MONITORING AND ENFORCEMENT

It is often argued by economists that markets are more efficient than centralised government decision making because they automatically gather information and ensure that supply and demand are balanced and resources allocated efficiently.

For charges and fees to work properly, the regulator still needs to know what volumes and concentrations of wastes are being discharged, and also needs to ensure that the firm is paying the correct amount for the quantities discharged. For emissions trading to work properly, the regulator needs to know whether a firm deserves emission reduction credits and whether it is keeping within its allowance. 'Any system of environmental control needs inspectors to check whether claimed emis­sions, discharges or resource extractions are correct: they are not less quot;bureaucraticquot; because they are tax inspectors rather than regulatory ones' (Jacobs 1993: 7). Too often inspection and verification does not happen.

Incentive to cheat

Under a technology-based system, as the Clean Air Act used to be in the USA, monitoring and enforcement was fairly straightforward. It was a matter of monitoring emissions and ensuring that the appropriate pollu­tion control equipment was installed (Moore 2004a: 6). A major problem with schemes that rely on some degree of self-assessment to measure emission reductions is that they are notoriously difficult for government authorities to monitor and verify. Emissions trading increases the incen­tive to cheat because claimed reductions are worth money (Drury et al. 1999: 259).

Environmental groups sued a number of companies in the RECLAIM programme, including United Airlines and the Southern California Gas Company, for failing to purchase sufficient credits to cover their pollu­tion.

Under emissions trading schemes, companies often do not report actual measured emissions but estimated emissions, based on models that are frequently far from accurate. Drury and his colleagues (1999: 260-1) report that although such models underestimated oil company emissions by factors of between 10 and 1000, these estimates were accepted by the regulatory authorities. In the case of Rule 1610, auditors found that companies were under-reporting their emissions so they didn't have to buy so many allowances (CPR 2005).

Monitoring difficulties

Some pollutants are particularly problematic:

Emissions of VOCs [volatile organic compounds] are difficult to monitor accurately because millions of sources release VOCs from everyday activities, and VOCs evaporate into the air instead of being emitted from a stack. VOC trading was dropped from the original RECLAIM proposal because the monitoring and enforce­ment challenges were so severe... For example, most VOC emis­sions are from leaks from thousands of pieces of equipment (so-called fugitive emissions) or evaporation from direct use of thousands of VOC-containing products (e.g. spray paints). (Drury et al. 1999: 181)

Monitoring numerous small and medium-sized firms is also difficult in an emissions trading scheme, which is why many such schemes, such as the US acid rain programme, only include large companies. Open market emissions trading, however, covers not only small and medium enterprises but also many different sources and multiple pollutants. This makes monitoring even more difficult, and is usually beyond the ability of state or federal agencies to enforce with their existing resources.

In 2002 the New Jersey Environmental Protection Commissioner claimed that the state's Open Market Emissions Trading programme had not only failed to clean up the environment but had endangered gains that had previously been made with respect to reducing air pollution (Twyman 2002). Environmentalists had earlier pointed out that there was no mechanism for verifying reported reductions in traded emissions, which included nitrous oxides and volatile organic compounds. Not only that, but companies were able to gain credits for emissions reductions they had made some years earlier (Biello 2002; Fichthorn amp; Wood 2002: 28). The programme was officially repealed in 2004.

Global warming measures

The difficulties of monitoring and enforcing statewide emissions trading programmes is multiplied many times when it comes to monitoring emissions and claimed reductions worldwide, as well as the 'countless transactions around the globe that are brokered by far removed quot;middle menquot;' (Belliveau 1998). This is particularly the case in developing coun­tries, where the regulatory infrastructure and skilled personnel required to measure and monitor emissions reductions may not be well developed (Richman 2003: 166). It is also a problem in affluent countries, where monitoring is often neglected:

At the same time as hundreds of millions of dollars are invested in setting up trading schemes all over the world, virtually no financial support is channelled into vital regulatory infrastructure. The UK alone has spent UK pound;215 million on their trial trading scheme. As brokers, consultants, accountants, speculators, energy corporations and politicians all scramble for a piece of the emissions trading pie, no equivalent level of activity is seen from credible verifiers or mon­itors. This imbalance can only lead to an emissions market danger­ously reliant upon the integrity of corporations to file accurate reports of emissions levels as well as emissions reductions from projects.

