Most Americans breath dirty air — in many places, levels of pollutants like nitrogen dioxide and ozone are in violation of federal air quality standards. And now, those standards are getting even stronger, which will put even more of the country out of compliance: EPA recently upped standards for nitrogen dioxide and is working on strengthening limits for other pollutants. But to make real improvements in air quality without breaking the bank, what is called for is not another round of top-down regulation, but an update of the Clean Air Act to allow strong market-based solutions.  

Progress on cleaning our nation’s air pollution has slowed because of the Clean Air Act’s structure. The law was adopted in 1970 and hasn’t been updated since 1990. It worked well in the past when there was plenty of low hanging fruit-cheap reductions that achieved big benefits. But now its format, which relies on each state to create detailed plans to meet national air quality goals, has become unbearably cumbersome.  

The state plans must specify who cuts emissions and how much, but to decide that local regulators need to understand  the details of production processes and engineering options for all factories, power plants, and other polluters in their jurisdictions. Regulators are ill-equipped to dig into the nitty-gritty of each company’s practices to find the most cost-effective cuts. And under top down regulation, businesses have little incentive to provide the information to regulators — so further progress is tough. Even though there are likely to be smart, cheap ways to reduce emissions, no one has both the incentive and know-how to find them.

Switching from top-down regulation to a cap-and-trade system would allow for progress without regulators needing information they can’t get about how pollution can be reduced. Cap-and-trade sets a declining cap on total emissions and allowances to emit are limited by this cap. The declining cap would drive up the price of an allowance, which gives companies a profit-based incentive to figure out how to cut emissions. It’s a win-win solution where more reductions are made at a smaller cost to businesses. And in this down-turned economy, that’s important both to reduce economic harm and to sell stronger environmental controls to a skeptical public.  

As Barack Obama said during his campaign, cap-and-trade is “a smarter way of controlling pollution,” because the government doesn’t dictate “every single rule that a company has to abide by, which creates a lot of bureaucracy and red tape and often-times is less efficient.”

Congress should amend the Clean Air Act to reflect this reality: a national cap-and-trade system should cover the “major” emitters in the most polluting industries, plus new vehicles and vehicle fuels. By bringing most air pollution under the same system of caps, we will see major efficiency gains that allow us to get much cleaner air with much less cost. This system need apply to only 6 percent of the major stationary sources and none of the hundreds of thousands of minor ones, but would still capture the lion’s share of pollution subject to national goals. States should be freed from these plan requirements in dealing with the rest of the sources, but subject to fallback federal safeguards.

Congress has not revised the Clean Air Act or any of the nation’s other major environmental statutes since 1990 — this is an irresponsible omission because the pollution problem and our understanding of how to deal with it have changed radically since the early 1970s when most of these statutes were originally structured. New national caps that cover carbon as well as a range of other air pollutants are a good place to start. We explain how Congress can overhaul its outdated environmental statutes in Breaking the Logjam: Environmental Protection That Will Work.