Beyond playing "banker": the role of the regulatory agency in emissions trading

Administrative Law Review

Volumn 59, Issue 2, 2007, Pages 269-313

  Mcallister, Lesley K ^a,b  

^a UNIVERSITY OF SAN DIEGO   (United States)

^b UNIVERSITY OF CALIFORNIA   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 34848820305     PISSN: 00018368     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (348)

1. See infra Part I.C (discussing the difference of the agency role between traditional and cap and trade programs).
2. See infra Part I.B (noting that the new role of regulated entities as strategic planners leads to a more flexible program).
3. The terms "command and control" and "traditional" are used interchangeably herein. The term "command and control" is most common in the literature, but should be avoided because it fails to capture many aspects of environmental regulation as it has been implemented over the past several decades. See Daniel H. Cole & Peter Z. Grossman, When Is Command-and-Control Efficient? Institutions, Technology, and the Comparative Efficiency of Alternative Regulatory Regimes for Environmental Protection, 1999 WIS. L. REV. 887, 892 (stating that use of the term "command and control" is misleading);
4. David M. Driesen, Is Emissions Trading an Economic Incentive Program?: Replacing the Command and Control/Economic Incentive Dichotomy, 55 WASH. & LEE L. REV. 289, 296-99 (1998) (arguing command and control programs are not as rigid as often criticized).
5. See Joseph Kruger, Companies and Regulators in Emissions Trading Programs, RES. FOR THE FUTURE, Discussion Paper 5-03, at 2 (2005) ("[T]he focus of both parties on a routine and predictable administrative program has been mutually beneficial and has led to a reasonably harmonious relationship between industry and program administrators. . . ."). For information on the literature describing adversarial and cooperative regulatory styles,
6. see infra note 64.
7. While relatively little has been written in legal literature about compliance in cap and trade programs, several economists have focused on it. See Carlos A. Chavez & John K. Stranlund, Enforcing Transferable Permit Systems in the Presence of Market Power, ENVTL. & RESOURCE ECON. 25, 65-78 (2003) (deriving an enforcement strategy to achieve compliance in a cost-effective manner);
8. John K. Stranlund et al., Enforcing Emissions Trading Programs: Theory, Practice, and Performance, 30 POL. STUD. J. 343 (2002) (explaining the compliance systems in a number of cap and trade programs).
9. See, e.g., Dallas Burtraw & Byron Swift, A New Standard of Performance: An Analysis ofthe Clean Air Act's Acid Rain Program, 26 ENVTL. L. REP. 10411, 10411 (1996) (demonstrating the success of the Acid Rain Program and advocating for adoption of more cap and trade programs);
10. Byron Swift, How Environmental Laws Work: An Analysis of the Utility Sector's Response to Regulation of Nitrogen Oxides and Sulfur Dioxide Under the Clean Air Act, 14 TUL. ENVTL. L.J. 309, 323 (2001) [hereinafter Swift, Environmental Laws].
11. EPA, Cap & Trade Multi-state NOx Programs, available at http://www.epa.gov/ airmarkets/cap-trade/docs/nox.pdf (last visited Feb. 23, 2007).
12. See EPA, Clean Air Rules of 2004, available at http://www.epa.gov/cleanair2004/ (stating that the Clean Air Interstate Rule and the Clean Air Mercury Rule employ a cap and trade approach).
13. See, e.g., Jinnan Wang et al., Controlling Sulfur Dioxide in China: Will Emissions Trading Work?, ENV'T, June 2004, at 28-39 (examining the Chinese government implementation of cap and trade programs and their potential success).
14. See, e.g., Northeastern and Mid-Atlantic States' Regional Greenhouse Gas Initiative (RGGI), available at http://www.rggi.org (last visited Feb. 23, 2007) (describing a regional strategy for RGGI participating states that includes "the implementation of a multi-state capand-trade program");
15. California's Climate Change Initiatives, available at http://www.climatechange.ca.gov/biennial_reports/2006report/index.html (addressing California's response to climate change).
16. See, e.g., Press Release, Senator Dianne Feinstein's Office, Senator Feinstein Outlines New Legislation to Curb Global Warming, Keep Economy Strong (Mar. 20, 2006), available at http://www.feinstein.senate.gov/ 06releases/r-global-warm320.htm (advocating for the Strong Economy and Climate Protection Act, which would establish a mandatory cap and trade system).
17. International initiatives include the Kyoto Protocol and the European Union Emissions Trading System (EU ETS). See, e.g., Kyoto Protocol to the U.N. Framework Convention on Climate Change, Dec. 10, 1997, art. 3, U.N. Doc. FCCC/CP/1997/L.7/Add.1, 37 I.L.M. 22 (1997), available at http://unfccc.int/ resource/docs/convkp/kpeng.pdf (detailing the responsibilities of the parties to the protocol);
18. European Union Emissions Trading Program, http://ec.europa.eu/ environment/ climat/emission.htm (establishing emissions trading in greenhouse gases);
19. Vivian E. Thomson, Early Observations on the European Union's Greenhouse Gas Emission Trading Scheme: Insights for United States Policymakers, PEW CENTER ON GLOBAL CLIMATE CHANGE, Apr. 19, 2006, available at http://www.pewclimate.org/docUploads/ Early%5FObservations%5Fon%5FEUETS%5FThomson%2Epdf (evaluating the European Climate Change Program and Emissions Trading Scheme).
20. Regional Clean Air Incentives Market (RECLAIM) was implemented in 1994, a year before the Acid Rain Program. South Coast Air Quality Management District, Regulation XX-Regional Clean Air Incentives Market, Rules 2000-20, available at http://www.aqmd.gov/rules/reg/reg20_tofc.html.
21. Id.
22. For more information on the heterogeneity of RECLAIM sources, see infra notes 161-63 and accompanying text.
23. Another cap and trade program that has received little scholarly attention and has experienced problems in some similar ways to those of RECLAIM is the Emissions Reduction Market System (ERMS) implemented in 2000 to control emissions of volatile organic materials (VOMs) in the Chicago, Illinois airshed. For more information on ERMS, see David A. Evans & Joseph A. Kruger, Taking up the Slack: Lessons from a Cap-and Trade Program in Chicago, RES. FOR THE FUTURE, Discussion Paper 06-36, at 8-9 (July 2006), available at http://www.rff.org/rff/Publications/ Discussion_Papers.cfrn (highlighting sources of delay and inefficiency in implementing ERMS).
24. See infra notes 108-10 and accompanying text.
25. 42 U.S.C. §§7401-7700 (1994).
26. R.H. Coase, The Problem of Social Cost, 3 J.L. & ECON. 1, 41-44 (1960). The Coase Theorem states that in the absence of transaction costs, all government allocations of property are equally efficient because interested parties will bargain privately to correct any externalities. Cap and trade regulation is based on this central idea of assigning property rights in pollution and allowing bargaining.
