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Acid Rain Program Basic Information

Acid Rain Program

The information below provides a comprehensive overview of

the Acid Rain Program. For more information on the causes and

effects of acid rain, visit EPA’s Acid Rain Topic Web site.

Phases and Reductions

Operating Principles: Feasible, Flexible, Accountable

Environmental Benefits

Allowance Trading

Annual Reconciliation

Allowance Management System

Auctions

Voluntary Entry: The Opt-in Program

Pollution Prevention

Nitrogen Oxides (NOx) Reductions

Emissions Monitoring and Reporting

Excess Emissions

Designated Representatives

Permitting

Compliance Options: Freedom to Choose

A Model Program

Phases and Reductions

Title IV of the Clean Air Ac t set a goal of reducing annual SO2 emissions by 10 million tons

below 1980 levels. To achieve these reductions, the law required a two-phase tightening of

the restrictions placed on fossil fuel-fired power plants.

Phase I began in 1995 and affected 263 units at 110 mostly coal-burning electric utility plants

located in 21 eastern and midwestern states. An additional 182 units joined Phase I of the

program as substitution or compensating units, bringing the total of Phase I affected units to

445. Emissions data indicate that 1995 SO2 emissions at these units nationwide were reduced

by almost 40 percent below their required level.

Phase II, which began in the year 2000, tightened the annual emissions limits imposed on

these large, higher emitting plants and also set restrictions on smaller, cleaner plants fired by

coal, oil, and gas, encompassing over 2,000 units in all. The program affects existing utility

units serving generators with an output capacity of greater than 25 megawatts and all new

utility units.

The Ac t also called for a 2 million ton reduction in NOx emissions by the year 2000. A

significant portion of this reduction has been achieved by coal- fired utility boilers that will be

required to install low NOx burner technologies and to meet new emissions standards.

Detailed information about the emissions reductions achieved under the Acid Rain Program is

available at Emissions Data.

Operating Principles: Feasible, Flexible, and Accountable

Clean Air Markets

http://www.epa.gov/airmarkets/progsregs/arp/basic.html

Last updated on Wednesday, March 02, 2011

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The Acid Rain Program is implemented through an integrated set of rules and guidance

designed to accomplish three primary objec tives:

Achieve environmental benefits through reductions in S02 and NOx emissions.

Facilitate active trading of allowances and use of other compliance options to minimize

compliance costs, maximize economic efficiency, and permit strong economic growth.

Promote pollution prevention and energy efficient strategies and technologies.

Each individual component fulfills a vital function in the larger program:

The allowance trading system creates low-cost rules of exchange that minimize

government intrusion and make allowance trading a viable compliance strategy for

reducing SO2.

The opt-in program allows nonaffected industrial and small utility units to participate in

allowance trading.

The NOx emissions reduction rule sets new NOx emissions standards for existing coalfired utility boilers and allows emissions averaging to reduce costs.

The permitting process affords sources maximum flexibility in selec ting the most costeffective approach to reducing emissions.

The continuous emission monitoring (CEM) requirements provide credible accounting of

emissions to ensure the integrity of the market-based allowance system and to verify

the achievement of the reduction goals.

The excess emissions provision provides incentives to ensure self-enforcement, greatly

reducing the need for government intervention.

The appeals procedures allow the regulated community to appeal decisions with which

it may disagree.

Together these measures ensure the achievement of environmental benefits at the least cost

to society.

Environmental Benefits

Acid rain causes acidification of lakes and streams and contributes to damage to trees and

many sensitive forest soils. In addition, acid rain accelerates the decay of building materials

and paints, including irreplaceable buildings, statues, and sculptures that are part of our

nation's cultural heritage. Prior to falling to the earth, SO2 and NOx gases and their particulate

matter derivatives, sulfates and nitrates, contribute to visibility degradation and impac t public

health.

