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ACID RAIN AUCTION SELLS 253,388 SO2 EMISSION ALLOWANCES, NETTING $25 MILLION
Release Date: 03/29/2000
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FOR RELEASE: WEDNESDAY, MARCH 29, 2000
ACID RAIN AUCTION SELLS 253,388 SO2 EMISSION
ALLOWANCES, NETTING $25 MILLION
EPA and the Chicago Board of Trade (CBOT) today announced that the eighth annual acid rain allowance auction – held Monday -- resulted in proceeds totaling over $25 million. The auction, which gives private citizens, brokers and power plants the chance to buy and sell sulfur dioxide (SO2) allowances, is part of EPA's program to significantly reduce acid rain by cutting nationwide SO2 emissions from power plants in half. Each allowance authorizes a power plant to emit one ton of SO2 in a designated year or any year thereafter. The allowance auctions are part of what has become a large SO2 trading program, now in its sixth year of operation.
“Through the use of an innovative trading program that rewards early action, the acid rain program has reduced air pollution by 30 percent more than required by law,” said EPA Administrator Carol Browner. “Building on this success, the Clinton/Gore Administration is now pursuing other market-based programs that can help us aggressively combat air pollution problems to protect public health and the environment.”
Between 1995 and 1999, Phase I of EPA’s acid rain program has reduced SO2 emissions from the largest plants by over 4 million tons annually. This year marks the beginning of Phase II, which expands the number of regulated combustion units to over 2,000. Phase II will reduce SO2 emissions from power plants by 8.5 million tons annually beginning in 2010, a 50 percent reduction from 1980 levels.
The Clean Air Act established an annual national cap on SO2 emissions. Each year, EPA grants allowances to utilities to match that cap, but a limited number of those allowances are withheld and auctioned. Proceeds are returned to utilities in proportion to the allowances withheld. In addition to allowances offered by EPA, private parties may offer allowances for sale in the auction. Privately offered allowances are sold only after all EPA allowances are sold.
The auction, conducted by CBOT, included two "vintages" of allowances. Vintage describes the earliest year an allowance may be applied against SO2 emissions. In addition to year 2000 allowances, the Clean Air Act mandated that EPA auction additional allowances seven years in advance to help provide stability in planning for capital investment. These advance allowances will be usable in 2007.
The auction is an electronic sealed-bid process. Each bidder submits a price and a number of allowances; if the bid is successful, that price is paid. CBOT ranks the bids by price and then determines which bids were successful, beginning with the highest price. Bids vary in price, so the price paid during the auction for a single allowance varies across a range. The total allowances included in bids may exceed the number of available allowances, so a number of bids may be unsuccessful. Private parties may set a floor on the price they will accept, so not all privately offered allowances are necessarily sold.
Allowance trading, combined with a national emissions cap, is cost-effective: current cost estimates are 75% lower than those originally predicted by an industry study. Building on the economic and environmental success of the SO2 emissions trading program, EPA last year extended the cap and trade approach to apply to reductions in emissions of nitrogen oxides (Nox), a prime ingredient in the formation of ground-level ozone (smog), the nation’s most pervasive air pollutant. EPA is operating a NOx trading program for the Ozone Transport Commission (OTC), a group created by Congress in the 1990 Clean Air Act Amendments to better coordinate the efforts of northeastern states in reducing air pollution. In 1999, OTC's trading program reduced NOx emissions by over 50% from 1990 levels. Like the SO2 program, the OTC NOx Budget Program is delivering these reductions at costs lower than originally predicted by an industry study.
Detailed results of this year's auction and information about how the trading program works are available on EPA's Web site: https://www.epa.gov/acidrain/auctions/aucmain.html. For further technical information, call Jeffrey Levy of EPA’s Clean Air Markets Division at 202-564-9727.
Summary Results of the 2000 SO2 Allowance Auction
| Vintage | 2000 |  | 2007 | |
| Offeror | EPA | Private | EPA | Private |
| No. of Allowances offered | 125,000 | 5,388 | 125,000 | 2,500 |
| No. of Allowances sold | 125,000 | 3,388 | 125,000 | 0 |
| Total bids | 85 | | 24 | |
| Successful bids | 51 | | 21 | |
| Price Range ($) | $80.05 - $250.00 | | $40.57 - $200.00 | |
| Average Price ($) (weighted by no. of allowances) | $130.69 | | $68.32 | |
| Clearing Price(lowest price at which a successful bid was made) | $126.00 | | $55.27 | |
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