Where emissions reductions are verified, it is often done by transnational corporations which at the same time are acting as consultants and accountants to the very companies whose emissions they are auditing. 'This can only lead to a severe conflict of interests, resulting in fraud and ultimately little guarantee of actual emissions reductions' (Bachram et al. 2003: 37).

There is even more scope for cooking the books when it comes to carbon sinks, such as tree plantations, because of the lack of accepted methods for calculating how much carbon is temporarily taken up by growing trees. The trees might release their carbon early as a result of fires, disease or illegal logging. Thus, while plantations need to be mon­itored long term, throughout their life-cycles, to ensure the carbon credits earned by planting them are deserved, governments are only con­cerned with meeting targets within a comparatively short compliance period (Kill 2001: 10).

Water pollution trading

Nutrient trading is difficult to monitor because of the inclusion of non­point sources, such as farms which have dispersed run-off, because 'non­point discharges are episodic and cannot be directly measured, only estimated' (Faeth 2000: 3). Nutrient loads are also influenced by extra­neous factors such as weather changes and soil characteristics, so it is dif­ficult to measure reductions from many small farms. The National Wildlife Federation (NWF) in the USA has pointed out that water pollu­tion trading therefore involves 'trading federally-enforceable point source discharge limits for unenforceable nonpoint controls... without enforceability there would be no assurance that polluted runoff controls would actually reduce pollution' (NWF 1997).

Additionally, the 'EPA has little regulatory authority over politically powerful farmers and ranchers' (Sokulsky 2005). The conflict between environmental and economic goals becomes evident when a ratio between non-point and point trades is established.

In a water-pollution trading system, monitoring for pollution from point sources is normally done by the factories themselves. This involves taking a sample each week to ensure that a monthly average is met. But a single sample is not necessarily typical of the outflow throughout the week, and although regulations require sampling to be 'representative', it is too easy for the discharge to be sampled at times when pollutants are low (Caton 2002). Self-monitoring is often required under non-market regulations as well, but when a commercial value is added to discharges the temptation to cheat is increased.

Price mechanisms

There is also scope and incentive for fraud and illegal activity with charges and fees. A system of charges will only work if there is strong policing and enforcement - and there is no reason to suppose that where traditional legislation failed for want of that enforcement, charges will succeed. For example, when South Korea introduced a system of fees for authorised garbage bags for the collection of household waste in 1995, the amount of waste going to landfills went down by some 40 per cent in the first six months. 'Unfortunately, a large quantity of the decrease was attributable not to waste reduction or recycling, but rather to uncon­trolled incineration or private disposal.' This illegal activity occurred even though the bag fees were not high enough to cover disposal costs (NCEE 2004: 19).

In the United Kingdom a landfill tax was introduced in 1996 to make it expensive to dump contaminated waste. However, instead of avoiding the creation of waste, or treating the waste themselves to save

money on the landfill tax, some of the companies responsible for the waste began dumping it in illegal places, like golf courses.

[was being] disposed of as land-raising material at golf courses, retail development parks, sports facilities and even private residential developments... Often the first indication of something going wrong is when a resident rings up to say a cricket pitch has risen 10 feet overnight. Altogether 30 golf courses are under investigation for illegal dumping. (Hencke 2000c)

Fraud

The introduction of markets into environmental protection brings profit­making opportunities and with it the opportunity for fraud. In California, one of the designers of the RECLAIM programme set up an auction house for the trading of emissions reduction credits, but was later found guilty of fraud in her work as credit broker. She apparently traded in bogus credits and made 'fishy transactions' that included selling the same credits to two different companies. Environmentalists claimed that programmes that turn pollution control into a profit­making opportunity invite such fraud (Bustillo amp; Rosenzweig 2004).

In the UK landfill tax scheme describe above, the waste firms were able to avoid 20 per cent of their due landfill tax by donating the money to an independent environmental trust. The idea was that money raised from the polluter - hundreds of millions of pounds - would be used for conservation purposes. Although the waste firms were not allowed to profit from such donations they were able to set up environmental trusts, with their own people as directors, trusts which received millions of pounds from the scheme. In some cases the trust directors themselves received unauthorised fees of over pound;100000 (Hencke 2000a, 2000b).

Several of these trusts were charged with fraud. Five had their regis­tration revoked within the first three years of the scheme being set up. Two others were under investigation in 2000 for fraud amounting to pound;5 million. A parliamentary inquiry found in 2001 that the scheme, worth some pound;340 million, had benefited the waste companies and that the private regulator of the scheme, Entrust, was unfit to supervise it (Hencke 2000a, 2001).