27. See Thomas D. Crocker, The Structuring of Atmospheric Pollution Control Systems, in ECON. OF AIR POLLUTION 61, 61-86 (Harold Wolozin ed., 1966) (relating the pollution problem to a market failure);
28. JOHN H. DALES, POLLUTION, PROPERTY, AND PRICES 77-100 (1968) (proposing pollution rights as a social experiment);
29. see also W. David Montgomery, Markets in Licenses and Efficient Pollution Control Programs, 5 J. ECON. THEORY 395 (1972) (discussing the application of pollution and emissions licensing to achieve higher levels of environmental quality).
30. EPA, TOOLS OF THE TRADE: A GUIDE TO DESIGNING AND OPERATING A CAP AND TRADE PROGRAM FOR POLLUTION CONTROL, EPA430-B-03-002, at 1-2 (June 2003) [hereinafter TOOLS OF THE TRADE].
31. Swift, Environmental Laws, supra note 6, at 321.
32. See EPA, ACID RAIN PROGRAM 2004 PROGRESS REPORT, EPA 430-R-05-012, at 3 (2005), available at http://www.epa.gov/airmarkets/progress/docs/2004report.pdf [hereinafter ACID RAIN PROGRAM REPORT 2004].
33. x, RES. FOR THE FUTURE, Discussion Paper 05-5, at 4 (Mar. 2005) ("The key feature of emissions trading is that allowing regulated facilities to transfer emission allowances should lead to a distribution of emission reductions that equates the marginal cost of emission reductions among facilities and therefore minimizes the total costs of emission reductions.").
34. TOOLS OF THE TRADE, supra note 21, at 1-2.
35. Jason Scott Johnston, Tradable Pollution Permits and the Regulatory Game, in THIRTY YEARS OF MARKET-BASED INSTRUMENTS FOR ENVIRONMENTAL POLLUTION: A RETROSPECTIVE 10 n.36 (Charles Kolstad & Jody Freeman eds., Oxford Univ. Press 2006). For an explanation of technology-based standards,
36. see infra notes 59-69 and accompanying text.
37. See Byron Swift, U.S. Emissions Trading: Myths, Realities, and Opportunities, NAT. RES. & ENV'T, at 3 (Summer 2005) (lauding the success of the Acid Rain Program). This Article will focus on the aspects of the Acid Rain Program that regulate sulfur dioxide (SO2). While NOx is regulated under the Acid Rain Program as well, it is not regulated through a cap and trade program.
38. For a detailed analysis and comparison of each, see Swift, Environmental Laws, supra note 6.
39. See Reimund Schwarze & Peter Zapfel, Sulfur Allowance Trading and the Regional Clean Air Incentives Market: A Comparative Design Analysis of Two Major Cap-and-Trade Permit Programs?, 17 ENVTL. & RES. ECON. 279, 280 (2000) (noting the aim of RECLAIM is to avoid and reduce natural damages from emissions).
40. The EPA defines a "unit" as a fossil fuel-fired combustor that serves a generator that provides electricity for sale. ACID RAIN PROGRAM REPORT 2004, supra note 23, at 5. The 263 units included in Phase I of the program were located in 110 generating plants.
41. A. DENNY ELLERMAN ET AL., MARKETS FOR CLEAN AIR: THE U.S. ACID RAIN PROGRAM 6 (2000) (noting that the phases were a means to reach an emissions cap).
42. ELLERMAN, supra note 29, at 8. In 2004, 3,391 generating units were subject to the Acid Rain Program.
43. ACID RAIN PROGRAM REPORT 2004, supra note 23, at 4.
44. ENVTL. DEF., FROM OBSTACLE TO OPPORTUNITY: HOW ACID RAIN EMISSIONS TRADING IS DELIVERING CLEANER AIR 5 (2000) (noting that the units allowed declined from 445 in 1995 to 398 in 1999).
45. EPA, ACID RAIN PROGRAM 2000 PROGRESS REPORT, EPA 430-R-01-008, at 7, available at http://www.epa.gov/airmarkets/progress/docs/2000report.pdf. In 2004, the EPA allocated a total of 9.5 million allowances.
46. ACID RAIN PROGRAM REPORT 2004, supra note 23, at 4-5.
47. ACID RAIN PROGRAM REPORT 2004, supra note 23, at 4 (stating that the cap of 8.95 million is permanent).
48. See Schwarze & Zapfel, supra note 28, at 287 (reviewing operation of the Acid Rain Program).
49. Interview with Bob Miller, Market Operations Branch, Clean Air Markets Division, EPA (Jan. 6, 2006);
50. see also ACID RAIN PROGRAM REPORT 2004, supra note 23, at 8.
51. Approximately 38.1 million allowances were issued in Phase I, but net emissions were only 26.5 million tons. Swift, Environmental Laws, supra note 6, at 326. While it has not been emphasized in the literature, it would not be incorrect to say that the Acid Rain Program was overallocated in its initial years. Between 1985 and 1993, the emissions of Phase I units fell from 9.3 million tons to 7.6 million tons.
52. ELLERMAN, supra note 29, at 79. Yet the cap for 1995 was set at 8.7 million tons.
53. 2 emissions, Ellerman finds that the pre-1994 emission reductions largely were attributable to declines in the price of Western low-sulfur coal and concluded that "it would not be correct to attribute much[,] if any[,] of the pre-1994 emission reductions to early compliance with the provisions of Title IV, since these reductions are largely explained by economic factors independent of Title IV."
54. ELLERMAN, supra note 29, at 104-05.
55. ACID RAIN PROGRAM REPORT 2004, supra note 23, at 4. It is worth noting, however, that emissions in the years 2000 to 2004 consistently have been above the annual number of allocations, a result of the use of banked allowances from Phase I of the program.
56. Id. at 5.
57. See Kruger, supra note 4, at 2 (creating a new role for regulated entities).
58. TOOLS OF THE TRADE, supra note 21, at 1-3.
59. See, e.g., Bruce A. Ackerman & Richard B. Stewart, Reforming Environmental Law: The Democratic Case for Market Incentives, 13 COLUM. J. ENVTL. L. 171, 172-73 (1988) (noting the uniformity and stringent controls of "best available technology" strategies).
60. See Burtraw & Swift, supra note 6, at 10414 (noting that the program was geared toward currently available technology, which was a disincentive to innovation).
61. But see Driesen, supra note 3, at 302-04 (citing lack of empirical evidence for this notion and stating that polluters "have substantial economic incentives to use the flexibility that performance standards offer to employ innovative means of meeting emission limitations that are less costly").
