Acid Rain in New England

Acid Rain Allowances

The Acid Rain Program uses a market based approach to control sulfur dioxide emissions from power plants. Under the current system, known as a "cap and trade" system, we limit, or cap, sulfur dioxide emissions by issuing a fixed number of allowances and allowing only one ton of SO₂ to be emitted per allowance. The total number of allowances is distributed by EPA each year. Each power plant that was operating during the years from 1985 to 1987 is assigned a number of allowances based on their emissions of sulfur dioxide during that period. Each power plant must hold one allowance for each ton of SO₂ they emit. At the end of the year, these facilities must surrender a number of allowances equal to the number of tons of SO₂ they emitted during the year. If they emit more SO₂ than they have allowances, they must buy additional allowances. Conversely, if they can further reduce their emissions they can sell their excess allowances. Some allowances were withheld by EPA and are made available through an annual auction. By limiting the number of allowances, we can limit the amount of SO₂ the power plants release.

The Acid Rain program was implemented in 2 phases. During Phase I (1995-2000), eleven units at five New England Stations were allocated a total of 167,779 allowances. During Phase II (starting in 2000), 27 facilities (about 80 units) in New England received a total of 273,150 allowances. The number per unit was reduced during Phase II, so the total amount of SO₂ was also reduced. The 5 units in phase 1 received only 91,136 allowances per year in Phase II.

New units which were not operating in 1987 are not assigned allowances. They must obtain the necessary allowances from other units, or buy them.

In 1995, EPA issued about 8.7 million allowances to Phase I units. If all were used, this would have resulted in a 2.2 million ton reduction from the 1980 level. Actual emissions in 1995 were 5.3 million tons. That means that in 1995, SO₂ was reduced by 5.6 million tons. Of the 3.4 million unused allowances in that year, about 36,000 were sold or donated to private individuals or environmental groups and "retired." This effectively lowered the cap for SO₂ emissions for that year. The other allowances were held either by brokerage firms or by the utilities themselves.

Holding allowances does not automatically allow a plant to emit SO₂. They are still subject to other state and federal permit conditions which may further limit their emissions. Also, they may not cause exceedences of EPA’s National Ambient Air Quality Standards (NAAQS) or Prevention of Significant Deterioration (PSD) limits.