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How EPA’s Acid Rain Cap-and-Trade Program Works

Posted on 1/12/2016 by James Griffin

“Acid rain” occurs when hazardous chemicals emitted from burning fossil fuels—namely sulfur dioxide and nitrogen oxides—rise into the atmosphere and return to earth in the form of precipitation (rain, snow, fog). Acid rain can damage lakes, forests, and property. The Environmental Protection Agency (EPA) suspects that acid rain harms human health as well.

How Does EPA Control Acid Rain?

US EPA gained the authority to create rules aimed at controlling acid rain when Congress passed the 1990 Clean Air Act Amendments. Having pinpointed sulfur dioxide and nitrogen oxides emissions from fossil fuel combustion as the primary source of acid rain, Congress amended the Clean Air Act in 1990 to add, among other things, Title IV-Acid Deposition. To reduce acid rain, the EPA has created regulations and policies aimed at curbing national annual emissions of sulfur dioxide.

As the United States’ primary source of sulfur dioxide (SO2) and nitrogen oxides (NOx) emissions from burning fossil fuels, electricity-generating units (EGUs) at power plants are the #1 target of EPA’s acid rain program.

Who Must Comply With EPA’s Acid Rain Rules?

EPA’s acid rain regulations can be found at 40 CFR 72–78. EPA implemented the acid rain program in two phases. Phase I started on January 1, 1995, and covered only larger utility units (those with capacities greater than 100 megawatts). On January 1, 2000, Phase II expanded the program to cover smaller utility units as well.

Owners and operators of affected units are required to apply for and comply with acid rain permits per the rules in 40 CFR 72. A “unit” means an individual combustion device like a boiler, furnace, combustion turbine, or engine. Electric utilities (power plants) and other facilities may house more than one “affected unit.”
Cap and trade for power plants under EPA's Acid Rain rules
EPA’s SO2 Cap-and-Trade Program

The success of the EPA’s acid rain program is measured largely by reductions of SO2 emissions from power plants. EPA has lowered the national “cap” on how much SO2 facilities may emit to the ambient air several times in the past 25 years. Most recently, the 2010 cap was set at 8.95 million tons, roughly half the amount of SO2 emitted by power plants in 1980.

Instead of individually managing SO2 emissions for each regulated unit through the Clean Air Act permit program, EPA created a cap-and-trade program.

How Does Cap-and-Trade Work?

To administer its acid rain cap-and-trade program, US EPA sets a limit on total national emissions (i.e., the “cap”). With the cap set, EPA auctions off “pollution rights” to regulated units and allows facilities to transfer (“trade”) the emissions allowances between themselves. Each allowance is an authorization from the EPA to emit up to 1 ton of SO2. In addition, most utility units are required to reduce emissions to no more than 1.2 pounds of SO2 per million British thermal units (Btu) of fuel consumed.

Under Phase II, to begin operating a new regulated unit, a facility must obtain all of its SO2 allowances by purchasing unused allowances from other existing units.

Opting Into Cap-and-Trade

While electric utility facilities are automatically subject to the SO2 cap-and-trade program, other combustion or process source facilities in the 48 contiguous US states (and D.C.) can opt into the program as well. 40 CFR 74 includes the rules for submitting an opt-in permit application. Once a facility opts into the SO2 allowance program, the site becomes subject to almost all other aspects of the acid rain program: permitting, allowance tracking, continuous emission monitoring, excess emissions, and appeals.

Don’t Forget About NOx!

Under 40 CFR 76, the EPA has issued limits for nitrogen oxides emissions from coal-fired utility units. Units subject to Part 76 must not allow their NOx emissions to exceed:
  • 0.45 lb./mmBtu of heat input on an annual average basis for tangentially fired boilers, and
  • 0.50 lb./mmBtu of heat input on an annual average basis for dry bottom wall-fired boilers.
EPA maintains a variety of reports on the progress and effects of the acid rain program on its website

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