9 - I. Sulfur Dioxide (SO2) Permits and the 1990 Clean Air...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
I. Sulfur Dioxide (SO 2 ) Permits and the 1990 Clean Air Act Background: o Acid rain is caused mainly by sulfur dioxide (SO 2 ) and nitrogen oxides (NO x ). o Comes from burning of fossil fuels. o Impact of acid rain: Kills aquatic life (e.g. “dead” lakes and ponds in Northeast). Hurts forests, especially at higher elevations. Detrimental health effects to humans. Clean Air Act of 1990 o Before the 1990 CAA, SO 2 and NO x were only regulated as local pollutants. o Therefore, utilities could meet regulations by building tall smokestacks that carried pollution away. o Moreover, command and control regulation required new plants use best available scrubber technology As a result, firms had incentives to extend lives of units. By 1985, 83% of SO 2 emissions came from plants that didn’t meet 1971 standards for new units. Heterogeneity among plants made a market solution useful. o The 1990 CAA established a permit market for sulfur dioxide (SO 2 ). Goal by 2000: Reduce SO 2 emissions by 10 million tons. How the market was implemented. o Plants given permits (1 ton SO2 per permit) based on current emissions. Phase I (1995-1999): starts with dirtiest 263 units. 8.7 million tons of permits were allocated in 1995. By 1999, this was reduced to 6.9 million tons. Phase II (2000): tightens limits and includes more firms. o 2.8% not allocated – held back and auctioned off to stimulate market activity. o Firms can make investments to reduce emissions, sell excess permits, or buy permits to emit more. o Permits can be banked. o $2,600 per ton fine for exceeding permits. The fine is indexed for inflation. What has happened? o Projected price of permits: $250-$350 for phase I, $500 - $750 for phase II Actual price around $100-150 in phase I (see http://www.epa.gov/airmarkets/progress/alprices.html for details) o Prices in phase II briefly exceeded $1000. They have typically been in the $300- $500 range. (
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/05/2012 for the course ECON 332 taught by Professor Hilarysigman during the Fall '11 term at Rutgers.

Page1 / 5

9 - I. Sulfur Dioxide (SO2) Permits and the 1990 Clean Air...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online