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1999 Acid Rain Allowance Auction
Remarks by Brian McLean, Director of the Acid Rain Division
Today, we are announcing the results of our 7th annual auction of sulfur dioxide (SO2) allowances conducted for EPA by the Chicago Board of Trade (CBOT). The Clean Air Act of 1990 created the SO2 allowance trading program and encouraged the development of other market-based approaches to air quality management. Since 1990, EPA has established the rules for this program and industry has taken advantage of its flexibility by reducing SO2 in the most cost-effective ways possible.
The acid rain trading program, now in its 5th year, is clearly a success: emissions are down by millions of tons, utilities are complying, trading activity is up, and allowance prices are lower than industry-- and EPA, for that matter-- predicted. While allowance prices were quite low for a couple years, over this past year the market price has risen to a level that many believe more closely reflects the actual cost of compliance.
This program demonstrates that when emissions are capped and accounted for through accurate measurement, an efficient market can develop and costs of meeting our environmental goals can be reduced. Based on our experience with SO2 allowance trading, EPA is now implementing a trading program for nitrogen oxides (NOx) for the 12 Northeastern states of the Ozone Transport Commission. Trading began last year and compliance begins May 1 of this year.
EPA has also proposed that NOx control and trading be expanded to 22 states in the Eastern U.S. to further reduce the transport of ozone. We are currently working with those States to develop rules for this trading program which would begin in 2003. Of course, emissions trading is a critical part of any effort to address climate change as well, and we are offering our experience, especially regarding the design and operation of allowance and emissions tracking systems, to those discussions.
It's interesting to remember that 6 years ago, that first auction was a large part of the allowance market; the one hundred fifty thousand (150,000) allowances auctioned that year dominated allowance market activity. Now the auction is one piece of a much larger and thriving market. Based on our Allowance Tracking System, in 1998, 9.5 million allowances were transferred between economically distinct parties, which represents a 20% increase over the year before.
We are happy that once again CBOT has conducted the auction and worked with us to provide the results to you. I look forward to hearing the remarks of the other participants here today regarding this year's results.