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2012 Progress Report: Clean Air Interstate Rule, Acid Rain Program and Former NOx Budget Trading Program

SO2 and NOx Emissions, Compliance, and Market Analyses

2012 ARP and CAIR at a Glance

CAIR and ARP Annual SO2 Emissions: 3.3 million tons (68 percent below 2005)

CAIR Ozone Season NOx Emissions: 514,000 tons (37 percent below 2005)

CAIR and ARP Annual NOx Emissions: 1.7 million tons (53 percent below 2005)

Perfect compliance for all facilities reporting to the CAIR and ARP programs

Program Basics

The Clean Air Interstate Rule (CAIR) and the Acid Rain Program (ARP) are both cap and trade programs designed to reduce emissions of sulfur dioxide (SO2) and nitrogen oxides (NOx) from power plants.

The ARP, established under Title IV of the 1990 Clean Air Act (CAA) Amendments, requires major emission reductions of SO2 and NOx, the primary precursors of acid rain, from the power sector. The SO2 program sets a permanent cap on the total amount of SO2 that may be emitted by electric generating units (EGUs) in the contiguous United States. The program is phased in, with the final 2010 SO2 cap set at 8.95 million tons, a level of about one-half of the emissions from the power sector in 1980. NOx reductions under the ARP are achieved through a program that applies to a subset of coal-fired EGUs and is closer to a traditional, rate-based regulatory system. Since the program began in 1995, the ARP has achieved significant emission reductions. For more information on the ARP, please visit the ARP website.

Download the Emission, Compliance, and Market Analyses Report:

Analyses Report Cover

(pdf, 1.6 MB)

Some of the files that constitute this report are provided in Excel spreadsheet format. Open it with your installed version of Excel or download a free copy of the Microsoft Excel viewer.

The NOx Budget Trading Program (NBP) operated from 2003 to 2008. The NBP was a cap and trade program that required NOx emission reductions from power plants and industrial units in the eastern U.S. during the summer months. For more information on the NBP, please visit the NOx Budget Trading Program/NOx SIP Call website.

CAIR addresses regional interstate transport of ozone and fine particle pollution. CAIR requires certain eastern states to limit annual emissions of NOx and SO2, which contribute to the formation of smog (ground-level ozone) and soot (fine particulate matter). It also requires certain states to limit ozone season NOx emissions, which contribute to the formation of smog during the summer ozone season (May through September). CAIR includes three separate cap and trade programs to achieve the required reductions: the CAIR NOx ozone season trading program, the CAIR NOx annual trading program, and the CAIR SO2 annual trading program. The CAIR NOx ozone season and annual programs began in 2009, while the CAIR SO2 annual program began in 2010. The reduction in ozone and fine particles (PM2.5) formation resulting from implementation of CAIR provides health benefits as well as improved visibility in national parks and improvements in freshwater aquatic ecosystems in the eastern U.S. For more information on CAIR, please visit the CAIR website.

Cross-State Air Pollution Rule and Litigation

EPA issued the Cross-State Air Pollution Rule (CSAPR) in July 2011, requiring 28 states in the eastern half of the U.S. to significantly improve air quality by reducing power plant emissions that cross state lines and contribute to ozone and fine particle pollution in other states. CSAPR includes three separate cap and trade programs to achieve these reductions: the CSAPR NOx ozone season trading program, the CSAPR NOx annual trading program, and the CSAPR SO2 annual trading program. The CSAPR trading programs were scheduled to replace the CAIR trading programs starting on January 1, 2012. However, on December 30, 2011, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit Court) stayed CSAPR pending judicial review and on August 21, 2012 the court issued a decision vacating the rule. The U.S. Supreme Court subsequently granted petitions from EPA and several environmental and public health organizations to review the D.C. Circuit Court’s decision. EPA anticipates that the Supreme Court will issue its opinion in the first half of 2014. At this time, CAIR remains in place and no immediate action from States or affected sources is expected. For more information on CSAPR, please visit the CSAPR website.

Figure 1 contains important milestones for ARP, NBP, CAIR, and CSAPR.

Figure 1: History of ARP, NBP, CAIR, and CSAPR

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History of CAIR, ARP, CSAPR, and former NBP

Source: EPA, 2013

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Next Steps in Addressing Interstate Air Pollution Transport

EPA is working with state partners on the next steps to address air pollution that crosses state boundaries—particularly with respect to recently promulgated health-based air quality standards. After considering input from states and other stakeholders, the initial focus will be to define upwind states’ obligations under the 2008 ozone standards to address transported air pollution affecting the eastern half of the U.S., resulting in a proposed rulemaking by late summer 2014. In addition, EPA will continue supporting efforts across the U.S. that reduce SO2 and NOx emissions by implementing existing programs, finalizing pending rules, and working with regional, state, and local air quality planners to evaluate the need for additional clean air actions.