62. See Kruger, supra note 4, at 2 ("A company is not forced to meet a technology mandate that may not make sense for its plant configuration or business plan.").
63. See Ackerman & Stewart, supra note 40, at 180 (discussing the transfer of technology assessment from bureaucrats to business managers).
64. Id.
65. Id. at 183.
66. See, e.g., Daniel J. Dudek & John Palmisano, Emissions Trading: Why Is this Thoroughbred Hobbled?, 13 COLUM. J. ENVTL. L. 217, 218 (1988);
67. Adam B. Jaffe & Robert N. Stavins, Dynamic Incentives of Environmental Regulations: The Effects of Alternative Policy Instruments on Technology Diffusion, 29 J. ENVTL. ECON. & MGMT. S-43, S-45 (1995);
68. Swift, Environmental Laws, supra note 6, at 392 (containing a section of the article entitled "Cap-and-Trade Program, Promotes Broader Technology Use and Innovation"). There is, however, a lack of empirical evidence supporting this thesis that existing emission trading programs have spurred significant innovation.
69. See, e.g., Driesen, supra note 3, at 332-36 (emphasizing that emissions trading reduces the incentive for high-cost sources to apply new technology thus leading to a net weakening of incentives to innovate);
70. Richard Toshiyuki Drury et al., Pollution Trading and Environmental Injustice: Los Angeles ' Failed Experiment in Air Quality Policy, 9 DUKE ENVTL. L. & POL'Y F. 231, 275-78 (arguing that companies in trading regimes are not motivated to innovate, but rather to purchase emission reduction credits);
71. Evans & Kruger, supra note 16, at 25 ("Industry and government officers said that they believed that the flexibility of the program led to the identification of numerous low-cost abatement options, but there is little evidence that this is the case.").
72. See Kruger, supra note 4, at 5-7 (stressing the importance of inter-dependent coordination with compliance planning).
73. Id. at 4.
74. See id. (noting participation of senior officials including chief financial officers).
75. See Swift, supra note 27, at 7.
76. But see Timothy F. Malloy, Regulating by Incentives: Myths, Models, and Micromarkets, 80 TEX. L. REV. 531, 589-90 (2002) (setting forth a "resource allocation model" that suggests that the division between the environmental and operating departments of a firm may often be "ossified" and "deeply embedded in the firm").
77. Swift, supra note 27, at 7 (offering an example of how cap and trade programs allow the integration of economic and environmental variables).
78. See Kruger, supra note 4, at 6-7 (analyzing computer forecasting models of PEPCO and American Electric Power and each company's satisfaction with the results).
79. See id. at 9-10 (adding that the software also allows the company to determine ahead of compliance deadlines whether their allowance holdings are adequate).
80. See Swift, supra note 27, at 7 ("The effect of trading in establishing a market price for a ton of reductions helps integrate environmental decision-making within a firm.").
81. See Kruger, supra note 4, at 2 (stating that the larger role sources take on with trading schemes allows a more tailored emissions reduction plan).
82. Id. at 10.
83. Id. (citing A. Denny Ellerman, The Next Restructuring: Environmental Regulation, 20 ENERGY J. 1, 141-48 (1999)).
84. See, e.g., Schwarze & Zapfel, supra note 28, at 288 ("The administration of emissions inventories and permit accounts is 'the' classic function reserved for the regulatory agency in cap-and-trade programs.") (emphasis omitted).
85. Ackerman & Stewart, supra note 40, at 183.
86. See id. (recognizing the lack of incentive to purchase polluter rights if no enforcement is present).
87. 42 U.S.C. §7411(a)(1) (2000). Examples of source categories subject to New Source Performance Standards (NSPS) include medical waste incinerators, sulfuric acid plants, glass manufacturing plants, and the beverage can surface coating industry.
88. See id. § 7411(b).
89. See Johnston, supra note 26, at 11 (highlighting the "intense bargaining process" between regulators and industry with technology-based standards);
90. see also David M. Driesen, Distributing the Costs of Environmental, Health, and Safety Protection: The Feasibility Principle, Cost-Benefit Analysis, and Regulatory Reform, 32 B.C. ENVTL. AFF. L. REV. 1, 2-3 (2005) (comparing feasibility principle and cost benefit analysis theories on environmental statutes).
91. Johnston, supra note 26, at 11.
92. See id. Johnston notes that while the courts have held that uniform technologybased standards are designed to be applied uniformly across firms in the relevant source category, the EPA and state regulators often take the economic circumstances of particular firms into account when permits are written.
93. Id. at 12.
94. See Kruger, supra note 4, at 1 ("Most companies explore numerous compliance scenarios before selecting a strategy based on their [internal] analysis ....").
95. A large body of literature emerged about "enforcement styles" that describes how regulatory officials assess compliance with the law and respond to situations of noncompliance using strategies of persuasion and coercion. See generally IAN AYRES & JOHN BRAITHWAITE, RESPONSIVE REGULATION: TRANSCENDING THE DEREGULATION DEBATE 19-20 ( 1992) (arguing regulatory agencies are more likely to secure compliance by "speak[ing] softly" while carrying "big sticks");
96. KEITH HAWKINS & J. M. THOMAS, ENFORCING REGULATION 4 (1984) (analyzing regulatory enforcement from a political and organizational perspective);
97. Robert A. Kagan, Regulatory Enforcement, in HANDBOOK OF REGULATION & ADMIN. LAW 383, 387 (D. H. Rosenbloom & R. D. Schwartz eds., 1994) (discussing the impact of decisionmaking style in regulatory enforcement);
98. Clifford Rechtschaffen, Deterrence vs. Cooperation and the Evolving Theory of Environmental Enforcement, 71 S. CAL. L. REV. 1181, 1186 (1998) (defending traditional enforcement techniques).
99. Swift, Environmental Laws, supra note 6, at 322.
100. Keith Hawkins, Compliance Strategy, in A READER IN ENVIRONMENTAL LAW 161, 183 (Bridget M. Hutter ed., 1999).
101. Id. at 165.
102. See Stephanie Benkovic & Joseph Kruger, To Trade or Not to Trade? Criteria for Applying Cap and Trade, 1 SCI. WORLD J., 953, 955 (2001) (noting that many environmental regulations measure "compliance" based on adherence to technology or processes).
103. Ackerman & Stewart, supra note 40, at 181-82.
104. Benkovic & Kruger, supra note 70, at 953.
105. But see Stranlund et al., supra note 5, at 345 (pointing out a second type of noncompliance: a reporting violation, where a source's actual emissions exceed its reported emissions). Both the Acid Rain Program and the RECLAIM Program, however, use compliance rates to communicate the prevalence of cap violations rather than reporting violations. Also, reporting violations may ultimately lead to a cap violation.
