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The Controversy Surrounding The VET

by George Baumler

 The controversy surrounding the vehicle emissions testing (VET) program in Jefferson County and its imminent expansion into the rest of Kentucky seems to hinge upon something called pollution credits.  The so-called “credits” are nothing more than licenses to pollute the air.  They are openly traded commodities with real cash values.  The air pollution credits are rated in tons and are categorized by their constituent pollutant, such as NOx or CO.  The cash value of these credits is variable and can be looked up like the value of any market commodity or security.  One of the sites that tracks these prices is Cantor-Fitzgerald (http://www.cantor.com/ebs/home.htm) with its on line ticker giving the latest prices for the various pollution credits.  How one obtains credits and uses them is at the heart of the VET controversy.

To obtain a credit, a business, let’s call it the Philmowidget Corp., installs equipment that reduces CO (Carbon Monoxide) emissions by 48 tons per year as compared to its previous emission level.  That equipment installation entitles the Philmowidget Corp. to 48 credits.  With its 48 credits, the Philmowidget Corp. can expand operations until the credits are used up, or, in other words, until emissions equal the level prior to installing the new equipment, or it can sell the credits.  A second method to obtain credits is to purchase them from a business that already owns excess credits or from a broker.

  Let’s look at the Philmowidget Corp. again.  It has installed equipment that reduced CO emission by 48 tons annually and therefore has 48 CO credits, worth perhaps $48,000 per year.   Fictitiousmotor Corp. needs to expand its operation to meet customer demand, but doing so would increase the output of CO by 40 tons annually, and the EPA will not allow any increase in emission levels, or so they say.  The equipment that the Fictitiousmotor Corp. intends to use is the most up to date available but still produces 40 additional tons of CO annually, and expansion is stymied until the CEO of Philmowidget Corp. calls and offers to sell the 48 credits it earned by installing new equipment.  The CEO of the Fictitiousmotor Corp. buys all 48 credits and now has the ability to expand as needed and now has an additional 8 credits for future use or sale to a third party. 

   The Fictitiousmotor Corp. has a supplier, Xco, that will also need to increase its operations, but again increasing the emissions would upset the EPA.  Xco, not a huge company, cannot afford new old equipment to increase production while keeping CO output at current levels.  Not to worry, says Fictitiousmotor Corp.’s CEO, we’ll sell you the CO credits you need for half of the cost of installing new, environmentally friendly equipment.  Fictitiousmotor Corp. sells Xco the needed 3 credits.  Fictitiousmotor Corp. then sells the rest of the credits to a broker who will find willing customers for the remaining 5 CO credits.

  The VET, by one method or another, (Computer models), determines that it removes X number of tons of pollution from the air.  (This reduction need not be based on any sort of real world data.)  For the tonnage of pollution claimed to be removed, the APCD (Air Pollution Control District) receives X number of credits.  The credits are used on highway projects and other public works, and others are given to industries in the area.  The actual reduction in pollution output is a result of automobile owners buying and driving cars that pollute less, not due to the VET program, but the credits for the equipment bought and paid for by motorists are claimed and distributed by the APCD.  The actual result of this arrangement is not an increase in overall air quality but a shift of the responsibility for cleaner air to automobile owners and subsidization of industrial pollution by the motoring public.

Without pointing fingers or claiming corruption, an investigation should be launched into the distribution of the credits earned by the motorists and confiscated by the APCD, which has no taxing authority.  For it stands to reason that an individual has at least as many rights as a corporation.  If a corporation installs less polluting equipment or pollution reduction equipment and is recognized as the owner of the resulting credits, then that same reasoning should hold true for ordinary citizens who purchase automobiles with pollution control devices.  If we automobile owners are going to reduce the overall pollution by buying more expensive cars with high-tech pollution controls, shouldn’t we also get credits that we can sell to the highest bidder?