Acid Rain - The Acid Rain Program—clean Air Act Amendments, Title Iv

emissions so2 allowances plants

In 1980 Congress established NAPAP to study the causes and effects of acid deposition. About 2,000 scientists worked with an elaborate multimillion-dollar computer model in an eight-year, $570 million undertaking. In 1988 NAPAP produced an overwhelming 6,000-page report on its findings, including:

  • Acid rain had adversely affected aquatic life in about 10 percent of eastern lakes and streams.
  • Acid rain had contributed to the decline of red spruce at high elevations by reducing that species' cold tolerance.
  • Acid rain had contributed to erosion and corrosion of buildings and materials.
  • Acid rain and related pollutants had reduced visibility throughout the Northeast and in parts of the West.

The report concluded, however, that the incidence of serious acidification was more limited than originally feared. The Adirondacks area of New York was the only region showing widespread, significant damage from acid at that time.

Results indicated that electricity-generating power plants were responsible for two-thirds of SO2 emissions and one-third of NO5 emissions. In response, Congress created the Acid Rain Program under Title IV (Acid Deposition Control) of the 1990 Clean Air Act Amendments (PL 101-549).

The goal of the Acid Rain Program is to reduce annual emissions of SO2 and NO5 from electric power plants nationwide. The program set a permanent cap on the total amount of SO2 that could be emitted by these power plants. That cap was set at 8.95 million tons (approximately half the number of tons of SO2 emitted by these plants during 1980). The program also established NO5 emissions limitations for certain coal-fired electric utility plants. The objective of the NO5 program was to achieve and maintain a two-million-ton reduction in NO5 emission levels by the year 2000 compared to the emissions that would have occurred in 2000 if the program had not been implemented.

The reduction was implemented in two phases. Phase 1 began in 1995 and covered 263 units at 110 utility plants in 21 states with the highest levels of emissions. Most of these units were at coal-burning plants in eastern and midwestern states. They were mandated to reduce their annual SO2 emissions by 3.5 million tons. An additional 182 units joined Phase 1 voluntarily, bringing the total of Phase 1 units to 445.

Phase 2 began in 2000. It tightened annual emission limits on the Phase 1 group and set new limits for more than 2,000 cleaner and smaller units in all 48 contiguous states and the District of Columbia.

A New Flexibility in Meeting Regulations

Traditionally, environmental regulation has been achieved by the "command and control" approach, in which the regulator specifies how to reduce pollution, by what amount, and what technology to use. Title IV, however, gave utilities flexibility in choosing how to achieve these reductions. For example, utilities could reduce emissions by switching to low-sulfur coal, installing pollution-control devices called scrubbers, or shutting down plants.

Utilities took advantage of their flexibility under Title IV to choose less costly ways to reduce emissions, such as switching from high-to low-sulfur coal, and they have been achieving sizable reductions in their SO2 emissions. Fifty-five percent of Phase 1 plants opted to switch to low-sulfur coal, 16 percent chose to install scrubbers, and only 3 percent initially planned to purchase allowances (which allow plants to emit extra SO2). Not surprisingly, the market for low-sulfur coal is growing as a result of Title IV, and the market for high-sulfur coal is decreasing.

FIGURE 7.6
SO2 allowance bank, 1995–2002

Allowance Trading

Title IV also allows electric utilities to trade allowances to emit SO2. Utilities that reduce their emissions below the required levels can sell their extra allowances to other utilities to help them meet their requirements.

Title IV allows companies to buy, sell, trade, and bank pollution rights. Utility units are allocated allowances based on their historic fuel consumption and a specific emissions rate. Each allowance permits a unit to emit one ton of SO2 during or after a specific year. For each ton of SO2 discharged in a given year, one allowance is retired and can no longer be used. Companies that pollute less than the set standards will have allowances left over. They can then sell the difference to companies that pollute more than they are allowed, bringing them into compliance with overall standards. Companies that clean up their pollution would recover some of their costs by selling their pollution rights to other companies.

The EPA holds an allowance auction each year. The sale offers allowances at a fixed price. This use of market-based incentives under Title IV is regarded by many as a major new method for controlling pollution.

From 1995 to 1998 there was considerable buying and selling of allowances among utilities. Because the utilities that participated in Phase 1 reduced their sulfur emissions more than the minimum required, they did not use as many allowances as they were allocated for the first FIGURE 7.7
SO2 emissions from acid rain sources, 1980–2002
four years of the program. Those unused allowances could be used to offset SO2 emissions in future years. From 1995 to 1998 a total of 30.2 million allowances were allocated to utilities nationwide; almost 8.7 million, or 29 percent, of the allowances were not used, but were carried over (banked) for subsequent years.

Figure 7.6 shows the status of the allowance bank from 1995 through 2002. In 2002 a total of 9.54 million allowances were allocated. Another 9.30 million banked allowances were carried over from previous years. The allowance bank reached a maximum during 2000 and began to decline after that. The EPA expects that the allowance bank will gradually be depleted.

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