2012 Progress Reports

Each year EPA releases reports summarizing progress under both CAIR and the ARP. In these 2012 reports, EPA combines data for both CAIR and the ARP in a first report to show reductions in power sector emissions of SO2 and NOx and a second report to assess the effect of these regional programs on human health and the environment. This report presents 2012 data on combined emission reductions and compliance results for CAIR and the ARP as well as some historic NBP emissions data; it also analyzes emission reductions and market activity. The second report will evaluate changes in a variety of human health and environmental indicators.

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CAIR, ARP, and NBP Affected States and Units

Affected States

The ARP is a nationwide program affecting large fossil fuel-fired power plants across the country. CAIR covers 27 eastern states and the District of Columbia (D.C.) and requires reductions in annual emissions of SO2 and NOx from 24 states and D.C. (to achieve improvements in fine particle pollution in downwind areas) and emission reductions of NOx during the ozone season from 25 states and D.C. (to achieve improvements in ozone pollution in downwind areas). The former NBP affected 20 eastern states and D.C. State coverage for CAIR, ARP, and NBP is shown in Figure 2.

Figure 2: CAIR, ARP, and NBP States

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CAIR, ARP, and NBP States

Source: EPA, 2013

Affected Units

The CAIR SO2 and NOx annual programs generally apply to large electric generating units (EGUs) — boilers, turbines, and combined cycle units that primarily burn fossil fuels to generate electricity for sale. The CAIR NOx ozone season program includes EGUs as well as, in some states, large industrial units that produce electricity or steam primarily for internal use and that have been carried over from the NBP. Examples of these units are boilers and turbines at heavy manufacturing facilities such as paper mills, petroleum refineries, and iron and steel production facilities. These units also include some steam plants at institutional settings such as large universities or hospitals.

In 2012, there were 3,336 affected EGUs at 952 facilities in the CAIR SO2 and NOx annual programs and 3,273 EGUs and industrial facility units at 949 facilities in the CAIR NOx ozone season program (see Table 1, below). The variation in the number of units covered under the programs is due to the difference in states that are included in each program (see Figure 2, above). EGUs in the CAIR programs cover a range of unit types, including units that operate year round to provide baseload power to the electric grid as well as units that provide power on peak demand days only and may not operate at all during some years.

The SO2 requirements under the ARP apply to the 3,652 fossil fuel-fired combustion units at 1,249 facilities across the country that serve a large generator (greater than 25 megawatts) that provides electricity for sale. The vast majority of ARP SO2 emissions result from coal-fired EGUs, although the program also applies to oil and gas units. Of the 3,336 units in the CAIR SO2 program, 2,624 (79 percent) were also covered by the ARP in 2012. The other units are largely fossil fuel generation units that entered SO2 control under the broader applicability requirements of CAIR.

The ARP also requires NOx emission reductions for older, large coal-fired EGUs by limiting their NOx emission rate (expressed in pounds of emissions per million British thermal units, or lb/mmBtu). The goal of the NOx program is to limit NOx emission levels from affected coal-fired boilers so that their emissions are at least two million tons less than the projected level for the year 2000 without implementation of Title IV. In 2012, 900 units at 368 facilities were subject to the ARP NOx program.

Table 1: Affected Units in CAIR and ARP, 2012

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Fuel ARP SO2 Program ARP NOx Program CAIR NOx Ozone
Season Program
CAIR NOx and SO2
Annual Programs
Coal EGUs 1,003 885 812 869
Gas EGUs 2,430 11 1,719 2,009
Oil EGUs 187 0 514 427
Industrial Units 4 0 198 0
Unclassified EGUs 10 0 1 4
Other Fuel EGUs 18 4 29 27
Total Units 3,652 900 3,273 3,336

Notes:

  • “Unclassified” units have not submitted a fuel type in their monitoring plan and did not report emissions.
  • “Other” fuel refers to units that burn waste, wood, petroleum coke, tire-derived fuel, etc.

