In economics, pollution is a market failure. If businesses have a free hand to foul the air, sully the land and contaminate the water, the true costs of production are not factored into the price of the goods or services. These costs are borne by people in the form of ill health, by watersheds in the form of unswimmable and unfishable waters and by a rapidly warming climate.

Pennsylvania is a step closer to ensuring that energy producers internalize such costs and in creating market incentives for companies to shift away from fossil fuels. The state Environmental Quality Board voted on Sept. 15 to advance a cap-and-invest program that would unite Pennsylvania to the Regional Greenhouse Gas Initiative, which is a coalition of 10 mid-Atlantic and New England states to sell emission “allowances” through auctions.

The state would set a carbon limit and provide allowances — sold at RGGI auctions — to energy producers for each ton of carbon dioxide they emit. If the power plants emit less than the imposed limit, they can sell those allowances to other companies. If they emit more, they can buy additional credits on the secondary market. When a company anywhere in RGGI buys an allowance from Pennsylvania, the money is then sent back to the state, which can then be spent to reduce air pollution.

In using this market-based approach to reduce emissions, the state can decrease its carbon cap over time. The increased cost of the permits will then force polluters to invest in lower-carbon processes or buy more allowances. For this to be effective, however, the cap must be set low enough, with carbon prices that are high enough, to drive real changes in behavior. If the state hands out too many allowances the price will be too low, and there will be no incentive to cut emissions.

Joining RGGI would encourage statewide industries to invest in efficiency, and it would facilitate Gov. Tom Wolf’s mandate to reduce greenhouse gas emissions to 80% below 2005 levels by midcentury.

— Pittsburgh Post-Gazette (TNS)