106. Benkovic & Kruger, supra note 70, at 958.
107. TOOLS OF THE TRADE, supra note 21, at 2-4.
108. Id.
109. Blas Pérez Henríquez, Information Technology: The Unsung Hero of Market-Based Environmental Policies, RES., at 11 (Fall/Winter 2004);
110. see also Richard F. Kosobud, Emissions Trading Emerges from the Shadows, in EMISSIONS TRADING 3, 30 (Richard F. Kosobud ed., 2000) (emphasizing that public confidence in the market depends on the perception of effective monitoring and enforcement).
111. Pérez Henríquez, supra note 76, at 11.
112. Stranlund et al., supra note 5, at 349 (explaining that the technology required depends on the type of emission source);
113. see also Continuous Emission Monitoring, 40 C.F.R. pt. 75 (2006) (providing a list of specific monitoring and reporting requirements).
114. 42 U.S.C. § 765l(k) (2000). Continuous emission monitoring systems (CEMS) are expensive, with an average annual cost of about $124,000 per unit, amounting to 7% of compliance costs in 1995.
115. Pérez Henriquez, supra note 76, at 11.
116. Pérez Henríquez, supra note 76, at 11 (describing CEMS).
117. See Stranlund et al., supra note 5, at 349 (stating that every emissions report sent to EPA is subject to a series of reviews to verify accuracy and determine compliance).
118. John K. Stranlund et al., Enforcing Emissions Trading When Emissions Permits Are Bankable, 28 J. REG. ECON. 181, 182 (2005).
119. Joe Kruger & Christian Egenhofer, Confidence Through Compliance in Emissions Trading Markets, 99 CTR. FOR EUR. POL'Y STUD. 1, 3 (2006).
120. See EPA, Continuous Emissions Monitoring Fact Sheet, http://www.epa.gov/ airmarkets/emissions/continuous-factsheet.htrnl (last visited Mar. 23, 2007).
121. See Benkovic & Kruger, supra note 70, at 958 (noting that missing data rules generally require a very conservative substitute value, which might be used for any hours of missing emissions data).
122. See EPA, Continuous Emissions Monitoring Fact Sheet, http://www.epa.gov/ airmarkets/emissions/continuous-factsheet.html (last visited Mar. 23, 2007).
123. Pérez Henríquez, supra note 76, at 1.
124. See Stranlund et al., supra note 5, at 348-49 (emphasizing that CEMS, or an equivalent device, are fully automated, thus minimizing the risks of tampering with emissions data).
125. See Pérez Henríquez, supra note 76, at 11 (reporting that approximately 80% of transfers are entered online by the sources themselves).
126. Id.;
127. see also Evans & Kruger, supra note 16, at 5-6 (discussing the efforts of the EU ETS in developing market-based policies for reducing emissions).
128. Pérez Henríquez, supra note 76, at 10-11;
129. see also Evans & Kruger, supra note 16, at 10 (describing Allotment Trading Units (ATU), which are transferable emission rights).
130. 42 U.S.C. § 7651(j) (1994). Additional discretionary penalties in the form of fines or surrender of additional allowances are also provided for, but have been used rarely. Interview with Bob Miller, Market Operations Branch, Clean Air Markets Division, EPA (Jan. 6, 2006).
131. ACID RAIN PROGRAM REPORT 2004, supra note 23, at 8.
132. See Swift, Environmental Laws, supra note 6, at 321;
133. see also Stranlund et al., supra note 5, at 350 (noting that a noncompliant utility must offset the excess emissions from its allowance in the following year).
134. See Kruger, supra note 4, at 13 (stating that because participants know that the cost of a ton of excess emissions exceeds the cost of buying on the market, they have every incentive to comply);
135. see also Stranlund et al, supra note 5, at 346 (showing that complete compliance will be guaranteed as long as the market price of a unit allowance remains less than both (1) the per unit fine for a cap violation (making a cap violation economically irrational), and (2) the probability that a reporting misrepresentation will get detected multiplied by the per unit fine for a reporting violation and a cap violation (making a reporting misrepresentation economically irrational)).
136. Interview with Bob Miller, Market Operations Branch, Clean Air Markets Division, EPA (Jan. 6, 2006) (accompanied by documents entitled "Compliance Summary for the Acid Rain Program (as of July 5, 2005)" and "Acid Rain Program Units Assessed Penalties for Excess Emissions (as of July 5, 2005)" [hereinafter 2005 Compliance Documents]). In comparison with the documentation dated July 5, 2005, the EPA's Annual Progress Reports for the years 2000 and 2001 underreport the number of units out of compliance and amount of excess tons. Id.
137. For 2000, the Annual Progress Report states that there were six units out of compliance, with total excess emissions of fifty-four tons. EPA, ACID RAIN PROGRAM: ANNUAL PROGRESS REPORT (2000). However, the 2005 Compliance Documents show eight units out of compliance with total excess emissions of seventy tons.
138. For 2001, the Annual Progress Report states that there were two units out of compliance with total excess emissions of eleven tons. EPA, ACID RAIN PROGRAM: ANNUAL PROGRESS REPORT (2001). The 2005 Compliance Documents show nine units out of compliance with total excess emissions of 603 tons.
139. Interview with Bob Miller, Market Operations Branch, Clean Air Markets Division, EPA (Jan. 6, 2006).
140. Id.
141. See JOSEPH DIMENTO, ENVIRONMENTAL LAW AND AMERICAN BUSINESS: DILEMMAS OF COMPLIANCE 20 (1986) (citing studies in the 1980s showing high noncompliance with the Clean Water Act, the Toxic Substances Control Act, and the Clean Air Act).
142. Joel Mintz, The Uncertain Future Path of Environmental Enforcement and Compliance, 33 ENVTL. L.J. 1093, 1094 (2003).
143. Id.
144. See, e.g., TOOLS OF THE TRADE, supra note 21, at 4-6;
145. see also Swift, supra note 27, at 7 (emphasizing that transaction and administrative costs are far lower in cap and trade programs than with traditional rate-based standards).
146. Schwarze & Zapfel, supra note 28, at 291;
147. see also Swift, supra note 27, at 7 (positing that "[governmental administration costs are lower for cap-and-trade because the role of the government regulator is transformed from that of evaluating and approving technologies to one of monitoring emissions and enforcing compliance. Eliminating the former vastly simplifies permitting policies and also reduces government costs.").
148. But see Driesen, supra note 3, at 333 (explaining that enforcers in trading programs need information about emissions at two sources to verify compliance of a single source and concluding that "agencies relying upon trading need more resources to verify compliance than agencies relying on traditional regulation").
149. TOOLS OF THE TRADE, supra note 21, at 4-6.
150. Id.
151. Id.
152. Stranlund et al., supra note 5, at 349.
153. See TOOLS OF THE TRADE, supra note 21, at 4-5 (describing the electronic auditing procedure for emissions data);
154. see also Interview with Rey Forte, Emissions Monitoring Branch, Clean Air Markets Division, EPA (Jan. 6, 2006).