Source: EPA, 2013

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Emission Reductions

Milestone Years for Measuring Progress under CAIR and ARP

1980: The Clean Air Act specified that annual SO2 emissions be cut to 10 million tons below the 1980 level

1990: Baseline emission levels for the ARP

1995: First year of the ARP (Phase 1)

2000: Phase 2 of the ARP

2005: Baseline emission levels for CAIR

2008: Training year for CAIR NOx monitoring. Units participating in the two CAIR NOx trading programs were required to monitor and report their emissions, but were not required to hold allowances for compliance

2009: First year of CAIR NOx annual and CAIR NOx ozone season programs (Phase 1). Training year for CAIR SO2 monitoring

2010: First year of CAIR SO2 annual program (Phase 1)

Overall Trends

Table 2, below, shows a large reduction in annual SO2 and NOx emissions from CAIR and ARP sources between 2005 and 2012. Tons of SO2 emitted fell 68 percent from the 2005 level, and annual NOx emissions dropped 53 percent. During this same period, ozone season NOx emissions from CAIR sources alone decreased by approximately 37 percent. These reductions occurred while electricity demand (measured as heat input) remained relatively stable, indicating that the reduction in emissions was not driven by decreased electric generation. Instead, there was a significant drop in emission rate for sources in all three programs: 65 percent for SO2 sources, 50 percent for annual NOx sources, and 31 percent for ozone season NOx sources. A drop in emission rate represents an overall increase in the environmental efficiency of these sources as power generators installed controls, ran their NOx controls year round, switched to different fuels, or otherwise cut their SO2 and NOx emissions while meeting relatively steady demand for power. Most of the reductions since 2005 are from early reduction incentives and stricter emission limits under CAIR.

Between 2011 and 2012, CAIR and ARP sources continued to reduce their SO2 emissions and emission rate. Annual and ozone season NOx emissions from CAIR and ARP sources also fell in the last year. Overall, facilities were below budgets for all three programs.

Visit EPA’s Quarterly Emissions Tracking site for the most up-to-date emissions and control data for sources in CAIR and the ARP.

Table 2: Comparison of Emissions, Emission Rates, and Heat Input for CAIR and ARP Sources, 2000–2012

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  SO2 Emissions (thousand tons) SO2 Rate (lb/mmBtu) Heat Input (billion mmBtu)
Primary Fuel 2000 2005 2009 2010 2012 2000 2005 2009 2010 2012 2000 2005 2009 2010 2012
Coal 10,708 9,835 5,653 5,090 3,291 1.04 0.95 0.63 0.53 0.41 20.67 20.77 18.02 19.30 15.97
Gas 108 91 22 20 6 0.06 0.03 0.01 0.00 0.00 3.88 5.49 6.59 7.28 8.90
Oil 385 292 38 31 6 0.73 0.70 0.27 0.19 0.04 1.06 0.84 0.29 0.33 0.32
Other 1 4 8 26 16 0.22 0.27 0.27 0.53 0.29 0.01 0.03 0.06 0.10 0.11
Total 11,201 10,223 5,722 5,168 3,319 0.88 0.75 0.46 0.38 0.26 25.61 27.13 24.96 27.00 25.31
  NOx Emissions (thousand tons) NOx Rate (lb/mmBtu) Heat Input (billion mmBtu)
Primary Fuel 2000 2005 2009 2010 2012 2000 2005 2009 2010 2012 2000 2005 2009 2010 2012
Coal 4,587 3,356 1,847 1,923 1,533 0.44 0.32 0.20 0.20 0.19 20.67 20.77 18.27 19.30 15.97
Gas 354 167 143 150 153 0.18 0.06 0.04 0.04 0.03 3.88 5.49 6.80 7.28 8.90
Oil 162 104 25 24 19 0.31 0.25 0.17 0.15 0.12 1.06 0.84 0.29 0.33 0.32
Other 2 6 5 7 7 0.25 0.42 0.12 0.13 0.13 0.01 0.03 0.09 0.10 0.11
Total 5,104 3,633 2,020 2,103 1,712 0.40 0.27 0.16 0.16 0.14 25.61 27.13 25.45 27.00 25.31
  NOx Emissions (thousand tons) NOx Rate (lb/mmBtu) Heat Input (billion mmBtu)
Primary Fuel 2000 2005 2009 2010 2012 2000 2005 2009 2010 2012 2000 2005 2009 2010 2012
Coal 1,398 695 442 527 452 0.45 0.22 0.17 0.18 0.18 6.19 6.31 5.21 5.85 4.91
Gas 79 58 39 49 48 0.17 0.08 0.05 0.05 0.04 0.93 1.55 1.58 2.02 2.51
Oil 66 57 13 16 11 0.27 0.25 0.17 0.14 0.12 0.48 0.45 0.15 0.22 0.18
Other 1 2 2 2 3 0.15 0.17 0.14 0.12 0.13 0.02 0.02 0.02 0.04 0.04
Total 1,545 812 495 594 514 0.41 0.20 0.14 0.15 0.13 7.62 8.33 6.98 8.13 7.65

Notes:

  • The data shown here for the annual programs reflect totals for those facilities required to comply with each program in each respective year. This means that CAIR NOx annual program facilities are not included in the annual NOx data for 2000 and 2005, and CAIR SO2 annual program facilities are not included in the annual SO2 data for 2000, 2005, or 2009.
  • The CAIR ozone season NOx table includes emissions and heat input data for 2000 and 2005 that were reported under other programs. For facilities that were not covered by another program and did not report 2005 emissions, their reported emissions for 2008 were substituted.
  • 2009 was a monitoring and reporting training year for facilities covered by the CAIR SO2 annual program.
  • Fuel type represents primary fuel type; units might combust more than one fuel.
  • Totals may not reflect the sum of individual rows due to rounding.
  • Each year’s total emission rate does not equal the arithmetic mean of the four fuel-specific rates, as each facility influences the annual emission rate in proportion to its heat input, and heat input is unevenly distributed across the fuel categories.
  • EPA data in these tables and used elsewhere in this report are current as of June 2013, and may differ from past or future reports as a result of resubmissions by sources and ongoing data quality assurance activities.

Source: EPA, 2013

SO2 Emission Reductions

Figure 3, below, shows that the CAIR SO2 program continues and complements the ARP’s history of SO2 emission reductions. In 2012, the third year of operation of the CAIR SO2 trading program, sources in both the CAIR SO2 annual program and the ARP together reduced SO2 emissions by 12.4 million tons (79 percent) from 1990 levels (before implementation of the ARP), 8.0 million tons (71 percent) from 2000 levels (ARP Phase 2), and 7.0 million tons (68 percent) from 2005 levels (before implementation of CAIR). All ARP and CAIR sources together emitted a total of 3.3 million tons of SO2 in 2012, well below the ARP's statutory annual cap of 8.95 million tons.

Annual SO2 emissions from sources in the CAIR SO2 program alone fell from 9.1 million tons in 2005 to 2.8 million tons in 2012, a 69 percent reduction. Between 2011 and 2012, SO2 emissions fell 1.1 million tons (28 percent).

Units in the ARP emitted 3.3 million tons of SO2 in 2012, so ARP sources reduced emissions by 12.4 million tons (79 percent) from 1990 levels and 14 million tons (81 percent) from 1980 levels.

Figure 3: SO2 Emissions from CAIR SO2 Annual Program and ARP Sources, 1980–2012

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SO2 Emissions from CAIR Annual SO2 Program and ARP Sources, 1980–2012

Note: For CAIR units not in the ARP, the 2009 annual SO2 emissions were applied retroactively for each pre-CAIR year following the year in which the unit began operating.

Source: EPA, 2013

The states with the highest emitting sources in 1990 have generally seen the greatest SO2 reductions under the ARP, and this trend continues under CAIR (see Figure 4, below). Most of these states are upwind of the areas the ARP and CAIR were designed to protect, and reductions have resulted in important environmental and health benefits over a large region.

From 1990 to 2012, annual SO2 emissions in the nationwide ARP and the regional CAIR SO2 program dropped in 43 states and D.C. by a total of approximately 12 million tons. In contrast, annual SO2 emissions increased by a total of only 25,696 tons in five states (Arkansas, Idaho, Nebraska, Oregon, and Vermont) from 1990 to 2012.

In 2012, the total SO2 emissions from participating sources were about 855,000 tons below the regional CAIR emission budget. Seventeen states and DC had emissions below their allowance budgets, collectively by about 956,000 tons. Another seven states exceeded their 2012 budgets by a total of about 101,000 tons, indicating that, on an aggregate basis, sources within those states covered a portion of their emissions with allowances banked from earlier years, transferred from an out-of-state account, or purchased from the market.

Figure 4: State-by-State Annual SO2 Emission Levels for CAIR and ARP Sources, 1990–2012

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SO2 map
DC
DE
NJ
VT
MD
MA
NH
CT
RI
Reset graph Scale graph to state

Select a state to display detailed SO2 data.

Cair State Color

  CAIR States controlled for fine particles.

Source: EPA, 2013

NOx Emission Reductions

Ozone Season NOx Reductions

Figure 5, below, shows ozone season NOx emissions from 1990 to 2012 for CAIR and NBP sources. In 2012, the fourth year of the CAIR NOx ozone season program, sources from both CAIR and the former NBP, together with a small number of sources that were previously in the NBP but did not enter CAIR, reduced their overall NOx emissions from 819,000 tons in 2005 (before implementation of CAIR) to 519,000 tons in 2012, a decrease of 37 percent. NOx emissions were 1.6 million tons lower (75 percent) than in 1990 and 940,000 tons lower (64 percent) than in 2000 (before implementation of the NBP).

