Acid rain: The power of markets to help the planet

We use economics to change the way entire financial markets work--for the better

Power plant with emissions

Our approach lets companies, not the government, decide how to cut pollution. That lets the marketplace reward effective techniques.


Our cap-and-trade plan to reduce acid rain cut sulfur dioxide emissions in half, at a fraction of the expected costs.

The same market-based approach is at the heart of California’s Global Warming Solutions Act (AB32) to cut greenhouse gas emissions, creating the largest carbon market in North America. Cities in China are now adopting and testing similar measures, too.

The acid rain challenge

Thirty years ago, scientists and fishermen began noticing an alarming decline in animal and plant life in lakes and forests throughout the eastern United States.

A National Academy of Sciences report pinpointed the source of the problem: sulfur dioxide emissions, mostly from coal-fired power plants.

SO2 was causing rain and snow to turn acidic, and that acid rain was killing aquatic life and damaging forests. The discovery sparked a heated debate over how to reduce sulfur emissions.

Traditional, top-down government regulation would have simply directed every plant owner to cut pollution by a specific amount in a specific way. But this method, critics said, would cost too much, impede innovation and ignore the knowledge and initiative of local plant operators.

A cost-effective solution

The way forward, EDF experts argued, was to harness the power of the marketplace. Our cap-and-trade approach, written into the 1990 Clean Air Act, required that overall sulfur emissions be cut in half, but let each company decide how to do it. And power plants that cut their pollution more than required could sell those extra allowances. A new commodities market was born.

Under this market-based plan, sulfur emissions have gone down faster than predicted and at one-fourth of the projected cost. By 2000, scientists were documenting decreased sulfates in Adirondack lakes, improved visibility in national parks and widespread benefits to human health. The Economist called it “the greatest green success story of the past decade.”

A model for tackling global warming

In October 2011, the California Air Resources Board voted to create a cap-and-trade market for greenhouse gases, as required by AB32, the state’s landmark bipartisan 2006 climate bill, which EDF cosponsored and defended in court.

AB32 aims to cut greenhouse gas emissions in California, the world’s eighth largest economy, to 1990 levels by 2020, while generating one-third of its electricity from renewable sources like solar and wind.

The cap-and-trade market alone, which began in 2013, is predicted to slash the state’s warming emissions by an amount equivalent to taking some 3.6 million cars off the road.

the greatest green success story of the past decade.

The Economist, on our cap-and-trade approach to cut acid rain pollution

The power of economics

We create and shape markets to reward cleaning up -- not polluting.

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