155. TOOLS OF THE TRADE, supra note 21, at 4-4.
156. Kruger, supra note 4, at 13.
157. Id.
158. Swift, Environmental Laws, supra note 6, at 390.
159. See id. (providing a detailed comparison of the design parameters of the two programs).
160. 2 program. This Article focuses to a greater extent on the NOx program because of the particular difficulties it experienced.
161. Id.
162. See South Coast Air Quality Management District (SCAQMD), Regulation XX: Regional Clean Air Incentives Market;
163. see also James M. Lents, The RECLAIM Program (Los Angeles ' Market-Based Emissions Reduction Program) at Three Years, in EMISSIONS TRADING 223 (Richard F. Kosobud ed., 2000) (excluding sewage treatment plants and landfills from the program).
164. For a complete list of the types of facilities organized by SIC code, see SCAQMD, RECLAIM PROGRAM THREE-YEAR AUDIT AND PROGRESS REPORT 1998, apps. D-E [hereinafter THREE-YEAR AUDIT].
165. 2 emitters. SCAQMD, ANNUAL RECLAIM AUDIT REPORT FOR THE 1996 COMPLIANCE YEAR 1-2 (1998) [hereinafter RECLAIM AUDIT 1996].
166. SCAQMD, ANNUAL RECLAIM AUDIT REPORT FOR THE 2004 COMPLIANCE YEAR 1 2 (2006) [hereinafter RECLAIM AUDIT 2004].
167. Scott Lee Johnson & David M. Pekelney, Economic Assessment of the Regional Clean Air Market: A New Emissions Trading Program for Los Angeles, 72 LAND ECON. 277, 281 (1996).
168. Compare SCAQMD, SECOND ANNUAL RECLAIM PROGRAM AUDIT REPORT ( 1997) [hereinafter RECLAIM AUDIT 1995],
169. with SCAQMD, ANNUAL RECLAIM AUDIT REPORT FOR THE 2003 COMPLIANCE YEAR (2005) [hereinafter RECLAIM AUDIT 2003].
170. Schwarze & Zapfel, supra note 28, at 287. The question of whether cap and trade programs in general, and RECLAIM in particular, should incorporate banking is beyond the scope of this Article.
171. For a perspective on the role of banking in the RECLAIM Program, see Burtraw et al., supra note 24, at 281 (positing that had allowance banking been permitted, the RECLAIM Program would have out-performed other regulatory programs).
172. See supra notes 111-18.
173. See EPA, AN EVALUATION OF THE SOUTH COAST AIR QUALITY MANAGEMENT DISTRICT'S REGIONAL CLEAN AIR INCENTIVES MARKET-LESSONS IN ENVIRONMENTAL MARKETS AND INNOVATION 12 (Nov. 2002) [hereinafter EPA EVALUATION OF RECLAIM], available at http://www.epa.gov/ region09/air/reclaim/report.pdf (basing its conclusions on data collected from Nov. 2001 through Jan. 2002).
174. See, e.g., RECLAIM AUDIT 1995, supra note 119;
175. SCAQMD, ANNUAL RECLAIM AUDIT REPORT FOR 2002 COMPLIANCE YEAR 5-3 (2004) [hereinafter RECLAIM AUDIT 2002].
176. For further insight into the relatively high noncompliance rates in RECLAIM, see Stranlund et al., supra note 5, at 353 (suggesting that "a number of RECLAIM facilities have decided that the incentives they face do not warrant their full compliance").
177. For information on the California energy crisis, see Alan Ramo, California's Energy Crisis-The Perils of Crisis Management and a Challenge to Environmental Justice, 7 ALB. L. ENVTL. OUTLOOK J. 1, 8 (2002);
178. see also David B. Spence, The Politics of Electricity Restructuring: Theory vs. Practice, 40 WAKE FOREST L. REV. 417, 417-18 (2006) (arguing that the economic rationale for restructuring is inconsistent with the political rationale for the same).
179. Compare SCAQMD, ANNUAL RECLAIM AUDIT REPORT FOR 2000 COMPLIANCE YEAR ES-1 (2002), [hereinafter RECLAIM Audit 2000] (asserting that the average allowance price in 2000 was $45,609 per ton),
180. with SCAQMD, ANNUAL RECLAIM AUDIT REPORT FOR 1999 COMPLIANCE YEAR ES-2 (2001) [hereinafter RECLAIM Audit 1999] (comparing emissions for compliance for years 1994 through 2002).
181. SCAQMD, ANNUAL RECLAIM AUDIT REPORT FOR 2001 COMPLIANCE YEAR F-23 (2003) [hereinafter RECLAIM AUDIT 2001].
182. See RECLAIM AUDIT 2002, supra note 123, tbl.3-2, at 3-4.
183. Id.
184. Id.at tbl.3-1, at 3-3.
185. SCAQMD, Rule 2015, Backstop Provisions, at 2015-3.
186. SCAQMD, WHITE PAPER ON STABILIZATION OF NOX RTC PRICES (2001), [hereinafter WHITE PAPER];
187. SCAQMD, PROPOSAL TO ADOPT PROPOSED CHANGES TO RECLAIM (May 11, 2001) [hereinafter PROPOSAL TO ADOPT CHANGES], available at http://www.aqmd.gov/hb/2001/010535a. html.
188. Compliance Plan for Power Producing Facilities, AQMD Rule 2009 (May 11, 2001) (as amended Jan. 7, 2005);
189. see also infra text accompanying note 238. For a discussion on the Mitigation Fee Program, which was established so that power plants could pay for any excess emissions at the rate of $7.50 per pound or $15,000 per ton,
190. see PROPOSAL TO ADOPT CHANGES, supra note 131, at 4. The District was instructed to use the program to invest in NOx emission reduction projects from mobile, stationary, or area sources to mitigate the air pollution effects of excess emissions.
191. Compliance Plans and Forecast Reports for Non-Power Producing Facilities, AQMD Rule 2009.1(b) (May 11, 2001);
192. RECLAIM AUDIT 2001, supra note 126, at F-2627;
193. RECLAIM AUDIT 2000, supra note 125, at G-20.
194. See AQMD Rule 2009.1 (e) (stating that facilities with between twenty-five and fifty tons of NOx emissions in 1999 or 2000 had to submit a forecast report outlining how they would comply with their annual NOx allocation between 2001 and 2005).
195. EPA EVALUATION OF RECLAIM, supra note 122, at 56.
196. See THREE-YEAR AUDIT, supra note 115, tbl.3-1, at 3-3 (showing that actual emissions in the years 1993; 1994; 1995; and 1996 were 24, 982; 25, 314; 25, 764; and 24, 200 tons, respectively). SCAQMD notes, however, that emissions for 1995 and 1996 may have been overestimated because of the impact of the Missing Data Provisions.
