A VOC Trading Market for the Basle Region

A VOC Trading Market for the Basle Region

Chemicals and pharmaceuticals are the backbone of the region, where several multinationals are based. These firms' production centres are the main potential participants on the emission trading market.To date, the experiment has not yielded the hoped for-results. Very little trading has taken place over the past five years and there has not been any outside trading giving rise to a payment between two firms. After having presented the design and characteristics of the market established, an effort will be made to understand the reasons why firms do not take greater advantage of the opportunity made available to them to achieve environmental goals at a lower cost.

At the outset, it should be noted that the project was prepared at a time when environmental protection was given very high priority by the Basle authorities, the public and the employees of the firms concerned. The firms were prepared to spend large sums to clean up their stationary sources and the environment enjoyed a higher position than almost all other stakeholders (shareholders and employees). No one brought up the threat which a very ambitious environmental policy posed to corporate competitiveness and jobs. The general context and the strong position of environmental protection movements explain why emission trading was subjected to such restrictive conditions.

1 The context

The cantons are responsible for applying federal environmental legislation. If air quality standards are not attained on the territory of a canton, it must draw up a plan consisting of measures to reduce the pollutants in question. This may involve a tightening of federal emission ceilings or the introduction of transport-related measures, for example (speed limits).

When they noted that federal air quality standards for the ozone and NOx were not attained on their territory, the two cantons of Basle decided to impose more stringent emission limits on major emitters of VOCs and NOx. In 1990, VOC emission ceilings were lowered by 50 per cent for all firms emitting more than five tons per year and by 66 per cent for all those emitting more than 10 tons a year. Thus, in these two cantons, a dual ceiling was in force: that of the federal government and the more stringent one applied by the canton (fig. 1).

Figure 1: Federal and Cantonal Emission Standards (VOCs)

In 1992, the new Clean Air Act (OPair 92) introduced more stringent emission standards for NOx, practically eliminating any difference between the Basle standard and the federal standard. As this difference constituted the only manoeuvring room for trading, the very existence of the permit trading market for NOx emissions was called into question. Accordingly, the Basle experiment with emission trading has been limited to VOCs.

In 1995, the VOC emission structure was as follows:

Table 1: VOC emission structure in the Basle region in 1995

	Tons/year
Industry	12 500
Domestic	2 500
Transport	2 200
Total	17 200

By setting up an emission trading market, the Basle authorities wished to offer compensation to firms subject to more stringent standards. The facilities concerned are of course subject to strict standards, but firms have more flexibility when it comes to compliance. The aim was to encourage firms with facilities whose emissions could be reduced at a reasonable cost to make an additional abatement effort and to reduce emissions to below the cantonal limits.