Good morning. I am pleased to welcome our witnesses who are here to discuss the concept of tradable emissions. Tradable emissions--also known as tradable credits or allowances--provide policy makers an opportunity to employ the power of markets to ease the burden of environmental regulation. As such, they offer a major opportunity for regulatory reform.

      Emissions trading systems are currently in use in several pollution abatement programs throughout the United States. An emissions trading system is based on the principle that the cost of emissions reductions varies from facility to facility. When each facility is given a limit on its emissions by the regulators, some facilities may be able to reduce emissions more than required at a fairly low cost. Those which can do so may choose to reduce emissions levels below those required and sell this difference to another source facing a higher cost of reducing its emissions. If the market price of these extra emissions entitlements is higher than the cost of reducing emissions at a given facility, then there is an incentive to make further reductions and sell these entitlements.

      One current trading program is the sulfur dioxide allowances trading created by the Clean Air Act Amendments of 1990 to control acid rain. We will hear more about this program from our witnesses, but I want to note that the sulfur dioxide trading program appears to be an excellent example of how a market for emissions can reduce the cost of achieving our environmental protection goals at least cost. Its use in the acid rain program has reduced job loss, promoted economic growth, and lowered producer and consumer costs.

      Tradable emissions are also being employed on a regional level to control nitrogen oxide, sulfur dioxide, and volatile organic compound (VOC) emissions on a regional basis. We will hear testimony on at least one such program today.

      I believe that there is great potential for the further use of emissions trading systems in pollution abatement programs. As the Nation debates such issues as more stringent standards for ozone and particulate matter--and on an international scale, global warming--tradable emissions will provide a smart alternative to the traditional command-and-control approach to environmental regulation.

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