Acid Rain Program
The Acid Rain Program is a market-based initiative taken by the United States Environmental Protection Agency in an effort to reduce overall atmospheric levels of sulfur dioxide and nitrogen oxides, which cause acid rain.[1] The program is an implementation of emissions trading that primarily targets coal-burning power plants, allowing them to buy and sell emission permits (called "allowances") according to individual needs and costs. In 2011, the trading program that existed since 1995 was supplemented by four separate trading programs under the Cross-State Air Pollution Rule (CSAPR).[2] On August 21, 2012, the United States Court of Appeals for the District of Columbia issued its Opinion and Order in the appeal of the Cross State Air Pollution Rule (CSAPR) for two independent legal reasons.[3] The stay on CSAPR was lifted in October 2014, allowing implementation of the law and its trading programs to begin.[4]
A 2021 study found that the "Acid Rain Program caused lasting improvements in ambient air quality," reducing mortality risk by 5% over 10 years.[5]
Market prices[edit]
The U.S. Department of Energy in 1991 estimated the installed retrofit cost per ton of SO2 pollution control equipment (scrubbers) on existing units would be in the $665– $736/ton range.[30] However, 2005 was the first year the price of an SO2 allowance reached this level. In December 2005, a few trades were registered at slightly over $1,600/ton.[31] At those rates, it was less expensive to install scrubbers and reduce air pollution than to purchase SO2 emissions allowances and continue polluting. Subsequently, the market price of SO2 allowances decreased to around $88/ton in August 2009.
Participation by citizen groups[edit]
Citizens and groups can purchase sulfur dioxide emissions allowances alongside electric utilities and other producers of air pollution in annual auctions conducted by the U.S. Environmental Protection Agency (EPA) and on the Chicago Board of Trade.[32] Each year the U.S. EPA auctions off to the highest bidder about 250,000 pollution allowances that enable their owners to emit one ton of sulfur dioxide.
No national environmental group has ever bid in the annual EPA Auction, but a small number of local groups have participated for many years, apparently on the theory that reducing the supply of allowances may someday drive up the price of acquiring them. For example, one of the oldest of these groups is the "Acid Rain Retirement Fund" (A.R.R.F.), a non-profit, all-volunteer, community educational group. A.R.R.F. has raised money and bid alongside polluters since 1995 for as many allowances as their funds can buy. But instead of using or trading them, A.R.R.F. retires them permanently, taking allowances off the market and keeping sulfur dioxide out of the air.[33]
Along with allowances purchased in prior years, A.R.R.F. in 2013 owns the right to emit 2,826,000 pounds (1,413 tons) of sulfur dioxide per year, plus whatever amount it did not emit under allowances purchased in previous years. Because it did not exercise its right to emit any pollution during 1996–2013, "banking" its emissions allowances for the future, A.R.R.F. holds the legal right to emit a total of 4,644,000 pounds—or 2,322 tons—of sulfur dioxide in 2013. That amount will increase by another 100 tons in 2018, when allowances A.R.R.F. purchased in the 7-year advance auction of 2011 are eligible for use.[34]
Examination of EPA Auction results 1993–2013 indicates groups or individuals like A.R.R.F. who purchased emissions allowances for purposes other than releasing air pollution now own the right to emit 3,188 tons per year.[34] Although most have purchased only one or a few tons, this adds up to considerably more than the 760 tons/year allocated by law to the Miami Fort #5 coal-fired generating unit in Ohio.[35]
Since many purchases were made in earlier years, and unused allowances have accumulated, these groups own the right to emit 23,012 tons of sulfur dioxide in 2013. That's more than the annual allocation of allowances to 168 of the 250 dirtiest generating units in the United States (some are allowed to emit almost 95,000 tons/year).[35]
Effectiveness[edit]
Overall, the Program's cap and trade program has been hailed as successful by the EPA, industry, economists and certain environmental groups such as the Environmental Defense Fund, while skeptical environmentalists have argued that reduction in emissions occurred due to broad trends unconnected to the program.[36] The EPA has used what is called the Integrated Planning Model (IPM) to estimate the effect of the Acid Rain Program (ARP). The output from the model says that annual emissions of sulfur dioxide were reduced by 8 million tons (from 17.3 to 9.3), nitrogen oxides by 2.7 million tons (from 7.6 to 5), and mercury by 10 tons (from 52 to 42). However, it is difficult to estimate the emissions which would have occurred without the ARP. For example, the EPA updated its analysis to reflect the effect of low-sulfur coal becoming more economical due to reduced transportation, leading the EPA to reduce its estimate of the impact of ARP by sulfur dioxide emissions by one million tons.[37]
Since the 1990s, SO2 emissions have dropped 40%, and according to the Pacific Research Institute, acid rain levels have dropped 65% since 1976.[38] However, although it reduced emissions by 40%, the US Acid Rain Program has not reduced SO2 emissions as much as the conventional regulation applied in the European Union (EU), which reduced SO2 emissions by more than 70%.[39] Therefore, the effectiveness of the emissions trading element as a mechanism has been criticised, since the EPA also used regulations to achieve the reductions, as all areas of the country "had to meet national, health-based, air quality standards that are separate from the Acid Rain Program’s requirements".[40]
In 2007, total SO2 emissions were 8.9 million tons, achieving the program's long-term goal ahead of the 2010 statutory deadline.[41] In 2008, SO2 emissions dropped even lower—to 7.6 million tons,[42] which was considerably lower than of command-and-control regulations.[43]
The EPA estimates that by 2010, the overall costs of complying with the program for businesses and consumers will be $1 billion to $2 billion a year, only one fourth of what was originally predicted.[38]
A general issue with cap and trade programs has been overallocation, whereby the cap is high enough that sources of emissions do not need to reduce their emissions. ARP had "early overallocation" during Phase I, and this allowed emission sources to "bank" their allowances for future years. In Phase II, emission sources drew down their banked allowances. In 2006, emissions were again below the cap, leading to further banking.[44]