History
Title IV of theScope of Phase I requirements
In Phase I, half the total reductions were required by January 1, 1995, largely by requiring 110 electric power generating plants (261 units in 21 states) to cut sulfur dioxide emission rates to . Each of these generating units was identified by name and location, and a quantity of emissions allowances was specified in the statute in tons of allowable SO2 emissions per year. For comparison, new generating units built since 1978 were required to limit sulfur dioxide to a "lowest achievable emissions rate" of about . Coal with 1.25% sulfur and produces sulfur dioxide emissions of , with lower emissions produced by either lower sulfur content or higher Btu content.U.S. Department of the Interior, Office of Surface Mining Reclamation and Enforcement. (1993). ''Impact of Acid Rain Controls on Surface Mining Reclamation and Enforcement: Programs and Workload''. Washington, D.C.: Office of Surface Mining Reclamation and Enforcement. As an incentive for reducing emissions, for each ton of sulfur dioxide reduced below the applicable emissions limit, owners of a generating unit received an emissions allowance they could use at another unit, keep for future use, or sell. This legitimized a market for sulfur dioxide emissions allowances, administered by the Chicago Board of Trade. Units that installed flue-gas desulfurization equipment (e.g., scrubbers) or other "qualifying Phase I technology" which reduced sulfur dioxide emissions by 90%, qualified for a two-year extension of the 1995 deadline, provided they owned allowances to cover their total actual emissions for each year of the extension period.Scope of Phase II requirements
In Phase II, all fossil-fired units over 75 MWe were required to limit emissions of sulfur dioxide to by January 1, 2000. Thereafter, they were required to obtain an emissions allowance for each ton of sulfur dioxide emitted, subject to a mandatory fine of $2,000.00 for each ton emitted in excess of allowances held. The U.S. Environmental Protection Agency (EPA) distributes allowances equivalent to 8.95 million tons each year (the emissions cap), based on calculations of historical Btu usage for each unit, and may allocate various small "bonus reserves" of allowances.Nitrogen oxide reduction
The 1990 Amendments also required reductions in nitrogen oxide (NO''x'') emissions at Phase I units. The key factors in NO''x'' formation are flame temperature and oxygen levels present for combustion. Installation of low-NO''x'' burner retrofits are the most common means of compliance, generally reducing emissions from uncontrolled levels by up to 50%.Bretz, Elizabeth A. (1991). "Equipment Options for Meeting the New Clean-Air Laws," ''Electrical World'', October, pp. 51–59. Many utilities complied with requirements by installing stack-gas scrubbers and low-NO''x'' burners at the same time. Low-NO''x'' burner technology was readily available, and considerably less expensive than installation of scrubbers, so control of NO''x'' was considered less demanding by most electric utilities.Compliance strategies
The market based SO2 allowance trading component of the Acid Rain Program was intended to allow utilities to adopt the most cost effective strategy to reduce SO2 emissions. Every Acid Rain Program operating permit outlines specific requirements and compliance options chosen by each source. Affected utilities also were required to install systems that continuously monitor emissions of SO2, NO''x'', and other related pollutants in order to track progress, ensure compliance, and provide credibility to the trading component of the program. Monitoring data is transmitted to EPA daily via telecommunications systems. Strategies for compliance with air quality controls have been major components of electric utility planning and operations since the mid-1970s, affecting choice of fuels, technologies and locations for construction of new generating capacity. Utility strategies for compliance with new sulfur dioxide standards included a mix of options with varying financial costs: * several existing and new stack-gas scrubbing and clean coal technologies; * switching to all, or blending high-sulfur coal with, low-sulfur coal; * switching to all natural gas, orWindfalls
Of the 261 units at 110 plant locations affected by Phase I emission limitations, five were oil-fired, five coal-fired units were retired, and one coal-fired unit was placed on cold standby status prior to passage of the legislation in 1990. The 6 inactive coal-fired units were statutory recipients of a total of 36,020 tons of Phase I sulfur dioxide emissions allowances. This marketable windfall was estimated by the U.S. Department of Energy (DOE) in 1991 to be worth $665 to $736 per ton, totaling $23.9 to $26.5 million. However, actual purchases of emissions allowances in 1992 were reported at a lower price than expected of $300 per ton. Allowances auctioned in March 1993 sold for $122 to $450 per ton, reducing the windfall from these allowances to $4.4 to $16.2 million. In the interim, owners of one unit retired in 1985, the 119 MWe Des Moines Energy Center, received $93 million in DOE funding for a Clean Coal Technology project to repower with a coal-fired 70 MWe pressurized fluidized-bed combustion unit, bringing it back into production in 1996.Location of generating units
Excluding those 11 units, 250 active coal-fired units at 105 plants in 21 states were subject to Phase I sulfur dioxide emissions reductions in 1995. States having the greatest number of generating units affected by the Phase I requirements were: Ohio (40), Indiana (37), Pennsylvania (21), Georgia (19), Tennessee (19), Kentucky (17), Illinois (17), Missouri (16) and West Virginia (14). Together, Phase I units represented 20% of the 1,250 operable coal-fired generating units in the U.S. in 1990. These 250 units had a summer peak generating capability of 79,162 MWe in 1990, with a mean of 317 MWe/unit. This capacity represented about 27% of installed summer coal-fired capability, and about 11.5% of total U.S. installed summer generating capability in 1990. About 207 million tons, almost 90% of the coal purchased by Phase I plants in 1990, produced sulfur dioxide emissions exceeding the 1995 emissions rate of 2.5 lbs/mm Btu using no pollution control equipment.Age matters
