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2000 Acid Rain Allowance Auction
Remarks by Brian McLean
March 29, 2000
Today, we are announcing the results of our 8th annual auction of sulfur dioxide (SO2) allowances conducted for EPA by the Chicago Board of Trade (CBOT).
The year 2000 also marks the beginning of the second phase of the Acid Rain Program created under the Clean Air Act Amendments of 1990 of which this auction is a part. This year the Acid Rain Program expands from 400 fossil fuel-fired electric generating units in 25 states to over 2000 units in 48 states. All major power plants in the contiguous 48 states are now covered by this program.
The SO2 trading program, now entering its 6th year, is clearly a success and has moved from a public policy experiment to an effective mechanism for protecting the environment. It has reduced emissions by millions of tons and acid rain and fine particle pollution by up to 25%; and industry has achieved 100% compliance at costs now expected to be 75% lower than originally predicted. Allowance trading activity has increased steadily, and although prices have fluctuated, everyone has been able to obtain what they needed to comply.
Now, as we enter Phase II where more companies are required to make deeper reductions, companies are taking actions to ensure compliance. Preliminary information indicates that last year (1999) SO2 emissions dropped 700,000 tons over the previous year (1998) as companies prepared to meet their Phase II reduction obligations.
Because SO2 emissions have dropped so much already and over 11 million allowances have been banked, we expect to see only gradual reductions in SO2 over the next 10 years as we move toward the full 10 million ton reduction mandated by the Clean Air Act.
This program demonstrates that when emissions are capped and accounted for through accurate measurement and reporting, the government does not need to be involved in approving trades, an efficient market can develop, and we can meet our environmental goals.
Based on our experience with SO2 allowance trading, EPA is now partnering with the 12 Northeastern states of the Ozone Transport Commission to implement a trading program for nitrogen oxides (NOx). On Monday, we announced the results of the first year of that program: last summer, NOx emissions were reduced by over 50% from 1990 levels, which was 20% below allowable levels, and allowance prices are once again less than what was predicted.
EPA's proposal to expand NOx reductions and trading to most of the Eastern U.S. to further reduce the transport of ozone was recently upheld by the DC Circuit Court of Appeals. Trading for this program could begin as early as next year with reductions as early as 2003 in those States that complete their rules this year.
Finally, I would like to mention that emissions trading is a key component of the Administration's approach to climate change. However, to date the U.S. has been the only country in the world to actually employ the "cap and trade" approach; other countries have had no experience with it. But knowledge travels fast in this global internet economy. Just three weeks ago, the European Commission distributed a draft plan for meeting their obligations under the Kyoto Protocol, and for the first time they proposed that emissions trading be an integral part of Europe's strategy to reduce greenhouse gases. Today, over 30 countries are considering emissions trading to facilitate reductions in SO2, NOx, or greenhouse gases.
So, although the SO2 auction may seem routine, the market-based program it is a part of is taking hold around the world. That is why once again, I am happy to be here with the Board of Trade to announce the results of the auction, and I look forward to hearing the remarks of the others here today. Thank you.