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NTC ANNUAL ACID RAIN ALLOWANCE AUCTION

Release Date: 3/26/97
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NTC ANNUAL ACID RAIN ALLOWANCE AUCTION



FOR RELEASE: MARCH 26, 1997

EPA and the Chicago Board of Trade today announced that Monday's fifth annual acid rain allowance auction resulted in proceeds totaling over $32 million, which will be returned to the utilities from which the allowances were drawn.
The auction is part of EPA's program to significantly reduce acid rain by cutting utility sulfur dioxide (SO2) emissions in half nationwide. Acid rain can damage lakes and aquatic life and affect the human respiratory system. The auction gives power plants, brokers, and private citizens anywhere in the world the chance to buy and sell SO2 allowances. An allowance is an authorization, established by the Clean Air Act Amendments of 1990, giving affected sources (mainly existing electric power plants) the right to emit one ton of SO2 in a designated year or any year thereafter. Electric utilities account for 70 percent of nationwide SO2 emissions.

The fifth annual acid rain SO2 allowance auction, run by the Chicago Board of Trade (CBOT) for EPA, resulted in the sale of 300,000 allowances, generating $32.2 million in proceeds.

Three electronic sealed bid auctions were held Monday in Chicago: a "spot" auction that sold allowances first useable in 1997, a "six-year advance" auction that sold allowances first useable in 2003, and a "seven-year advance" auction that sold allowances first useable in 2004. A total of 150,000 allowances was offered for sale in the spot auction; 25,000 were offered in the six-year advance auction (unsold allowances from the 1996 direct sale); and 125,000 in the seven-year advance auction.

CBOT received 159 bids for the spot auction, of which 41 were successful. The successful bid prices ranged from $106.75 to $121.02, the average price being $110.36. The total number of year 1997 allowances sold was 150,000.

There were 44 bids for the six-year advance auction, of which six were successful. The successful bid prices ranged from $105.15 to $114.02, the average price being $105.51. The total number of year 2003 allowances sold was 25,000.

Seventy-five bids for the seven-year auction were received, of which 17 were successful. The successful bid prices ranged from $102.15 to $113.02, the average price being $104.16. The total number of year 2004 allowances sold was 125,000.

In the five years that the allowance auctions have been held, participation has grown and the number of allowances bid for has tripled. The gap between the highest price paid and the clearing price has narrowed from $319 to $14, indicating that all auction participants, even those not involved day to day with the acid 

rain program are knowledgeable about the allowance market. The allowance auctions provide the public with an opportunity to directly participate in an environmental program, and many brokers, school groups, and environmental organizations in addition to utilities are taking advantage of it.

As visible as the annual auctions are, however, they are a minor part of the overall allowance market. Since EPA began recording transfers in 1994, the number of allowances transferred between parties has grown fivefold from 880,000 in 1994 to nearly 4.5 million allowances in 1996, and utilities have transferred over 27 million allowances within their companies to ensure the lowest-cost emission reductions.

EPA emphasizes that no matter how many allowances a utility purchases, it will not be allowed to emit levels of SO2 that would violate national or state ambient health-protection standards for SO2.

The acid rain control program, authorized by the Clean Air Act Amendments of 1990, mandates an annual reduction of 10 million tons of SO2 emissions from 1980 levels by the year 2010. The reductions will be accomplished in two phases: Phase I affects about 180 plants, including the largest, highest-polluting plants in the United States; this Phase began in 1995. Phase II will affect about 700 additional plants beginning in the year 2000.

Detailed results of this year's allowance auction can be found on the Acid Rain Program's home page on the Internet at https://www.epa.gov/acidrain.

Contact Linda Reidt Critchfield, EPA/OAP/Acid Rain Division (6204J), 401 M St., S.W., Washington, D.C. 20460; phone (202) 233-9087.)

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