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2.2.2. Cost Implications of Changes in Monitoring Technology

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Savings from Economic Incentives

Generally, incentive-based approaches will be more information intensive than comparable command-and-control mechanisms. If incentives involve marketable pollution reduction credits, a pollution control agency will have to develop a mechanism for quantifying the reductions. With few exceptions (e.g., lead credit trading during the phasedown of the lead content of gasoline in which buyers' and sellers' reports were matched by the EPA to evaluate compliance and perhaps the marketable fireplace permit programs in some communities in the western U.S.), a pollution control agency must have actual physical measurements of pollutants to support a trading regime. For example, the acid rain trading program relies on continuous emission monitors to measure sulfur dioxide and nitrogen oxides emissions as they pass through a stack. In contrast, a command-and-control regime typically requires only that pollution control equipment has been installed and is working. Consequently, the cost of making pollution measurements can be a decisive factor against some incentive approaches.

Consider the U.S. Acid Rain Program. To assure that the affected utilities have sufficient allowances for their actual emissions, the program requires them to instal continuous emission monitors (CEM). The cost of monitoring in the program is quite substantial. The projected savings from the overall flexible design of the program are about $2.5 billion per year. The savings that can be attributed to allowance trading, are lower, on the order of $700 to $800 million when fully implemented. (Carlson, Burtraw, Cropper and Palmer) When fully implemented, the program will include 2,000 units, each of which must install a CEM. The total cost of CEMs will be about $250 million annually, a significant fraction of the savings attributable to ET. If monitoring costs could be reduced to negligible levels, savings from the program could be increased by nearly one-third.

The high costs of monitoring with CEMS influenced the South Coast Air Quality Management District to defer any action to include reactive organic gases within the RECLAIM program. For small sources emitting 10 to 100 tons of ROG per year, the costs of CEMS at an annualized cost of $120,000 to $250,000 per year each probably outweigh the potential gains from trading.

Most studies of the potential savings from economic incentives, such as those listed in Section 2.2, do not explicitly account for monitoring and enforcement costs. To the extent that monitoring and enforcement are more difficult and/or expensive under incentive approaches, the potential for cost savings could be overstated.

In the past decade, a number of advances in monitoring have reduced substantially the cost of obtaining pollution measurements. For example, the cost of making ambient air measurement of criteria pollutants has fallen by approximately 90 percent over the last decade. More recently, remote sensing of both mobile and stationary source emissions has been confirmed as both feasible and inexpensive for a wide variety of pollutants.Bishop, Grant. Remote sensing costs can be quite modest. For example, the cost of making a remote measurement of the carbon monoxide or hydrocarbon content of a passing vehicle's exhaust is currently estimated to be 50 cents.

Advances in remote monitoring technology for water pollutants also offer the promise for reducing costs. Perchalskie and Higgins (1988). In the field of solid and hazardous waste, bar code scanning is being used to track shipments of hazardous wastes. This technology could easily be extended to household solid waste collections to facilitate charge mechanisms for each can or bag.

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