application, demonstrate that the new facility will meet appropriate emission-control standards. In recognition of the substantial costs of retrofitting, existing stationary sources are required



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