SO₂ Reductions and Allowance Trading Under the Acid Rain Program

More Information

This page provides an overview of how reductions in SO₂ emissions are to be achieved under the Acid Rain Program.

Overview

The Clean Air Act Amendments of 1990 set a goal of reducing annual SO₂ emissions by 10 million tons below 1980 levels. To achieve these reductions, the law required a two-phase tightening of the restrictions placed on fossil fuel-fired power plants:

Phase I (began in 1995)
Affected 263 units at 110 mostly coal-burning electric utility plants located in 21 eastern and midwestern states. An additional 182 units joined Phase I of the program as substitution or compensating units, bringing the total of Phase I affected units to 445.

Phase II (began in 2000)
Tightened the annual emissions limits imposed on large, higher emitting plants and also set restrictions on smaller, cleaner plants fired by coal, oil, and gas, encompassing over 2,000 units in all. The program affects existing utility units serving generators with an output capacity of greater than 25 megawatts and all new utility units.

Reductions in SO₂ emissions are facilitated through a market-based system for capping and trading—the centerpiece of EPA’s Acid Rain Program. The allowance trading system creates low-cost rules of exchange that minimize government intrusion and make allowance trading a viable compliance strategy for reducing SO₂.

Allowance Trading

Allowances are the currency with which compliance with the SO₂ emissions requirements is achieved. Through the market-based allowance trading system, utilities regulated under the Acid Rain Program decide the most cost-effective way to use available resources to comply with the requirements of the Clean Air Act. Utilities can reduce emissions by employing energy conservation measures, increasing reliance on renewable energy, reducing usage, employing pollution control technologies, switching to lower sulfur fuel, or developing other alternate strategies.

Units that reduce their emissions below the number of allowances they hold may trade allowances with other units in their system, sell them to other utilities on the open market or through EPA auctions, or bank them to cover emissions in future years.

For more information on how allowance trading works under the Acid Rain Program, see the Acid Rain Program SO₂ Allowances Fact Sheet. For more information about allowance trading in general for all Clean Air Markets programs, visit CAMD Allowance Trading.

The following links also provide additional information on allowance trading:

Allowance Allocations – Explains the process by which EPA allocated allowances.
Buying Allowances – Provides information on how to purchase allowances.
Allowance Transfers – Provides information on how to submit transfer allowances.
Tracking Allowances – Explains how EPA tracks allowance accounts, holdings, and transactions.
Allowance Auctions – Provides information on yearly auctions of allowances.
Allowance Market Analysis – Provides summaries of trading activity.

Conservation and Renewable Energy Incentives

The Acid Rain Program promotes pollution prevention through its SO₂ allowance trading program. Since allowances are assigned a market value, utilities have an incentive to emit less SO₂ in order to conserve these allowances. The Conservation and Renewable Energy Reserve (CRER) is a pool that began with 300,000 SO₂ allowances. Utilities could apply for these allowances if they employed efficiency or renewable energy measures to produce early emissions reductions before their generating became subject to the Acid Rain Program.

For more information, see Conservation and Renewable Energy Incentives.

Opt-In Program

The Opt-In Program allows sources not required to participate in the Acid Rain Program the opportunity to enter the program on a voluntary basis and receive their own acid rain allowances. The Opt-In Program offers a combustion source a financial incentive to voluntarily reduce its SO₂ emissions. By reducing emissions below its allowance allocation, an opt-in source will have unused allowances, which it can sell in the SO₂ allowance market.

For more information, see the Opt-in Program Fact Sheet.

Additional Resources

Cleaning the Air: The Truth About Capping and Trading Emissions (PDF) (10 pp., 489 K, About PDF)

The significant environmental progress and cost savings resulting from the Acid Rain Program’s nationwide experiment in capping and trading SO₂ emissions have attracted worldwide attention. This 2002 brochure explains how and why this system works, clears up some common misunderstandings, and presents the outlook for future programs based on this model.

SO2 Reductions and Allowance Trading Under the Acid Rain Program