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EPA ANNOUNCES RESULTS OF ACID RAIN REDUCTION AUCTION
Release Date: 03/28/2002
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Environmental News
FOR RELEASE: THURSDAY, MARCH 28, 2002
EPA ANNOUNCES RESULTS OF ACID RAIN REDUCTION AUCTION
Dave Ryan 202-564-7827 / [email protected]
EPA ANNOUNCES RESULTS OF ACID RAIN REDUCTION AUCTION
Dave Ryan 202-564-7827 / [email protected]
EPA and the Chicago Board of Trade announced the results of the tenth annual acid rain auction Tuesday. 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 innovative program to reduce acid rain by cutting nationwide SO2 emissions from the electric power industry in half.
"The auction is a part of a market-based acid rain program so successful that President Bush is using it as a model for his Clear Skies Initiative, an ambitious mandatory cap and trade program for reducing nationwide emissions of nitrogen dioxide, SO2, and mercury by 70 percent from the electric power sector,” said EPA Administrator Christie Whitman. “The Acid Rain Program’s successful market-based approach has reduced emissions earlier and at less cost than would have occurred with more conventional approaches. Clear Skies, when enacted, will achieve even greater results in protecting the health of millions of Americans.”
SO2 allowance trading, combined with a national emissions cap, has been effective both in terms of cost reduction and environmental impacts since it began in 1995. Current estimates indicate compliance costs 75 percent below those originally predicted by EPA. Emissions are already more than five million tons below 1990 levels, and acid deposition in the eastern United States has declined by as much as 30 percent, resulting in improvements in lakes and streams.
The Clean Air Act established an annual national cap on SO2 emissions. Each year, EPA issues allowances to existing sources to match that cap. However, the Clean Air Act mandates that a limited number of those allowances are withheld and auctioned. The auctions help ensure that new electric generating plants have a source of allowances beyond those allocated initially to existing units. Proceeds from the auctions are returned to sources in proportion to the allowances withheld. In addition to allowances offered by EPA, private parties may offer allowances for sale in the auction.
EPA emphasizes that no matter how many allowances a source purchases, it will not be allowed to emit levels of SO2 that would violate national or state ambient health-protection standards.
An allowance gives affected sources (mainly existing electric power plants) the right to emit one ton of SO2 per year. A plant's total annual emissions cannot exceed its allowances. Allowances are transferrable, allowing market forces to determine their price. If a source reduces its SO2 emissions more than required, it will have left-over allowances it can sell to another utility or bank for future use. By providing for such transactions, total emission reductions will be achieved in the most cost-effective manner, and the industry will have the flexibility to choose among various options for reducing emissions.
The auction, conducted by the Chicago Board of Trade, includes two "vintages" of allowances. Vintage describes the earliest year an allowance may be applied against SO2 emissions. In addition to year 2002 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 2009.
Summary Results of the 2002 SO2 Allowance Auction:
| Vintage | 2002 |  | 2009 | |
| Offeror | EPA | Private | EPA | Private |
| Allowances Offered | 125,000 | 2,388 | 125,000 | 2,388 |
| Allowances Sold | 125,000 | 2,388 | 125,000 | 2,388 |
| Total Bids | 53 | | 16 | |
| Successful Bids | 46 | | 13 | |
| Clearing Price (lowest price at which a successful bid was made) | $160.50 | | $68.00 | |
| Price Range | $150.00 -215.00 | | $60.00 - 120.00 | |
| Average Price | $167.74 | | $81.87 |
EPA has been working with the Chicago Board of Trade, as well as the power industry and brokers and traders, for ten years. The result is a viable SO2 market and a demonstration that a mandatory emissions cap and trade approach can improve the environment at a lower cost than traditional control approaches.
Detailed results of this year's acid rain auction and information about how the trading program works are available on EPA's Web site: https://www.epa.gov/airmarkets/auctions/. For further technical information, call Melanie Dean of EPA's Clean Air Markets Division at 202-564-9189.
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