Clear Sky?

There is currently much debate in Washington over President Bush's Clear Skies initiative, which essentially repeals the New Source Review aspect of the Clean Air Act. Without going into great detail on what exactly New Source Review (NSR), it is sufficient to know that it was an attempt by Congress to regulate the externality of pollution caused primarily from power plants. NSR required plants, currently operating, to put in place pollution decreasing technologies when major maintenance of the plants occurred. Bush is formulating a policy that would not require this to be done. Instead he would like to set up an emissions trading program, where older plants will be able to purchase "emission points" from newer, cleaner facilities.
I do not claim to be an economist or a political scientist, but I see some major flaws in the president's initiative. Under NSR, all plants would eventually use the same pollution reducing technologies. Bush seems to be acting under the belief that requiring old plants to convert to the new technologies would be so costly that they would no longer be able to compete with the new plants which already possess the technology. However, wouldn't the new plants still have a competitive advantage over the old, because they will be able to sell their unused portion of emissions to the old plants? Also, by allowing plants to trade emissions, there is a real threat of "hotspots" developing in regions where most of the power plants are old, which could lead to increased health risks.
Once again, there is much that I don't understand about economics, but does it make sense to try and marketize an externality like pollution?

http://www.greenwire.com/web_landing/sr_nsr_G.htm