197. Id. at 3-6.
198. See SCAQMD, RECLAIM VOLUME III SOCIOECONOMIC AND
199. See THREE-YEAR AUDIT, supra note 115, fig.3-3, at 3-5 (showing that approximately 40,000 tons of NOx were emitted in 1989).
200. But see id. at 8-8 to 8-9 (asserting that although significant emissions reductions had been achieved at a reasonable cost historically, "during the early 1990s it became apparent that limited opportunities for additional emissions reductions remained available to this approach ..." and "[t]here is no assurance that the downward trends experienced during the 1980s and the first years of the 1990s would have continued under the command-and-control regime").
201. RECLAIM AUDIT 2002, supra note 123, tbl.3-3, at 3-4.
202. Id. at 3-3.
203. RECLAIM AUDIT 2004, supra note 117, tbls.3-2, 3-3 at 3-4.
204. See RECLAIM AUDIT 2002, supra note 123, tbls.3-2, 3-3 at 3-4 (showing emissions of 13, 703 and 9, 896 tons for compliance years 2000 and 2002, respectively);
205. see also RECLAIM AUDIT 2004, supra note 117, tbl.3-3, at 3-4 (showing emissions of 9, 412 tons for compliance year 2004).
206. Gary Polakovic, Innovative Smog Plan Makes Little Progress, L. A. TIMES, Apr. 17, 2001.
207. EPA EVALUATION OF RECLAIM, supra note 122, at 58-59.
208. SCAQMD, REPORT: PUBLIC HEARING TO RATIFY FINDINGS REQUIRED BY HEALTH AND SAFETY CODE SECTION 39616(e) PERTAINING TO THE RECLAIM PROGRAM (2000), at 232 [hereinafter PUBLIC HEARING REPORT] ("[c]ontrol technologies have not been implemented to the extent anticipated prior to adoption of RECLAIM because many facilities found it more economically attractive to delay capital investments in control equipment by purchasing low-cost RTCs [RECLAIM Trading Credits].").
209. To complete an evaluation of RECLAIM, a research team assembled by EPA Region IX interviewed over twenty stakeholders from regulated facilities, environmental organizations, regulatory agencies, and brokerage firms. The questions the team asked each set of respondents are included as Appendix B in PUBLIC HEARINGS REPORT, supra note 145, at 72-81. The data collected through these interviews was made available to the author by EPA Region IX in the form of a Microsoft Access database [hereinafter EPA Evaluation Database]. Each reference to the database includes the code used by the EPA for the respondent (e.g., "IN-12," referring to "Industry Stakeholder 12") and The code used by the EPA for the question (e.g., "Market Effectiveness").
210. The questions and their codes can be found in EPA EVALUATION OF RECLAIM, supra note 120, app. B, at 73-81.
211. See SCAQMD, PROPOSED AMENDMENTS TO REGULATION XX-REGIONAL CLEAN AIR INCENTIVES MARKET (RECLAIM) (Jan. 7, 2005), at 2 (stating that "the program was initially over allocated, which led to an under-utilization of available, cost-effective technologies").
212. For the actual prices of allowances, see RECLAIM AUDIT 1995, supra note 119;
213. RECLAIM AUDIT 1996, supra note 116;
214. SCAQMD, ANNUAL RECLAIM AUDIT REPORT FORTHE 1997 COMPLIANCE YEAR 2 (1999) [hereinafter RECLAIM AUDIT 1997];
215. SCAQMD, ANNUAL RECLAIM AUDIT REPORT FOR THE 1998 COMPLIANCE YEAR 2 (2000) [hereinafter, RECLAIM AUDIT 1998],
216. On the projected prices of allowances, see SCAQMD, RECLAIM VOLUME I: DEVELOPMENT REPORT AND RULES 6-10 (1993) [hereinafter RECLAIM VOLUME I].
217. See SCAQMD, supra note 137, tbl.6-2, at p. 6-10 (table entitled "Average RTC Price for SOx and NOx").
218. RECLAIM AUDIT 1999, supra note 123, at F-18.
219. Before the first announcement of RTC prices in 1994, nine selective catalytic recovery (SCR) units that would have significantly reduced NOx emissions had been scheduled for installation in RECLAIM facilities. Within a year, all were cancelled. CLEAN AIR ACTION CORP., U.S. EXPERIENCE WITH EMISSIONS TRADING 49 (Jan. 22, 2002).
220. RECLAIM AUDIT 2000, supra note 123, at F-16 to F-18.
221. WHITE PAPER, supra note 131, at 26.
222. Numbers were calculated by comparing year 2000 reported emissions of 20,491 tons with the RECLAIM caps for years 2001 (15,693 tons) and 2002 (14,044 tons). See RECLAIM AUDIT 2004, supra note 117, tbl.3-1, at 3-3 for data.
223. RECLAIM AUDIT 1999, supra note 125, at F-18.
224. Such figures also are included in each Annual Audit Report: RECLAIM AUDIT 1996, supra note 116;
225. RECLAIM AUDIT 1997, supra note 148;
226. RECLAIM AUDIT 1998, supra note 148;
227. RECLAIM AUDIT 1999, supra note 125;
228. THREE-YEAR AUDIT, supra note 113, tbl.3-1, at 3-3;
229. REVIEW OF RECLAIM FINDINGS (Oct. 2000);
230. and WHITE PAPER, supra note 131.
231. See supra note 133 and accompanying text;
232. see also EPA CLEAN AIR MARKETS DIVISION, AN OVERVIEW OF THE REGIONAL CLEAN AIR INCENTIVES MARKET (RECLAIM) (Aug. 14, 2006) [hereinafter EPA OVERVIEW OF RECLAIM], http://www.epa.gov/ airmarkets/resource/docs/reclaimoverview.pdf ("It is generally accepted that the primary cause of the NOx RTC price spike was the state's energy supply situation, but the lack of new pollution control investments under RECLAIM up to this point... also likely had a role.").
233. EPA Evaluation Database, supra note 146, at respondent BR-17, code Market Effectiveness.
234. Id. at respondent IN-3, code Decision-Making Process.
235. Id. at respondent ENV-12, code Effectiveness.
236. Id. at respondent BR-15, code Market Effectiveness.
237. Id. at respondent IN-3, code Decision-Making Process.
238. Id.
239. Id. at respondent IN-2, code Decision-Making Process.
240. 2).