Age of the 250 Phase I coal units ranged from 17 to 46 years when the standards took effect, with a mean of 34 years. In 1995, 111 active Phase I units (23%) were 35 years of age or older, and only 8 (6%) were less than 20 years old. The average age of 35 coal-fired units retired during 1988-1991 was 44.6 years, with a range of 14–74 years. These units ranged in size from 1-107 MWe summer capability. Several had been on standby (e.g., available for use during regularly scheduled outages of other units for maintenance) for many years prior to retirement. About half (often the older units) were designed to "cofire" with natural gas or fuel oil, and could be operated using these fuels instead of coal if desired. Both the number and average age of coal-fired units retired increased substantially from 1988 to 1991, indicating utilities were removing very old units from available status that they no longer expected to use, thereby avoiding maintenance costs necessary to keep them on standby. For comparison, the 6 Phase I coal units retired before 1990 ranged in age from 21–35 years when taken out of service, with a mean of 31 years. Age of these units was significant for several reasons. All of the Phase I units were either built or under construction when the Clean Air Act of 1977 was enacted, and all but eight were built or under construction when the 1970 Act was enacted. Consequently, these units were built when labor costs were significantly less than in the 1990s, and they avoided major investments in pollution control equipment. In the 1990s, these units were often among the least expensive of any operated by their respective owners, in terms of cost per megawatt-hour of energy produced. Compared to other plants on a utility company system, these units provided incentives for their owners to maximize operating time, minimize downtime for repairs or retrofit, and minimize further capital investments in them. Because capital in such plants is typically amortized over 20–30 years, investments in most of them were fully recovered by 1995. Justifying large additional capital investments in plants which may have a remaining useful life of 10 years or less, absent reconstruction of boilers, is often difficult. Further, because large coal-fired generating units tend to reach peak operating and combustion efficiencies during the first three years of operation, declining incrementally thereafter throughout their lifetimes, these old plants were among the dirtiest sources of air pollution in the electric utility industry. They were able to operate for many years without substantially reducing emissions, when other plants were required to install "best available" air pollution control equipment pursuant to the Clean Air Act Amendments of 1977.Uncertainties
Substantial uncertainties confronted electric utilities when planning compliance strategies. These included the future price and availability of fuels; the value of emissions allowances and operation of markets for them; the manner in which state public utilities commissions and the Internal Revenue Service would allocate the costs of scrubbing or switching fuels and the value of emissions allowances; accounting guidelines, revisions to interstate bulk power sales contracts, and possible intervention by the Federal Energy Regulatory Commission in interstate transfers of emissions allowances by multi-stateInnovations in coal supply contracts
The risks associated with such uncertainty stimulated innovation in contracts for purchase of coal by electric utilities. In a buyer's market, utilities renegotiated old contracts and signed new ones with a variety of provisions designed to manage risks and increase flexibility for future decisions. For example, Ohio Edison signed "high/low" contracts at the end of 1991 with three coal suppliers. Under these agreements, the utility could elect to shift purchases from high-sulfur to low-sulfur coal produced by the same supplier. The supplier retained the option of continuing to ship high-sulfur coal in lieu of low-sulfur coal if it provided sufficient emissions allowances so this coal could be burned without penalty. In this event, the supplier paid for the allowances, and the utility paid the contract price for lower sulfur coal. Additional innovative contract terms under consideration would link price premiums and penalties paid for coal with different levels of sulfur content to changes in the market price of sulfur dioxide emissions allowances; trade emissions allowances to coal suppliers as partial payment for low-sulfur coal; or establish larger variances in quantity and prices for different qualities of coal in a single contract. AMAX Energy purchased an undisclosed number of emissions allowances fromMarket prices
The U.S. Department of Energy in 1991 estimated the installed retrofit cost per ton of SO2 pollution control equipment (scrubbers) on existing units would be in the $665– $736/ton range. However, 2005 was the first year the price of an SO2 allowance reached this level. In December 2005, a few trades were registered at slightly over $1,600/ton. At those rates, it was less expensive to install scrubbers and reduce air pollution than to purchase SO2 emissions allowances and continue polluting. Subsequently, the market price of SO2 allowances decreased to around $88/ton in August 2009.Participation by citizen groups
