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1423class20 - 14.23 Government Regulation of Industry Class...

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14.23 Government Regulation ± of Industry± Class 20: Markets for Clean Air 1
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Outline • Acid Rain and its Environmental Impact • The US Acid Rain Program • Basic Permit Trading Concepts • Experience with the Market • An evaluation of its impact • The RECLAIM NO X Program in CA • RECLAIM and the CA Electricity Crisis 2
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What are Acid Rain Pollutants? Primarily caused by SO 2 and NO X emissions, significantly from power stations. Classic Environmental Externality - why is the problem different in Europe vis US? • Acid Rain affects: – Respiratory Health (mortality and morbidity) – Visibility (recreational and residential) – Fishing (recreational) 3 – Also forests (e.g. in Germany)
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Damage Estimates (Burtraw et al., 1998) Note: This includes SO 2 and NO X . 4
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Source: Burtraw et al. (1998) 5
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Basic Permit Concepts • Cap and Trade • Netting (within plant) • Offsets (build new plant if local reduction) • Bubble (within company) • Banking (past emissions) • Borrowing (against future emissions) 6
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US Clean Air Act Amendments of 1990 (CAAA) First Bush Administration implements tradeable permit approach to control emissions of SO2 from coal and oil burned in electric utility boilers (Title IV of CAAA). Enacted 1990, covers period from 1995-1999 (Phase 1) and from 2000- (Phase 2). • In Phase 1, largest 263 plants effected. In Phase 2, virtually all electric generating units to be included. Covered plants must have permits to cover their emissions in any given year or else substantial fines imposed. 7
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Organisation of Market for Permits Total no. of permits fixed indefinitely (constant beyond 2000), issued each year for 30 years ahead. Proposals exist for further emissions reduction. Each new and existing generator allocated rights
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1423class20 - 14.23 Government Regulation of Industry Class...

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