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Throughout the 1980s, acid rain has grown into a prominent environmental concern. Although questions remain on the chemistry and mechanisms of damage from acid rain, both the 98th and 99th Congress have considered proposals to stem this form of pollution. These proposals call for significant reductions in the amount of sulfur dioxide discharged by electric utilities, usually by placing additional controls on older power plants that are principally located in the Midwest and Appalachia and burn coal with a high sulfur content. Such approaches raise complex regional issues of who would pay the sizable abatement costs and which states might suffer substantial losses in coal production and mining jobs. At the request of the Senate Committee on Environment and Public Works, this study examines the key elements of legislative proposals introduced over the last several years, including two recent bills now under consideration in the Congress. In keeping with the Congressional Budget Office's (CBO) mandate to provide objective analysis, this report makes no recommendations.

This paper was written by Marc Chupka and John Thomasian of CBO's Natural Resources and Commerce Division, under the supervision of Everett M. Ehrlich and John Thomasian. The authors wish to express special thanks to William Orchard-Hays and Melinda Hobbs of the Department of Energy for their time and expert knowledge. Lois Trojan, Caryna Baker-Fox, Dolly Riegert, and Tom Young provided valuable research assistance. The authors are also grateful to the many individuals who provided valuable comments on earlier drafts, including Robert Friedman, Rob Brenner, and Paul Portney. Patricia H. Johnston edited the manuscript, and Patricia Joy prepared the report for publication.
 

Rudolph G. Penner
Director
June 1986
 
 

SUMMARY

CHAPTER I - INTRODUCTION

• The Nature of the Problem
• Utility Regulation and Domestic Coal Markets
• The Potential Effects of Acid Rain Legislation

CHAPTER II - CURRENT POLICY AND THE POTENTIAL COSTS OF FURTHER REDUCTIONS IN SO₂ EMISSIONS

• Requirements of the Clean Air Act Currently Affecting Electric Utilities
• Effects of Requiring Rollbacks in Sulfur Dioxide Emissions

CHAPTER III - ALLOCATING EMISSION REDUCTION COSTS THROUGH TAXES COLLECTED ON ELECTRICITY PRODUCTION

• Rationale Behind Subsidizing Control Costs Through an Electricity Tax
• Electricity Tax and Subsidy Options

CHAPTER IV - REDUCING SULFUR DIOXIDE LEVELS WITH EMISSION TAX AND SUBSIDY PROGRAMS

• Rationale for an Emissions Tax
• Emission Tax Approaches
• Coal Markets and Mining Employment

CHAPTER V - LOWERING SULFUR DIOXIDE LEVELS WITH TAX ON SULFUR CONTENT IN COAL AND SUBSIDIES FOR SCRUBBING

• Taxing the Sulfur Content of Fuel: Theory and. Implementation
• The Effects of Sulfur Taxes and Subsidies

CHAPTER VI - TWO RECENT CONGRESSIONAL PROPOSALS

• Methodology Used to Examine the Two Approaches
• Sulfur Dioxide Reductions and Costs
• Conclusions

