Washington, DC – The U.S. Environmental Protection Agency’s Office of Inspector General (IG) has issued a scathing critique of agency plans to allow open market trading of air pollution credits. The IG initiated its investigation at the joint request of the New Jersey Chapter of the Sierra Club and Public Employees for Environmental Responsibility (PEER).

The IG found that EPA’s open market trading program lacked safeguards, fostered questionable trades and accepted invalid credits. The report validated years of internal complaints about the program’s vulnerability to manipulation. Those criticisms are detailed in the employee-written PEER white paper entitled Trading Thin Air.

For the past two years, EPA has been trying to encourage states to adopt open market trading, a system that unlike traditional cap and trade programs allows industry to trade pollution credits between sectors, sources and time periods without limit. For example, electric utilities could keep emitting smokestack emissions in return for promising to implement a drive to remove older, high-polluting cars from the road.

The two states with the most developed markets, New Jersey and Michigan, have failed to get their programs off the ground. New Jersey formally abandoned the program last month while Michigan’s plan has been pending EPA approval since spring. Many of Michigan’s credits have been generated by plant closures, a method the IG lambastes as invalid, reflecting no actual improvement in pollution control.

One key weakness of the program is the absence of a “quantification protocol,” a mechanism to ensure that trades between sectors actually are of equivalent value.”Instead of an apple-for-apple trade, EPA runs a program that trades an apple for the promise of a future guava,” explained PEER Executive Director Jeff Ruch.

EPA’s comments on the IG report indicate that the agency does not plan to accept any of the major recommendations. EPA sees open market trading as the next wave of air pollution regulation.

“EPA will ignore this report just as they have ignore four previous IG reports and numerous pleas from their own specialists,” stated Ruch.”Until these problems are addressed, EPA’s trading plans will remain a dangerous scam that threaten to undermine real progress toward clean air.”


Read the OIG Report.

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