Between 2005 and 2012, ozone season NOx emissions from sources in the CAIR program alone have fallen 298,000 tons, a decrease of 37 percent. From 2011 to 2012, ozone season emissions from sources in the CAIR NOx ozone season program decreased by 52,000 tons (9 percent). Ozone season NOx emissions totaled 514,000 tons in 2012, 9 percent below the regional emission budget of 567,744 tons.

In addition to the CAIR NOx ozone season program and the former NBP, current regional and state NOx emission control programs have also contributed significantly to the ozone season NOx reductions achieved by sources in 2012.

Figure 5: Ozone Season NOx Emissions from CAIR and NBP Sources, 1990–2012

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Ozone Season NOx Emissions from CAIR and NBP Sources, 1990–2012

Note: For CAIR units not in the NBP, the 2008 NOx emissions were applied retroactively to 1990 and 2000 if the unit operated in the previous year’s ozone season.

Source: EPA, 2013

Between 2005 and 2012, ozone season NOx emissions from CAIR and former NBP sources fell in every state participating in the CAIR NOx ozone season program except Arkansas and Pennsylvania (see Figure 6, below), where emissions increased by a total of 14,000 tons. In the 2012 ozone season, the total emissions from participating sources were about 111,000 tons below the regional emission budget. Eighteen states and D.C. had emissions below their allowance budgets, collectively by about 95,000 tons. Another seven states exceeded their 2012 budgets by a total of about 41,000 tons, indicating that, on an aggregate basis, sources within those states covered a portion of their emissions with allowances banked from earlier years, transferred from an out-of-state account, or purchased from the market.

Figure 6: State-by-State Ozone Season NOx Emission Levels from CAIR Sources, 2000–2012

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bars
DC
DE
NJ
MD
MA
CT
Reset graph Scale graph to state

Select a state to display detailed ozone season NOx data.

  : SO2 cap
Cap line
Ozone State Color

  CAIR States controlled for ozone.

Note: The 2000 and 2005 ozone season values reflect data that were reported under other programs (ARP and NBP). For facilities that were not covered by another program and did not report 2000 or 2005 emissions, their reported emissions for the earliest subsequent year (usually the 2008 training year) were substituted.

Source: EPA, 2013

 

Annual NOx Reductions

Figure 7, below, shows that from 1990 to 2012, annual NOx emissions from CAIR and ARP units together dropped by about 4.7 million tons to 1.7 million tons, a decrease of 73 percent. In 2012, the fourth year of the CAIR NOx annual program, NOx emissions from all ARP and CAIR units were 1.9 million tons lower (53 percent) than in 2005 and 3.4 million tons lower (67 percent) than in 2000.

Emissions from CAIR NOx annual program sources alone were 1.17 million tons in 2012, 330,000 tons (22 percent) below the 2012 CAIR NOx annual program's regional budget of 1.5 million tons. Annual NOx emissions were 1.5 million tons (56 percent) lower than in 2005, and 184,000 tons lower (13 percent) than in 2011.

All ARP sources emitted 1.7 million tons of NOx in 2012. This level is 6.4 million tons less than the projected level in 2000 without the ARP, and over three times the Title IV NOx emission reduction objective.

Although the ARP and CAIR NOx programs were responsible for a large portion of these annual NOx reductions, other programs—such as regional and state NOx emission control programs—also contributed significantly to the annual NOx reductions achieved by sources in 2012.

Figure 7: Annual NOx Emissions from CAIR and ARP Sources, 1990–2012

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Annual NOx Emissions from CAIR and ARP Sources, 1990–2012

Note: For CAIR units not in the ARP in 1990, 2000, and 2005, the 2008 annual NOx emissions were applied retroactively for each pre-CAIR year following the year in which the unit began operating.

Source: EPA, 2013

From 1990 to 2012, all states participating in the CAIR NOx annual program decreased their emissions, as indicated in Figure 8, below. Comparing 2005 to 2012, all states in the CAIR region emitted less NOx. The total NOx emissions from participating sources in 2012 were about 311,000 tons below the regional emission budget of 1,490,264 tons. Eighteen states and D.C. had emissions below their 2012 allowance budgets, collectively by about 365,000 tons. Six states exceeded their 2012 budgets by a total of about 54,000 tons, indicating that, on an aggregate basis, sources within those states covered a portion of their emissions with allowances banked from earlier years, transferred from an out-of-state account, or purchased from the market.

Figure 8: State-by-State Annual NOx Emission Levels for CAIR and ARP Sources, 1990–2012

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bars
DC
DE
NJ
VT
MD
MA
NH
CT
RI
Reset graph Scale graph to state

Select a state to display detailed NOx data.

  : SO2 cap
Cap line
Cair State Color

  CAIR States controlled for fine particles.