APPENDIX - THE NATIONAL COAL MODEL AND CBO ANALYSIS AND ASSUMPTIONS

• The National Coal Model
• Additional Models

GLOSSARY
 

SUMMARY TABLE 1.	CHARACTERISTICS AND EFFECTS OF OPTIONS
TABLE 1.	NEW SOURCE PERFORMANCE STANDARDS FOR COAL-FIRED ELECTRIC UTILITIES
TABLE 2.	COAL COSTS AND AVERAGE SULFUR CONTENT OF COAL, BY REGION
TABLE 3.	PROJECTED 1995 EMISSIONS FOR 8 AND 10 MILLION TON SO2REDUCTION PROGRAMS, BY STATE
TABLE 4.	COMPARISON OF TOTAL PROGRAM COSTS AND COST-EFFECTIVENESS OF TWO ROLLBACK PROGRAMS
TABLE 5.	ANNUAL UTILITY COSTS AS OF 1995 OF 8 MILLION TON SO2 ROLLBACK, BY STATE
TABLE 6.	ANNUAL UTILITY COSTS AS OF 1995 OF 10 MILLION TON SO2 ROLLBACK, BY STATE
TABLE 7.	ELECTRICITY PRICE CHANGES AS OF 1995 UNDER AN 8 MILLION TON S02 ROLLBACK, BY STATE
TABLE 8.	ELECTRICITY PRICE CHANGES AS OF 1995 UNDER A 10 MILLION TON SO2 ROLLBACK, BY STATE
TABLE 9.	COAL PRODUCTION CHANGES AS OF 1995 UNDER AN 8 MILLION TON S02 ROLLBACK, BY STATE
TABLE 10.	COAL PRODUCTION CHANGES AS OF 1995 UNDER A 10 MILLION TON S02 ROLLBACK, BY STATE
TABLE 11.	COAL MINING EMPLOYMENT CHANGES AS OF 1995 UNDER 8 MILLION TON SO2 ROLLBACK, BY COAL-PRODUCING STATE
TABLE 12.	COAL MINING EMPLOYMENT CHANGES AS OF 1995 UNDER 10 MILLION TON S02 ROLLBACK, BY COAL-PRODUCING STATE
TABLE 13.	EMISSION REDUCTION OPTIONS USING TAXES AND SUBSIDIES
TABLE 14.	COMPARISON OF TOTAL PROGRAM COSTS AND COST-EFFECTIVENESS OF VARIOUS OPTIONS UNDER TWO ROLLBACK PROGRAMS
TABLE 15.	ANNUAL UTILITY COSTS AS OF 1995 OF 8 MILLION TON SO2 ROLLBACK WITH TAX AND SUBSIDY OPTIONS COMPARED WITH POLLUTER PAYS OPTION, BY STATE
TABLE 16.	ANNUAL UTILITY COSTS AS OF 1995 OF 10 MILLION TON SO2 ROLLBACK WITH TAX AND SUBSIDY OPTIONS COMPARED WITH POLLUTER PAYS OPTION, BY STATE
TABLE 17.	ANNUAL SUBSIDIES PROVIDED TO UTILITIES AS OF 1995 UNDER TWO ROLLBACK PROGRAMS AND THREE SUBSIDY OPTIONS, BY STATE
TABLE 18.	REVENUES FROM ELECTRICITY TAX IN 1995
TABLE 19.	ELECTRICITY PRICE CHANGES BY 1995 UNDER AN 8 MILLION TON S02 ROLLBACK PROGRAM AND SEVERAL OPTIONS, BY STATE
TABLE 20.	ELECTRICITY PRICE CHANGES BY 1995 UNDER A 10 MILLION TON S02 ROLLBACK PROGRAM AND SEVERAL OPTIONS, BY STATE
TABLE 21.	COAL PRODUCTION CHANGES AS OF 1995 UNDER AN 8 MILLION TON SO2 ROLLBACK PROGRAM AND VARIOUS OPTIONS, BY STATE
TABLE 22.	COAL PRODUCTION CHANGES AS OF 1995 UNDER A 10 MILLION TON SO2 ROLLBACK PROGRAM AND VARIOUS OPTIONS, BY STATE
TABLE 23.	COAL MINING EMPLOYMENT CHANGES BY 1995 UNDER AN 8 MILLION TON S02 ROLLBACK PROGRAM AND VARIOUS OPTIONS, BY STATE
TABLE 24.	COAL MINING EMPLOYMENT CHANGES BY 1995 UNDER A 10 MILLION TON S02 ROLLBACK PROGRAM AND VARIOUS OPTIONS, BY STATE
TABLE 25.	EMISSION TAX OPTIONS
TABLE 26.	EMISSIONS UNDER THREE EMISSION TAX OPTIONS COMPARED WITH A POLLUTER PAYS ROLLBACK OF 10 MILLION TONS, BY STATE
TABLE 27.	COMPARISON OF TOTAL PROGRAM COSTS AND COST-EFFECTIVENESS OF THREE EMISSION TAX OPTIONS WITH A POLLUTER PAYS ROLLBACK OF 10 MILLION TONS
TABLE 28.	ANNUAL UTILITY COSTS AS OF 1995 OF THREE EMISSION TAX OPTIONS COMPARED WITH A POLLUTER PAYS ROLLBACK OF 10 MILLION TONS, BY STATE
TABLE 29.	ELECTRICITY PRICES IN 1995 UNDER THREE EMISSION TAX OPTIONS COMPARED WITH A POLLUTER PAYS ROLLBACK OF 10 MILLION TONS, BY STATE
TABLE 30.	1995 REVENUES AND SUBSIDIES UNDER THREE EMISSION TAX OPTIONS
TABLE 31.	1995 COAL SHIPMENTS UNDER THREE EMISSION TAX OPTIONS COMPARED WITH A POLLUTER PAYS ROLLBACK OF 10 MILLION TONS, BY STATE
TABLE 32.	DIRECT COAL MINING EMPLOYMENT IN 1995 UNDER THREE EMISSION TAX OPTIONS COMPARED WITH A POLLUTER PAYS ROLLBACK OF 10 MILLION TONS, BY STATE
TABLE 33.	SULFUR AND SUBSIDY OPTIONS
TABLE 34.	EMISSIONS UNDER TWO SULFUR TAX OPTIONS COMPARED WITH TWO POLLUTER PAYS ROLLBACK PROGRAMS, BY STATE
TABLE 35.	TOTAL PROGRAM COSTS AND COST-EFFECTIVENESS OF TWO SULFUR TAX OPTIONS COMPARED WITH TWO POLLUTER PAYS ROLLBACK PROGRAMS
TABLE 36.	ANNUAL COST OF ELECTRICITY GENERATION IN 1995 UNDER SULFUR TAX OPTIONS COMPARED WITH TWO POLLUTER PAYS ROLLBACK PROGRAMS, BY STATE
TABLE 37.	1995 ELECTRICITY PRICES UNDER SULFUR TAX POLICIES COMPARED WITH TWO POLLUTER PAYS ROLLBACK PROGRAMS, BY STATE
TABLE 38.	TAX REVENUES AND AVERAGE TAX RATES UNDER TWO SULFUR TAX OPTIONS, BY STATE
TABLE 39.	ANNUAL SUBSIDIES IN 1995 UNDER TWO SULFUR TAX OPTIONS, BY STATE
TABLE 40.	COAL PRODUCTION AS OF 1995 UNDER TWO SULFUR TAX OPTIONS COMPARED WITH TWO POLLUTER PAYS ROLLBACK PROGRAMS, BY STATE
TABLE 41.	COAL MINING EMPLOYMENT IN 1995 UNDER TWO SULFUR TAX POLICIES COMPARED WITH TWO POLLUTER PAYS ROLLBACK PROGRAMS, BY STATE
TABLE 42.	COMPARISON OF TWO RECENT PROPOSALS WITH OPTIONS EXAMINED
TABLE 43.	EMISSIONS UNDER THREE OPTIONS BASED ON TWO CURRENT LEGISLATIVE PROPOSALS, COMPARED WITH A POLLUTER PAYS ROLLBACK OF 10 MILLION TONS, BY STATE
TABLE 44.	TOTAL PROGRAM COSTS AND COST-EFFECTIVENESS OF THREE OPTIONS BASED ON TWO CURRENT LEGISLATIVE PROPOSALS, COMPARED WITH A POLLUTER PAYS ROLLBACK OF 10 MILLION TONS
TABLE 45.	ANNUAL UTILITY COSTS AS OF 1995 OF THREE OPTIONS BASED ON TWO CURRENT LEGISLATIVE PROPOSALS, COMPARED WITH A POLLUTER PAYS ROLLBACK OF 10 MILLION TONS, BY STATE
TABLE 46.	ELECTRICITY PRICES IN 1995 UNDER THREE OPTIONS BASED ON TWO CURRENT LEGISLATIVE PROPOSALS, COMPARED WITH A POLLUTER PAYS ROLLBACK OF 10 MILLION TONS, BY STATE
TABLE 47.	1995 COAL SHIPMENTS UNDER THREE OPTIONS BASED ON TWO RECENT LEGISLATIVE PROPOSALS, COMPARED WITH A POLLUTER PAYS ROLLBACK OF 10 MILLION TONS, BY STATE
TABLE 48.	DIRECT COAL MINING EMPLOYMENT IN 1995 UNDER THREE OPTIONS BASED ON TWO CURRENT LEGISLATIVE PROPOSALS, COMPARED WITH A POLLUTER PAYS ROLLBACK OF 10 MILLION TONS, BY STATE
TABLE A-l.	NCM5 CAPACITY TYPES
TABLE A-2.	CBO ECONOMIC AND FINANCIAL ASSUMPTIONS USED IN THE NATIONAL COAL MODEL
TABLE A-3.	S02 REDUCTIONS REQUIRED BY THE EXCESS EMISSIONS FORMULA, BY STATES
SUMMARY FIGURE 1.	COST-EFFECTIVENESS OF VARIOUS OPTIONS
SUMMARY FIGURE 2.	MINING JOBS IN OHIO, ILLINOIS, INDIANA, AND PENNSYLVANIA IN 1995, UNDER VARIOUS OPTIONS
FIGURE 1.	U.S. COAL FIELDS AND PRODUCING REGIONS