241. Schwarze & Zapfel, supra note 28, at 285.
242. The average emissions of Acid Rain Program facilities at the beginning of Phase II in 2000 was calculated by dividing the 2000 emissions of 11.2 million tons by a count of approximately 920 separate facilities included in the program. See EPA, ACID RAIN PROGRAM ANNUAL PROGRESS REPORT 6 & app. A (2000), http://www.epa.gov/airmarkets/ progress/docs/2000report.pdf (stating total emissions and listing all participating facilities).
243. See infra note 171 and accompanying text.
244. EPA Evaluation Database, supra note 146, at respondent IN-3, code Decision- Making Process.
245. See generally Malloy, supra note 50 (explaining reasons why firms, despite market incentives, remain inefficient).
246. EPA Evaluation Database, supra note 146, at respondent IN-3, code DecisionMaking Process.
247. Id. at respondent IN-5, code Decision-Making Process.
248. Id. at respondent IN-13, code Decision-Making Process.
249. Interview with Danny Luong, Air Quality Analysis and Compliance Supervisor, SCAQMD (June 27, 2006).
250. See Stranlund et al., supra note 5, at 349-50 (explaining specific reporting requirements that differ among types of sources);
251. see also Continuous Emission Monitoring, 40 C.F.R. §75 (2006) (detailing the emissions monitoring requirements).
252. THREE-YEAR AUDIT, supra note 115, tbl.5-1, at 5-9.
253. A major source includes any source that emits ten or more tons of NOx per year. For the full definition of a major source, see SCAQMD, RULE 2012 PROTOCOL FOR MONITORING, REPORTING, AND RECORDKEEPING FOR OXIDES OF NITROGEN (NOX) EMISSIONS, app. A, tbl.l-A, http://www. aqmd.gov/rules/reg/reg20/ r2012_chap_l.pdf (listing ten criteria for determining major source category). Note that a single facility may have more than one "source." In 1996, for example, there were 329 RECLAIM facilities and over 3,995 sources.
254. THREE-YEAR AUDIT, supra note 115, tbl.1-1, at 1-3.
255. Stranlund et al., supra note 5, at 349.
256. See SCAQMD, RULE 2011 PROTOCOL FOR MAJOR SOURCES-CONTINUOUS EMISSION MONITORING SYSTEM, 2011A-2-29 through 2011A-2-36 (Jan. 7, 2005), available at http://www.aqmd.gov/rules/reg/reg20/r2011_chap_2.pdf. (detailing the procedures that must be used to identify alternative data when emissions data has not been recorded).
257. SCAQMD, ANNUAL RECLAIM AUDIT REPORT FOR 2001 COMPLIANCE YEAR F-38 (Feb. 28, 2003) [hereinafter RECLAIM AUDIT 2001-B]. Throughout the compliance period, emissions are reported on a daily, monthly, or quarterly basis depending on the size of the source.
258. THREE-YEAR AUDIT, supra note 115, at 5-3;
259. see also Stranlund et al., supra note 5, at 349 (stating that comprehensive audits involving the evaluation of emissions reporting data for accuracy and noncompliance and the inspection of equipment, records, and monitoring devices are conducted at the end of the compliance year).
260. THREE-YEAR AUDIT, supra note 115, at 5-3.
261. For information on audits in the Acid Rain Program, see supra notes 104-07.
262. CALIFORNIA AIR RESOURCES BOARD (CARB), AN EVALUATION OF THE SOUTH COAST AIR QUALITY MANAGEMENT DISTRICT'S AIR POLLUTION CONTROL PROGRAM V-8 (2000) [hereinafter CARB EVALUATION OF RECLAIM].
263. Id.
264. Id. app. A, at 6.
265. But see EPA EVALUATION OF RECLAIM, supra note 122, at 31-32 (stating that "it can take several years for SCAQMD to audit facilities" and that "SCAQMD fell several years behind in their auditing in the early stages of RECLAIM").
266. CARB EVALUATION OF RECLAIM, supra note 182, app. A, at 6.
267. EPA EVALUATION OF RECLAIM, supra note 122, at 31.
268. Id. at 32;
269. EPA Evaluation Database, supra note 146, at respondent IN-13, code Trade Costs.
270. EPA Evaluation Database, supra note 146, at respondent BR-19, code Market Effectiveness.
271. CARB EVALUATION OF RECLAIM, supra note 182, app. A, at 6;
272. see also EPA EVALUATION OF RECLAIM, supra note 122, app. F, attachment A, at 8 (highlighting the significant improvements made to the automation system to make trading information more transparent and facilitate data transmission status checks).
273. TOOLS OF THE TRADE, supra note 21, at 5-2.
274. Notably, companies are only required to report allowance transfers if they will be used for compliance. Pérez Henriquez, supra note 76, at 10-11. There are also various companies in the private sector that track and disseminate Acid Rain Program allowance price information.
275. Id.
276. Id.
277. Anne Egelston & Maurie J. Cohen, California RECLAIM'S Market Failure: Lessons for the Kyoto Protocol, 4 CLIMATE POL. 427, 433 (2005).
278. Id. (noting that this program design feature allowed facilities to withhold potentially valuable information regarding their emissions from others).
279. Id.
280. EPA Evaluation Database, supra note 146, at respondent IN-I, code Changes to Trading.
281. Id. at respondent IN-4, code Cost Effective Modifications.
282. Id. at respondent BR-17, code Recommendations.
283. Currently, the District posts a spreadsheet covering the prior three months with trading information updated to the previous business day. See, e.g., RECLAIM Trading Credits (RTCs) Trade Information, http://www.aqmd.gov/ reclaim/rtc_main.html (last visited Mar. 26, 2007).
284. Interview with Danny Luong, Air Quality Analysis and Compliance Supervisor, SCAQMD (June 27, 2006).
285. Id.;
286. see also RECLAIM AUDIT 2001-B, supra note 178, at F-19 (describing Board rules requiring participants to voluntarily report current and future trades within five days of agreement).
287. See supra notes 92-93 and accompanying text.
288. Cf. Stranlund et al., supra note 82, at 182 (stating that policy analysts attribute two elements of the Acid Rain Program to have led to almost 100% compliance-namely, automatic penalties that are higher than market price, and CEMS that produce quarterly reports).
289. See, e.g., Robert A. Kagan, On Regulatory Inspectorates and Police, in ENFORCING REGULATION at 39-40 (Keith Hawkins & John M. Thomas eds., 1984) (noting that regulatory inspectors can only visit potentially dangerous places like mines, factories, and chemical dumps a few times a year, even though dangers may be present twenty-four hours a day on most days of the year).
290. See id. at 41-42 (providing the example that a more detached higher agency official may be more lenient than a field-level enforcer).
291. See supra note 180 and accompanying text.
292. See CARB EVALUATION OF RECLAIM, supra note 182, at V-3 (explaining that the procedures intentionally overstate actual emissions so as not to create an incentive to disable the recordkeeping systems).
