Entire Book - Southwest Consortium for Environmental Research ...
Entire Book - Southwest Consortium for Environmental Research ...
Entire Book - Southwest Consortium for Environmental Research ...
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Improving Transboundary Air Quality with<br />
Binational Emission Reduction Credit Trading<br />
Acid Rain and SO 2 Trading<br />
The largest, most ambitious, and best studied 1 emissions trading<br />
scheme is the U.S. Acid Rain Program. Acid rain is a major<br />
problem in the eastern United States. It has been blamed <strong>for</strong><br />
declines in eastern <strong>for</strong>ests, acidification of lakes and streams<br />
(resulting in fish deaths), and damage to structures and buildings.<br />
Controlling sulfur dioxide (SO 2 ) emissions is an important<br />
step in reducing acid rain because SO 2 is a precursor <strong>for</strong> it.<br />
A major source of SO 2 emissions is power plants that burn coal<br />
and petroleum.<br />
In an ef<strong>for</strong>t to address the acid rain problem, the U.S.<br />
<strong>Environmental</strong> Protection Agency (EPA) established a cap-andtrade<br />
program under which a fixed number of “allowances” are<br />
distributed to power plants. Each allowance represents permission<br />
to emit one ton of SO 2 . A power plant can then sell its<br />
allowances to another power plant—or anyone else, including a<br />
speculator—provided that it surrenders to the EPA sufficient<br />
allowances to cover its emissions. Power plants facing high<br />
incremental abatement costs can avoid incurring those costs by<br />
purchasing additional allowances. Power plants are also allowed<br />
to bank unused allowances.<br />
Phase 1 of the program required that 263 of the largest SO 2<br />
sources, located primarily in the eastern and midwestern United<br />
States, participate. Other sources could participate on a voluntary<br />
basis. The total SO 2 cap in 1995, the first year of the program,<br />
was 8.7 million tons. This cap was slowly reduced until<br />
by 1999, at the end of Phase 1, the cap was 7.0 million tons.<br />
Phase 2 extends the program to all but the smallest existing<br />
power plants and to all new power plants. By 2010, the aggregate<br />
cap is to be reduced to 8.95 million tons of SO 2 , approximately<br />
half the 1980 emissions.<br />
The program has been successful. By 2001, there had been<br />
more than 4,000 trades (EPA 2002a). The flexibility provided<br />
by the program enabled power plants to pursue a variety of compliance<br />
options. Sources met their SO 2 reduction obligations by<br />
12