 

Over the past several years, the Congress has considered various methods to control "acid rain." Acid rain is a type of air pollution in which acidic compounds in the atmosphere (usually sulfates and nitrates) fall to the earth's surface through the action of rain and gravity. The particles that comprise acid rain can damage structures, ecosystems, and--through respiratory exposure--possibly human health.

The causes of acid rain are generally understood; man-made emissions of sulfur dioxide and nitrogen oxides, often discharged far from the areas they ultimately affect, are the primary culprits. Yet, the extent of the problem and its control remain subjects of debate. A number of Congressional proposals would lower sulfur dioxide (SO₂) emissions from the nation's power plants by between 45 percent and 70 percent from levels reported in 1980, perhaps the year of highest SO₂ discharges in this decade. Sulfur dioxide emissions from electric utilities have been targeted because they represent the pollutant and source most amenable to significant reduction through available techniques. But the high cost of such emission reductions (at least $3.2 billion annually for about a 60 percent national reduction from 1980 levels) and their potentially adverse effect on mining employment in the high-sulfur coal regions of the Midwest and Appalachia have spurred a search for alternative abatement programs.

This paper examines the different types of programs that the Congress has considered to diminish SO₂ emissions. Some control options would place no restrictions on the type of coal used or abatement method chosen; some would restrict switching from high-sulfur to low-sulfur coal; and others would tax either electricity production, sulfur dioxide emissions, or the sulfur content of coal to finance partially the utilities' costs of installing flue gas desulfurization equipment ("scrubbers") as an alternative to burning low-sulfur coal. While this analysis calculates the costs and coal-market effects of various SO₂ reduction alternatives, it does not estimate the benefits of the emission reductions. Such estimates lie beyond the scope of this study.

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