293. See id. at V-4 (recommending that the settlements give greater weight to the emissions data from the missing data procedures to preserve the integrity of the system).
294. RECLAIM Rule 2004(d)(1).
295. See RECLAIM Rule 2004(d)(2) (placing the burden on the Facility Permit holder to establish the lesser period).
296. See California Health and Safety Code §§42402.3, 42403 (1954).
297. See Stranlund et al., supra note 5, at 350-51 (reasoning that the facilities will base their expectations on the penalty the agency would be likely to apply rather than he maximum penalty available).
298. EPA EVALUATION OF RECLAIM, supra note 122, at 33;
299. see also Stranlund et al., supra note 5, at 350 (finding that the agency imposes RECLAIM penalties on a case-bycase basis and that "[b]ecause of the resulting uncertainty that facilities must have about the consequences they will face if they are noncompliant, it is difficult to judge the deterrence value of the RECLAIM sanctions").
300. CARB EVALUATION OF RECLAIM, supra note 182, at V-3 (recommending an average settlement time of ninety days instead of the current average of twelve months).
301. See id., District Response at 5.
302. The author is pursuing data on the actual costs of running RECLAIM.
303. EPA Evaluation Database, supra note 146, at respondent REG-21, code Effectiveness.
304. Id. at respondent REG-20, code Oversight.
305. See id. at respondent REG-21, code Forecasting Resource (stating that the computer system was a "dismal failure because the District overestimated [its] technical ability").
306. EPA EVALUATION OF RECLAIM, supra note 122, at 31.
307. See id. at 31 (explaining that the monitoring systems did not reduce the costs of enforcement because of "problems in the automation of [SCAQMD's] information system").
308. See CARB EVALUATION OF RECLAIM, supra note 182, at vi.
309. See id.
310. Ackerman & Stewart, supra note 40, at 180-81.
311. See, e.g., Stranlund et al., supra note 5, at 345, 353 (noting that RECLAIM provides for "emissions fees" assessed on a per-unit of emissions basis to help fund program administration, but criticizing these fees as an incentive for noncompliance).
312. EPA Evaluation Database, supra note 146, at respondent IN-3, code Decision Making Process.
313. Id. at respondent BR-19, code Recommendations.
314. EPA EVALUATION OF RECLAIM, supra note 122, at 22.
315. See EPA Evaluation Database, supra note 146, at respondent IN-3, code DecisionMaking Process.
316. See Interview with Danny Luong, Air Quality Analysis and Compliance Supervisor, SCAQMD (June 27, 2006).
317. EPA Evaluation Database, supra note 146, at respondent IN-I, code Changes to Trading.
318. KAREN R. POLENSKE & ALI SHIRVANI-MAHDAVI, REVIEW OF AN EMISSIONS PERMIT EXCHANGE AND THE CHARACTERISTICS OF THE RECLAIM NOx MARKET IN LOS ANGELES 6 (2001) (prepared for SCAQMD).
319. Id.
320. EPA Overview of RECLAIM, supra note 156, at 10.
321. See SCAQMD, REPORT: MERITS OF A CENTRALIZED MARKET FOR RECLAIM (May 3, 2002) [hereinafter MERITS OF A CENTRALIZED MARKET] (considering both options).
322. Id.
323. Id. at ES-3.
324. Id.; see, e.g., Press Release, U.S. Department of Justice, Broker of Air Pollution Credits Pleads Guilty To Wire Fraud Scheme in Federal Court (Apr. 26, 2005), available at http://www.usdoj.gov/usao/cac/pr2005/063. html (reporting allegations of illegal activity by several RECLAIM brokers). In March 2002, the District cited Anne Sholtz, one of the architects of RECLAIM who later founded a brokerage firm, for alleged violations of the agency's emissions credit trading regulations. In 2005, Sholtz pled guilty to wire fraud in a related federal investigation.
325. See SCAQMD, MERITS OF A CENTRALIZED MARKET, supra note 235, at 9 (citing significant costs and increased oversight as some of the difficulties).
326. Cf. Kruger, supra note 4, at 10 (stating that both government and industry officials have noted the importance of a "hands off" approach to the market by government officials).
327. SCAQMD, REVIEW OF RECLAIM FINDINGS, supra note 155, at 2-30 to 2-39.
328. Id. at 2-39.
329. PROPOSAL TO ADOPT CHANGES, supra note 131.
330. WHITE PAPER, supra note 131, at 44.
331. Id.
332. Rule 2009, supra note 132;
333. RECLAIM AUDIT 2001, supra note 126, at F-26.
334. Rule 2009.1, supra note 132;
335. RECLAIM AUDIT 2000, supra note 125, at G-20.
336. Rule 2009.1(e), supra note 134.
337. EPA EVALUATION OF RECLAIM, supra note 122, District Response at 5.
338. Id.; see also id. at 7 ("[I]t may not be feasible to rely on a 'pure' market-based program without requiring enforceable compliance plans from affected facilities ...").
339. EPA, Guidance Concerning Stationary Source Requirements Under RECLAIM, Feb. 28, 1992, http://www.epa.gov/ttn/nsr/gen/memo-e.html.
340. Cf. Ackerman & Stewart, supra note 40, at 178 (discussing how pollution regulation is based on the best technology available).
341. Cf. Neil Gunningham & Darren Sinclair, Designing Smart Regulation, in A READER IN ENVIRONMENTAL LAW 183, 308 (Bridget M. Hutter ed., 1999) ("Command and control has virtues of high dependability and predictability . . . but inflexible and inefficient . . . economic instruments tend to be efficient, but, in most cases, not dependable.").
342. See generally WHITE PAPER, supra note 131 ;
343. PROPOSAL TO ADOPT CHANGES, supra note 131 (explaining the reform options that the District considered and the reasons for the chosen reforms).
344. See supra notes 130-34 and accompanying text (discussing the changes made).
345. Cf. Evans & Kruger, supra note 16, at 28 (commenting upon the problem of low allowance prices in the Chicago ERMS program and suggesting the possibility of mechanisms to address lower than anticipated prices).
346. EPA Evaluation Database, supra note 146, at respondent REG-21, code Involvement (quoting a regulatory stakeholder stating that an environmental group predicted in 1993 "that there would be seven years of fluff paper credits but EPA believed that there would only be about two or three years").
347. See Kruger, supra note 4, at 10-11 (emphasizing the importance of certainty in program administration).
348. That cap and trade programs may impose additional burdens on administrators does not mean they should not be implemented. See Ackerman & Stewart, supra note 40, at 198 (noting in a similar context that "[t]he additional administrative costs may be outweighed by greater benefits by society as a whole"). However, to the extent that novel forms of regulation create new and expensive bureaucratic responsibilities, the question of how they will be funded should be considered.