The Acid Rain Program confers significant benefits on the nation. By reducing SO2 and NOx,

many acidified lakes and streams will significantly improve so that they can once again support

fish life. Visibility will improve, allowing for increased enjoyment of scenic vistas across our

country, particularly in National Parks. Stress to our forests that populate the ridges of

mountains from Maine to Georgia will be reduced. Deterioration of our historic buildings and

monuments will be slowed. Most importantly, reductions in SO2 and NOx will reduce fine

particulate matter (sulfates, nitrates) and ground level ozone (smog), leading to improvements

in public health.

For more information, see EPA’s Acid Rain Topic Web site.

Allowance Trading

The Acid Rain Program represents a dramatic departure from traditional command and control

regulatory methods that establish specific , inflexible emissions limitations with which all

affected sources must comply. Instead, the Acid Rain Program introduces an allowance trading

system that harnesses the incentives of the free market to reduce pollution.

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Under this system, affec ted utility units are allocated allowances based on their historic fuel

consumption and a specific emissions rate. Each allowance permits a unit to emit 1 ton of SO2

during or after a specified year. For each ton of SO2 emitted in a given year, one allowance is

retired, that is, it can no longer be used.

Allowances may be bought, sold, or banked. Anyone may acquire allowances and participate in

the trading system. However, regardless of the number of allowances a source holds, it may

not emit at levels that would violate federal or state limits set under Title I of the Clean Air

Ac t to protect public health.

During Phase II of the program (now in effect), the Ac t set a permanent ceiling (or cap) of

8.95 million allowances for total annual allowance allocations to utilities. This cap firmly

restricts emissions and ensures that environmental benefits will be achieved and maintained.

For more information on how allowance trading works under the Acid Rain Program, see the

Acid Rain Program SO2 Allowances Fact Sheet. For more information about allowance trading in

general, visit CAMD Allowance Trading.

Annual Reconciliation

Annual reconciliation is the process by which EPA compares a regulated unit's annual emissions

and the number of allowances it owns. At the end of each year, units are granted a 60-day

grace period to ensure that they have sufficient allowances to match their SO2 emissions

during the previous year. If they need to, they may buy allowances during the grace period.

Units may sell allowances that exceed their emissions or bank them for use in future years.

For more information on annual reconciliation works under the Acid Rain Program, see the Acid

Rain Program Annual Reconciliation Fac t Sheet.

Allowance Tracking System

EPA has instituted an electronic recordkeeping and notification system called the Allowance

Tracking System (AMS) to track allowance transactions and the status of allowance accounts.

AMS is the official tally of allowances by which EPA determines compliance with the emissions

limitations. Any party interested in participating in the trading system may open an AMS

account by submitting an application to EPA. Accounts contain information on unit account

balances, account representatives (which must be appointed by each trading party), and

serial numbers for each allowance. AMS is computerized to expedite the flow of data and to

assist in the development of a viable market for allowances.

For more information, see Allowance Data Tracking.

Auctions and Direct Sale

EPA holds an allowance auc tion annually. The auc tions help to send the market an allowance

price signal, as well as furnish utilities with an additional avenue for purchasing needed

allowances. The direct sale offered allowances at a fixed price of $1,500 (adjusted for

inflation). Anyone could buy allowances in the direct sale, but independent power producers

(IPPs) could obtain written guarantees from EPA stating that they had first priority. These

guarantees, which were awarded on a first-come, first-served basis, secured the option for

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qualified IPPs to purchase a yearly amount of allowances over a 30 year span. This provision

enabled IPPs to assure lenders that they would have access to the allowances they needed to

build and operate new units. The direct sale was eliminated in 1997 because this provision

proved to be unnecessary.

For more information, see Acid Rain Program Allowance Auctions.

Voluntary Entry: The Opt-in Program

The Opt-in Program expands EPA's Acid Rain Program to include additional sulfur dioxide (SO2)

emitting sources. Recognizing that there are additional emission reduction opportunities in the

industrial sector, Congress established the Opt-in Program under section 410 of the Clean Air

Ac t Amendments of 1990. The Opt-in Program allows sources not required to participate in the

Acid Rain Program the opportunity to enter the program on a voluntary basis and receive their

own SO2 allowances.

