E C O N O M I C R E P O R T O F T H E P R E S I D E N T

coastal zone. Trades can occur within a zone, but permits can only be soldfrom coastal zones (upwind) to inland zones (downwind), not vice versa.Without this restriction, a significant set of upwind sources could emitenough NO Xto result in the ozone standard being exceeded locallydownwind.To facilitate compliance, major sources must install continuous emissionsmonitors (CEMs), which provide emissions data to the regulatory authority.For 1994 through 1997, CEMs in RECLAIM cost approximately $13 millionmore per year than the monitoring equipment that would have beenrequired under a traditional regulatory program. This cost was about onefifth the projected cost savings associated with the program between 1994and 1999 and comprised a majority of the projected compliance costs borneby participating firms. However, monitoring provides important benefits. Byproviding greater certainty about a source’s emissions, monitoring mayenhance the integrity of the environmental market and reduce the need forregulatory supervision of every trade. RECLAIM has been largely successfulin reducing emissions in a cost-effective manner. Annual ozone standard violationsin 1998 were roughly two-thirds fewer than in 1980, and half thenumber in 1993 (Chart 7-3).258 | Economic Report of the President