Source: EPA, 2013

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CAIR and ARP Program Compliance

SO2 Programs

Because SO2 allowances from the ARP are used by sources to comply with the CAIR SO2 annual program, compliance results for both programs are displayed together in this report. Table 3, below, shows how ARP allowances are used for compliance under both programs. All ARP and CAIR SO2 facilities reporting were in compliance with both programs in 2012 and held enough allowances to cover their SO2 emissions.

Table 3: CAIR and ARP SO2 Allowance Reconciliation Summary, 2012

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Total Allowances Held (1995–2012 Vintage) 26,605,632 Held by Affected Facility Accounts 18,445,333
Held by Other Accounts (General and Non-Affected Facilities) 8,160,299
Allowances Deducted for Acid Rain Compliance* -3,289,425
Penalty Allowance Deductions 0
Banked Allowances (after ARP Compliance) 23,316,207 Held by Affected Facility Accounts 15,155,908
Held by Other Accounts (General and Non-Affected Facilities)8,160,299
Acid Rain Program Allowances Deducted for CAIR SO2 Compliance-1,946,579
Banked Allowances (after ARP and CAIR SO2 Compliance) 21,369,628 Held by Affected Facility Accounts 13,209,329
Held by Other Accounts (General and Non-Affected Facilities)8,160,299

*Includes 8,893 allowances deducted from opt-ins for reduced utilization.

Source: EPA, 2013

Compliance Results

As of June 2013, the reported 2012 SO2 emissions by CAIR and ARP sources totaled 3,281,981 tons. Because of variation in rounding conventions, changes due to resubmissions by sources, and allowance compliance issues at certain units, this number is lower than the sums of emissions used for reconciliation purposes shown in Table 3, above. Therefore, the allowance totals deducted for actual emissions in Table 3 differ from the number of emissions shown elsewhere in this report.

CAIR and ARP SO2 Programs
Reported emissions (tons): 3,281,981
Compliance issues, rounding, and report resubmission adjustments (tons): –1,449
Emissions not covered by allowances (tons): 0
Additional vintage 2010 to 2012 allowances deducted for CAIR: +1,946,579
Total allowances deducted for emissions (includes some 2 for 1 CAIR deductions): 5,227,111

2012 was the third year for compliance with the CAIR SO2 program. Under this program, allowances are used to cover emissions based on the vintage year of the allowances, with pre–2010 vintage allowances used at one allowance for one ton of SO2 emissions, and 2010–2012 vintage allowances used at two allowances for one ton. For facilities covered by both CAIR and the ARP, reconciliation is a two-step process. First, ARP deductions are made. Then, any additional deductions to comply with the CAIR SO2 program are made. The additional deductions under CAIR could be to cover the two for one use of 2010–2012 allowances or to cover emissions for units that are subject to CAIR, but not the ARP.

In 2012, over 26.6 million SO2 allowances were available for compliance under both programs (9 million vintage 2012 and over 17.6 million banked from prior years). Almost 3.3 million allowances were deducted for ARP compliance and approximately 2 million allowances were deducted to complete reconciliation for CAIR. After reconciliation for both programs, over 21.3 million ARP SO2 allowances were banked and carried forward to the 2013 compliance year.

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NOx Programs

CAIR NOx Compliance Results

Tables 4 and 5, below, show how NOx allowances were used in 2012. All covered facilities reporting were in compliance with the CAIR NOx ozone season and CAIR NOx annual programs in 2012 and held enough allowances to cover their NOx emissions.

Table 4: CAIR NOx Ozone Season Allowance Reconciliation Summary, 2012

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Total Allowances Held (2003–2012 Vintage) 1,058,492 Held by Affected Facility Accounts 885,114
Held by Other Accounts (General and Non-Affected Facilities) 173,378
Allowances Deducted for CAIR NOx Ozone Season Trading Program -513,836
Penalty Allowance Deductions (2012 Vintage) 0
Banked Allowances 544,656 Held by Affected Facility Accounts371,278
Held by Other Accounts (General, State Holding, and Non-Affected Facilities)173,378

Source: EPA, 2013

Table 5: CAIR NOx Annual Allowance Reconciliation Summary, 2012

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Total Allowances Held (2009–2012 Vintage) 2,009,111 Held by Affected Facility Accounts1,784,242
Held by Other Accounts (General and Non-Affected Facilities)224,869
Allowances Deducted for CAIR NOx Annual Trading Program -1,169,534
Penalty Allowance Deductions 0
Banked Allowances 839,577 Held by Affected Facility Accounts614,708
Held by Other Accounts (General, State Holding, and Non-Affected Facilities)224,869

Source: EPA, 2013

Compliance Results

As of June 2013, the reported 2012 ozone season NOx emissions by CAIR sources totaled 513,813 tons, and annual emissions totaled 1,170,282 tons. Because of variation in rounding conventions, changes due to resubmissions by sources, and allowance compliance issues at certain units, these numbers are different from the sums of emissions used for reconciliation purposes shown in Table 4 (ozone season reconciliation) and Table 5 (annual reconciliation). Therefore, the allowance totals deducted for actual emissions in Tables 4 and 5 differ from the number of emissions shown elsewhere in this report.