Citizens and groups can purchase sulfur dioxide emissions allowances alongside electric utilities and other producers of air pollution in annual auctions conducted by the U.S. Environmental Protection Agency (EPA) and on the Chicago Board of Trade. Each year the U.S. EPA auctions off to the highest bidder about 250,000 pollution allowances that enable their owners to emit one ton of sulfur dioxide. No national environmental group has ever bid in the annual EPA Auction, but a small number of local groups have participated for many years, apparently on the theory that reducing the supply of allowances may someday drive up the price of acquiring them. For example, one of the oldest of these groups is the "Acid Rain Retirement Fund" (A.R.R.F.), a non-profit, all-volunteer, community educational group. A.R.R.F. has raised money and bid alongside polluters since 1995 for as many allowances as their funds can buy. But instead of using or trading them, A.R.R.F. retires them permanently, taking allowances off the market and keeping sulfur dioxide out of the air. Along with allowances purchased in prior years, A.R.R.F. in 2013 owns the right to emit 2,826,000 pounds (1,413 tons) of sulfur dioxide per year, plus whatever amount it did not emit under allowances purchased in previous years. Because it did not exercise its right to emit any pollution during 1996–2013, "banking" its emissions allowances for the future, A.R.R.F. holds the legal right to emit a total of 4,644,000 pounds—or 2,322 tons—of sulfur dioxide in 2013. That amount will increase by another 100 tons in 2018, when allowances A.R.R.F. purchased in the 7-year advance auction of 2011 are eligible for use.Acid Rain Retirement FundEffectiveness
Overall, the Program's cap and trade program has been hailed as successful by the EPA, industry, economists and certain environmental groups such as theRetirement fund
The Acid Rain Retirement Fund (A.R.R.F) is an all-volunteer, non-profit environmental educational organization, incorporated inMarketable emissions allowances
Pursuant to the Clean Air Act of 1990, each year in March the U.S. Environmental Protection Agency auctions off to the highest bidder about 250,000 pollution allowances that enable companies to emit one ton of sulfur dioxide. Those companies face statutory penalties of $2,000/ton for every ton of sulfur dioxide they emit in excess of those for which they own allowances. Emissions allowances are bought and sold daily through the Chicago Board of Trade like soybeans, rice or any other commodity. Only a limited number of allowances are available each year. After those allowances are used, no more can be issued. The Acid Rain Retirement Fund raises money and bids alongside polluters in the annual auctions for as many allowances as their funds can buy. But instead of using or trading them, A.R.R.F. retires them permanently, taking allowances off the market and keeping sulfur dioxide out of the air. Thus, every pollution allowance A.R.R.F. removes from circulation prevents that pollution from being legally emitted into the air.Impact of sulfur dioxide
Sulfur dioxide is the principal contributor to acid rain, causing respiratory disorders, impairing visibility, harming the health of fish and wildlife, and degrading lakes and ponds. Research has shown lakes and streams in New England have been slow to recover from the effect of acid rain, compared to some in Wisconsin, New York and Pennsylvania. Acid rain brings with it mercury deposition, and together they cause tremendous damage to human health and the environment. Research by the Hubbard Brook Research Foundation recently identified nine suspected mercury hotspots in the northeastern U.S. and Canada. Harvard University economist Robert Stavins estimates about $1 billion per year has been saved in the United States by cleaning up since the Acid Rain Program went into effect.Carlson, Curtis, Dallas Burtraw, Maureen Cropper, and Karen L. Palmer. 2000. “Sulfur dioxide control by electric utilities: What are the gains from trade?” ''Journal of Political Economy'' 108: 1292-1326.Educational programs
The Acid Rain Retirement Fund uses participation in pollution markets as a way to educate children and adults about the sources and detrimental effects of air pollution and acid rain, and actions people can take to reduce such pollution. Presentations are made in school classrooms about the causes and effects of acid rain, and students are encouraged to design their own fundraising efforts.Accomplishments
A.R.R.F. has participated in annual EPA auctions of emissions allowances every year since 1995, and in 2013 owns the right to emit 1,413 tons of sulfur dioxide per year, plus whatever amount it has not emitted in previous years. Because A.R.R.F. did not exercise its right to emit any pollution during 1996-2013, “banking” its emissions allowances for the future, A.R.R.F. in 2013 holds the legal right to emit a total of 2,322 tons (4,644,000 pounds) of sulfur dioxide in 2013. That amount will increase by another 100 tons in 2018 when allowances A.R.R.F. purchased in the 7-year advance auction of 2011 are eligible for use. According to A.R.R.F., EPA auction results 1993-2013 indicate groups or individuals who purchased emissions allowances for purposes other than releasing air pollution own the right to emit 3,188 tons per year of sulfur dioxide. Although most have purchased only one or a few tons, this adds up to considerably more than the 760 tons/year allocated by law to the Miami Fort #5 generating unit in Ohio.Clean Air Act Amendments of 1990, 42 ''U.S. Code'' §7651c(c) Table A. Since many purchases were made in earlier years, and unused allowances have accumulated, these groups now own the right to emit 23,012 tons of sulfur dioxide in 2013. That's more than the annual allocation of allowances to 168 of the 250 dirtiest generating units in the United States (some are allowed to emit almost 95,000 tons/year).See also
*References
External links