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. The program is an implementation of
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. 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. Allowance trading essentially ended in 2010 when EPA issued the Transport Rule. In 2011, the trading program that existed since 1995 was replaced by four separate trading programs under the Cross-State Air Pollution Rule (CSAPR). 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). In deciding, EME Homer City Generation L.P. v. EPA, the Court vacated CSAPR for two independent legal reasons and has remanded the rule back to the Environmental Protection Agency (EPA) for further consideration. 
Title IV of the 1990 Clean Air Act established the allowance market system known today as the Acid Rain Program. Initially targeting only sulfur dioxide, Title IV set a decreasing cap on total SO2 emissions for each of the following several years, aiming to reduce overall emissions to 50% of 1980 levels. The program did not begin immediately, but was implemented in two stages: Phase I (starting January 1, 1995) and Phase II (starting January 1, 2000).
The Clean Air Act Amendments of 1990 set as its primary goal the reduction of annual SO2 emissions by 10 million tons below 1980 levels of about 18.9 million tons. To achieve these reductions by 2000, when a nationwide sulfur dioxide emissions cap of 8.95 million tons per year began, the law required a two phase tightening of operating restrictions placed on fossil fuel fired (e.g., coal, oil, natural gas) power plants. The operation and pricing of a market for emissions allowances would not be viable in the absence of an effective regulatory cap on the total number of allowances available.
Scope of Phase I requirements
In Phase I, half the total reductions were required by January 1, 1995, largely by requiring 110 electric power generating plants (261 units in 21 states) to cut sulfur dioxide emission rates to 2.5 lbs/million British thermal units (mmBtu). Each of these generating units was identified by name and location, and a quantity of emissions allowances was specified in the statute in tons of allowable SO2 emissions per year.
For comparison, new generating units built since 1978 were required to limit sulfur dioxide to a "lowest achievable emissions rate" of about 0.6 lbs/mmBtu. Coal with 1.25% sulfur and 10,000 Btu/lb produces sulfur dioxide emissions of 2.5 lbs/mmBtu, with lower emissions produced by either lower sulfur content or higher Btu content.
As an incentive for reducing emissions, for each ton of sulfur dioxide reduced below the applicable emissions limit, owners of a generating unit received an emissions allowance they could use at another unit, keep for future use, or sell. This legitimized a market for sulfur dioxide emissions allowances, administered by the Chicago Board of Trade. Units that installed flue-gas desulfurization equipment (e.g., scrubbers) or other "qualifying Phase I technology" which reduced sulfur dioxide emissions by 90%, qualified for a two-year extension of the 1995 deadline, provided they owned allowances to cover their total actual emissions for each year of the extension period.
Scope of Phase II requirements
In Phase II, all fossil-fired units over 75 MWe were required to limit emissions of sulfur dioxide to 1.2 lbs/mmBtu by January 1, 2000. Thereafter, they were required to obtain an emissions allowance for each ton of sulfur dioxide emitted, subject to a mandatory fine of $2,000.00 for each ton emitted in excess of allowances held. The U.S. Environmental Protection Agency (EPA) distributes allowances equivalent to 8.95 million tons each year (the emissions cap), based on calculations of historical Btu usage for each unit, and may allocate various small "bonus reserves" of allowances.
Nitrogen oxide reduction
The 1990 Amendments also required reductions in nitrogen oxide (NOx) emissions at Phase I units. The key factors in NOx formation are flame temperature and oxygen levels present for combustion. Installation of low-NOx burner retrofits are the most common means of compliance, generally reducing emissions from uncontrolled levels by up to 50%. Many utilities complied with requirements by installing stack-gas scrubbers and low-NOx burners at the same time. Low-NOx burner technology was readily available, and considerably less expensive than installation of scrubbers, so control of NOx was considered less demanding by most electric utilities.
The market based SO2 allowance trading component of the Acid Rain Program was intended to allow utilities to adopt the most cost effective strategy to reduce SO2 emissions. Every Acid Rain Program operating permit outlines specific requirements and compliance options chosen by each source. Affected utilities also were required to install systems that continuously monitor emissions of SO2, NOx, and other related pollutants in order to track progress, ensure compliance, and provide credibility to the trading component of the program. Monitoring data is transmitted to EPA daily via telecommunica