CAIR NOx Ozone Season
Reported emissions (tons) 513,813
Compliance issues, rounding, and report resubmission adjustments (tons) +23
Emissions not covered by allowances (tons) 0
Total allowances deducted for emissions 513,836
CAIR NOx Annual Program
Reported emissions (tons) 1,170,282
Compliance issues, rounding, and report resubmission adjustments (tons) -748
Emissions not covered by allowances (tons) 0
Total allowances deducted for emissions 1,169,534
ARP NOx Compliance Results

The ARP NOx Program does not impose a cap on NOx emissions and does not rely on allowance trading. The program allows affected sources to comply either by meeting a unit-specific emission rate or by including two or more units in an emission rate averaging plan. These options provide affected sources with the flexibility to meet the NOx emission reduction requirements in a cost-effective manner. All 900 units subject to ARP NOx emissions limitations in 2012 were in compliance.

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Controls and Monitoring

To meet the ARP and CAIR emission reduction targets, some sources opt to install control technologies. A wide set of controls are available to help reduce emissions. The following is an analysis of controls on ARP and CAIR program coal-fired units and CAIR NOx program combined cycle units in 2012.

SO2 Controls in 2012

SO2 control options available to sources include switching to low sulfur coal, employing various types of flue gas desulfurization (FGDs), or utilizing fluidized bed limestone units. FGDs on coal-fired generators are the principal means of controlling SO2. The share of coal-fired generation, measured in megawatt hours (MWh), at controlled units in the ARP and the CAIR SO2 annual program grew to 66 percent in 2012 (see Table 6, below).

Table 6: SO2 Controls in 2012 on Coal-Fired Units in the ARP and CAIR Annual SO2 Program

SO2 Control Type Number of Units Share of Units Share of MWh Generation
FGD 468 44% 66%
Other 43 4% 1%
Uncontrolled 545 52% 33%

Note: Due to rounding, percentages shown may not add up to 100%.

Source: EPA, 2013

NOx Controls in 2012

NOx Ozone Season Program

Sources have a variety of options by which to reduce NOx emissions. Units with add-on controls—selective catalytic reduction (SCR) or selective non-catalytic reduction (SNCR)—accounted for 64 percent of coal-fired generation and 84 percent of generation at combined cycle units (gas- or oil-fired). Although 91 coal-fired units and 15 combined cycle units remain uncontrolled, they represent only one percent of coal-fired generation and one percent of combined cycle generation under the CAIR NOx ozone season program (see Table 7, below).

Table 7: NOx Controls in 2012 CAIR NOx Ozone Season Program

NOx Control Type Number of Coal-Fired Units Share of Coal-Fired
MWh Generation
Number of Combined Cycle
Units (Gas- or Oil-Fired)
Share of Combined Cycle
(Gas- or Oil-Fired)
MWh Generation
Combustion 385 33% 63 10%
Non-Controlled 91 1% 15 1%
Other Control 34 1% 94 5%
SCR 225 57% 363 84%
SNCR 138 7% 0 0%

Note: Due to rounding, percentages shown may not add up to 100%.

Source: EPA, 2013

NOx Annual Program

The 373 coal-fired units with add-on controls (either SCRs or SNCRs) generated 62 percent of annual generation, and the 425 combined cycle units with SCRs generated 78 percent of annual generation (see Table 8, below). Similar to the CAIR NOx ozone season program, uncontrolled units represent one percent of coal-fired generation and one percent of combined cycle generation under the CAIR NOx annual program.

Table 8: NOx Controls in 2012 CAIR NOx Annual Program

NOx Control Type Number of Coal-Fired Units Share of Coal-Fired
MWh Generation
Number of Combined Cycle
Units (Gas- or Oil-Fired)
Share of Combined Cycle
(Gas- or Oil-Fired)
MWh Generation
Combustion 385 34% 121 17%
Non-Controlled 72 1% 19 1%
Other Control 39 2% 91 4%
SCR 241 54% 425 78%
SNCR 132 8% 0 0%

Note: Due to rounding, percentages shown may not add up to 100%.

