The Market for Sulfur Dioxide (SO2)
The Acid Rain Program of the 1990 Clean Air Act places a limit (a
cap) on the amount of sulfur dioxide (SO2) that can be emitted annually. Sources of air
pollution are allocated allowances, or "rights to pollute", based on their
historic level of SO2 emissions. Each allowance permits one ton of
SO2 to be released into
the air. For each ton of SO2 discharged, one allowance is expended, and can not be used
again. At the end of each year, polluting sources must hold enough allowances to cover
their SO2 emissions for that year. Any remaining allowances can be sold, traded, or banked
for future use. If a source of air pollution does not have enough allowances to cover its
SO2 emissions, it can buy allowances on the open market. Allowances are a valuable and
tradable commodity.
The cap-and-trade approach to sulfur dioxide pollution reduction has
been very successful, both economically and environmentally. Since this market-based
program offers financial incentive to find the most cost-effective solution to reducing
sulfur dioxide emissions, attainment of SO2 limits has been achieved at lower costs than
predicted. The current cost of eliminating sulfur dioxide emissions averages about
$150/ton to $200/ton. (Meanwhile, the environmental damage produced by one ton of sulfur
dioxide is estimated to be near $4000). Attainment of sulfur dioxide limits has also
occurred more quickly than expected.
For more information on EPA's Acid Rain
SO2 Trading
Program, see the Agency's website at www.epa.gov/airmarkets/index.html. |
