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The U.S. allowance trading system for sulfur dioxide: An update on market experience

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  • Renee Rico

Abstract

In 1990, the U.S. Congress passed legislation that amended the Clean Air Act to create a new program to mitigate the effects of acid deposition in the U.S. through emission reductions of sulfur dioxide (SO 2 ) and nitrogen oxides (NO x ) at electric utility plants across the country. The SO 2 reductions, totalling a 40% reduction nationally from 1980 levels or a 10 million ton reduction annually, are achieved largely through an emission trading system, the largest program of its kind designed to date. This trading system has the potential to save up to half of the compliance costs associated with more traditional source-by-source emission limit programs. This paper briefly discusses background on the acid rain issue in the United States, and the principal features of the program, including: a permanent cap on utility emissions of SO 2 beginning in 2010, decision to grant up-front allocation of emission credits to reduce individual approvals of trades, the use of continuous emission monitors and automatic penalties to ensure compliance, and integration of the Acid Rain program requirements with other Clean Air Act programs. The paper also discusses the development of the allowance trading market to date, including the types of compliance options chosen and quantity and type of emissions trading being conducted. Copyright Kluwer Academic Publishers 1995

Suggested Citation

  • Renee Rico, 1995. "The U.S. allowance trading system for sulfur dioxide: An update on market experience," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 5(2), pages 115-129, March.
    • Handle: RePEc:kap:enreec:v:5:y:1995:i:2:p:115-129
    DOI: 10.1007/BF00693019
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    Cited by:

    1. G T Svendsen, 1998. "The US Acid Rain Program: Design, Performance, and Assessment," Environment and Planning C, , vol. 16(6), pages 723-734, December.
    2. Labandeira-Villot, Xavier, 1996. "Market instruments and the control of acid rain damage : Effects of a sulphur tax on the Spanish electricity generating industry," Energy Policy, Elsevier, vol. 24(9), pages 841-854, September.
    3. Hong, Zhaofu & Chu, Chengbin & Yu, Yugang, 2016. "Dual-mode production planning for manufacturing with emission constraints," European Journal of Operational Research, Elsevier, vol. 251(1), pages 96-106.
    4. Coria, Jessica & Sterner, Thomas, 2008. "Tradable Permits in Developing Countries: Evidence from air pollution in Santiago, Chile," Working Papers in Economics 326, University of Gothenburg, Department of Economics.
    5. Richard Schmalensee & Robert N. Stavins, 2019. "Policy Evolution under the Clean Air Act," Journal of Economic Perspectives, American Economic Association, vol. 33(4), pages 27-50, Fall.
    6. Olivier Godard & Christine Cros, 1998. "The economic design of a potential tradable permit system for SO2 emissions in the European Union," Post-Print hal-00622840, HAL.
    7. J. Diltz, 2002. "U.S. Equity Markets and Environmental Policy. The Case of Electric Utility Investor Behavior During the Passage of the Clean Air Act Amendments of 1990," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 23(4), pages 379-401, December.
    8. Karen Palmer & Wallace E. Oates & Paul R. Portney & Karen Palmer & Wallace E. Oates & Paul R. Portney, 2004. "Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm?," Chapters, in: Environmental Policy and Fiscal Federalism, chapter 3, pages 53-66, Edward Elgar Publishing.
    9. Stavins, Robert N., 2003. "Experience with market-based environmental policy instruments," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 1, chapter 9, pages 355-435, Elsevier.
    10. Richard Schmalensee & Robert N. Stavins, 2017. "Lessons Learned from Three Decades of Experience with Cap and Trade," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 11(1), pages 59-79.
    11. Sandoff, Anders & Schaad, Gabriela, 2009. "Does EU ETS lead to emission reductions through trade? The case of the Swedish emissions trading sector participants," Energy Policy, Elsevier, vol. 37(10), pages 3967-3977, October.
    12. Requate, Till & Camacho-Cuena, Eva & Kean Siang, Ch'ng & Waichman, Israel, 2019. "Tell the truth or not? The montero mechanism for emissions control at work," Journal of Environmental Economics and Management, Elsevier, vol. 95(C), pages 133-152.
    13. Robert N. Stavins, 1998. "What Can We Learn from the Grand Policy Experiment? Lessons from SO2 Allowance Trading," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 69-88, Summer.
    14. Lile, Ronald D. & Burtraw, Dallas, 1998. "State-Level Policies and Regulatory Guidance for Compliance in the Early Years of the SO2 Emission Allowance Trading Program," Discussion Papers 10828, Resources for the Future.
    15. Panagiotis Koromilas & Angeliki Mathioudaki & Sotirios Dimos & Dimitris Fotakis, 2023. "Modeling Intertemporal Trading of Emission Permits Under Market Power," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 84(1), pages 241-278, January.
    16. Fullerton, Don & McDermott, Shaun P. & Caulkins, Jonathan P., 1997. "Sulfur Dioxide Compliance of a Regulated Utility," Journal of Environmental Economics and Management, Elsevier, vol. 34(1), pages 32-53, September.
    17. Milt, Austin W. & Armsworth, Paul R., 2017. "Performance of a cap and trade system for managing environmental impacts of shale gas surface infrastructure," Ecological Economics, Elsevier, vol. 131(C), pages 399-406.
    18. Kopsch, Fredrik, 2012. "Aviation and the EU Emissions Trading Scheme—Lessons learned from previous emissions trading schemes," Energy Policy, Elsevier, vol. 49(C), pages 770-773.
    19. B Hansjürgens, 1998. "The Sulfur Dioxide Allowance-Trading Program in the USA: Recent Developments and Lessons to be Learned," Environment and Planning C, , vol. 16(3), pages 341-361, June.
    20. Reimund Schwarze & Peter Zapfel, 2000. "Sulfur Allowance Trading and the Regional Clean Air Incentives Market: A Comparative Design Analysis of two Major Cap-and-Trade Permit Programs?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 17(3), pages 279-298, November.
    21. Stronzik, Marcus & Dette, Birgit & Herold, Anke, 2000. "Early crediting als klimapolitisches Instrument: Eine ökonomische und rechtliche Analyse," ZEW Dokumentationen 00-13, ZEW - Leibniz Centre for European Economic Research.
    22. Ellerman, A. Denny & Montero, Juan-Pablo, 1998. "The Declining Trend in Sulfur Dioxide Emissions: Implications for Allowance Prices," Journal of Environmental Economics and Management, Elsevier, vol. 36(1), pages 26-45, July.
    23. Pearce, David, 1997. "Replicating innovative national financing mechanisms for sustainable development," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 34308, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    24. Brookshire, David S & Burness, H Stuart, 2001. "The Informational Role of the EPA SO2 Permit Auction," Journal of Regulatory Economics, Springer, vol. 20(1), pages 43-60, July.

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