Source: EPA, 2013

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Continuous Emission Monitoring Systems

Accurate and consistent emissions monitoring is the foundation of a cap and trade system. EPA has developed detailed procedures (40 CFR Part 75) to ensure that sources monitor and report emissions with a high degree of precision, accuracy, reliability, and consistency. Sources use continuous emission monitoring systems (CEMS) or other approved methods. Part 75 requires sources to conduct stringent quality assurance tests of their monitoring systems, such as daily and quarterly calibration tests and a semiannual or annual relative accuracy test audit. These tests ensure that sources report accurate data and provide assurance to market participants that a ton of emissions measured at one facility is equivalent to a ton measured at a different facility.

While some CAIR units with low levels of emissions do not have to use CEMS, the vast majority of NOx emissions—over 99 percent—were measured by CEMS. Coal-fired units were required to use CEMS for NOx concentration and stack gas flow rate to calculate and record their NOx mass emissions. Oil-fired and gas-fired units could use a NOx CEMS in conjunction with a fuel flow meter to determine NOx mass emissions. Alternatively, for oil-fired and gas-fired units that either operated infrequently or had very low NOx emissions, Part 75 provided low-cost alternatives to conservatively estimate NOx mass emissions.

Similarly, CEMS monitored over 99 percent of SO2 emissions from CAIR sources, including 100 percent from coal-fired units and 24 percent from oil-fired units. The relatively low percentage for oil-fired units is consistent with the decline in oil-fired heat input, as most of these units were used infrequently and qualified for reduced monitoring.

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Market Activity

In a cap and trade program, sources may consider several emission reduction alternatives, and are allowed to trade allowances as part of their compliance strategy. Through trading, the overall market can achieve emission targets at a lower cost than through a command and control program because abatement costs are not the same for all sources. A market for emission allowances will emerge, and the allowance price will reflect the marginal cost of emission reductions, allowing emission control decisions to be made based on the cost of control options relative to the market price of allowances. The allowance price motivates those who have relatively low cost opportunities for emission reductions to make those investments and then sell any surplus allowances to those with higher marginal abatement costs.

Allowance Market Price Trends in 2012

In this third year of CAIR SO2 compliance, prices for pre-CAIR and CAIR ARP allowance vintages were below $3 per ton. NOx allowance prices declined throughout the year, with annual NOx prices staying below $80 per ton and ozone season NOx prices staying below $30 per ton. Availability of banked allowances (see CAIR and ARP Program Compliance for banked allowance volumes) along with decreases in emission levels put downward pressure on allowance prices. An overall trend of decreasing traded prices was evident in all markets. Current annual allowance prices are well below the marginal cost for reductions projected at the time of the final rule.1

Transaction Types and Volumes

Allowance transfer activity includes two types of transfers: EPA transfers to accounts and private transactions. EPA transfers to accounts include the initial allocation of allowances by states or EPA, as well as transfers into accounts related to special set-asides. This category does not include transfers due to allowance retirements. Private transactions include all transfers initiated by authorized account representatives for any compliance or general account purposes.

To help better understand the trends in market performance and transfer history, EPA classifies private transfers of allowance transactions into two categories:

  • Transfers between separate and distinct economic entities, which may include companies with contractual relationships such as power purchase agreements, but excludes parent-subsidiary types of relationships.

  • Transfers within a company or between related entities (e.g., holding company transfers between a unit compliance account and any account held by a company with an ownership interest in the unit).

While all transactions are important to proper market operation, EPA follows trends in the distinct economic entities transaction category with particular interest because these transactions represent an actual exchange of assets between unaffiliated participants. In 2012, about a quarter of each program’s traded allowances were exchanged between unrelated parties, often with a broker facilitating the trade (see Table 9). This proportion is smaller than in 2011.

Table 9: 2012 Allowance Transfers under CAIR and ARP

Transactions Conducted
in 2012
Allowances Transferred
in 2012
Share of Program’s 2012
Allowances Transferred
CAIR NOx Ozone Season Program 1,095 transactions 318,299 allowances Distinct Organizations27%
Related Organizations73%
CAIR NOx Annual Program 1,514 transactions 758,588 allowances Distinct Organizations26%
Related Organizations74%
ARP and CAIR SO2 Annual Program 1,497 transactions 8,446,197 allowances Distinct Organizations22%
Related Organizations78%
  • Most, but not all, of the transactions were characterized. The actual percentage shares may vary by less than 1% of the total allowances transferred for each program.
  • Percentages may not add up to 100% due to rounding.

Source: EPA, 2013

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Notes


  1. U.S. EPA, Regulatory Impact Analysis for the Final Clean Air Interstate Rule, Docket No. EPA-HQ-OAR-2003-0053-2158, 7-9.

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