The participation of these additional sources will reduce the cost of achieving the 10 million

ton reduction in SO2 emissions mandated under the Clean Air Act. As participating sources

reduce their SO2 emissions at a relatively low cost, their reductions—in the form of allowances

—can be transferred to elec tric utilities where emission reductions are more expensive.

The Opt-in Program offers a combustion source a financial incentive to voluntarily reduce its

SO2 emissions. By reducing emissions below its allowance allocation, an opt-in source will have

unused allowances, which it can sell in the SO2 allowance market. Opting in will be profitable if

the revenue from the sale of allowances exceeds the combined cost of the emissions reduction

and the cost of participating in the Opt-in Program.

For more information, see the Opt-in Program Fac t Sheet.

Pollution Prevention

The allowance trading system contains an inherent incentive for utilities to prevent pollution,

since for each ton of SO2 that a utility avoids emitting, one fewer allowance must be retired.

Utilities that reduce emissions through energy efficiency and renewable energy are able to sell,

use, or bank their surplus allowances. As also provided in the Ac t, EPA has set aside a reserve

of 300,000 allowances to stimulate energy efficiency and renewable energy generation. Those

utilities that either implement demand-side energy conservation programs to curtail emissions

or install renewable energy generation facilities may be eligible to receive bonus allowances

from this reserve.

For more information, see Conservation and Renewable Energy Incentives.

Nitrogen Oxides (NOx) Reductions

The Clean Air Act Amendments of 1990 set a goal of reducing NOx by 2 million tons from 1980

levels. The Acid Rain program focuses on one set of sources that emit NOx, coal-fired electric

utility boilers. As with the SO2 emission reduc tion requirements, the NOx program was

implemented in two phases, beginning in 1996 and 2000.

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The NOx program embodies many of the same principles of the SO2 trading program, in that it

also has a results-oriented approach, flexibility in the method to achieve emission reductions,

and program integrity through measurement of the emissions. However, it does not "cap" NOx

emissions as the SO2 program does, nor does it utilize an allowance trading system.

Emission limitations for the NOx boilers provide flexibility for utilities by focusing on the emission

rate to be achieved (expressed in pounds of NOx per million Btu of heat input). In general, two

options for compliance with the emission limitations are provided:

Compliance with an individual emission rate for a boiler.

Averaging of emission rates over two or more units to meet an overall emission rate

limitation.

These options give utilities flexibility to meet the emission limitations in the most cost-effective

way and allow for the further development of technologies to reduce the cost of compliance.

If a utility properly installs and maintains the appropriate control equipment designed to meet

the emission limitation established in the regulations, but is still unable to meet the limitation,

the NOx program allows the utility to apply for an alternative emission limitation (AEL) that

corresponds to the level that the utility demonstrates is achievable.

Phase I of the NOx program began on January 1, 1996 and applied to two types of boilers

(which were already targeted for Phase I SO2 reductions): dry-bottom wall- fired boilers and

tangentially fired boilers. Dry-bottom wall- fired boilers had to meet a limitation of 0.50 pounds

of NOx per mmBtu averaged over the year, and tangentially fired boilers had to achieve a

limitation of 0.45 pounds of NOx per mmBtu, again, averaged over the year. Approximately 170

boilers needed to comply with these NOx performance standards during Phase I.

Phase II of the NOx program began in 2000. These regulations:

Set lower emission limits for Group 1 boilers first subjec t to an acid rain emissions

limitation in Phase II, and

Established initial NOx emission limitations for Group 2 boilers, which include boilers

applying cell-burner technology, cyclone boilers, wet bottom boilers, and other types of

coal- fired boilers.

The final rule was promulgated on December 19, 1996.

For more information, see NOx Reductions under the Acid Rain Program.

Emissions Monitoring and Reporting

Under the Acid Rain Program, each source must continuously measure and record its emissions

of SO2, NOx, and CO2, as well as heat input, volumetric flow, and opacity. In most cases, a

continuous emission monitoring (CEM) system must be used. There are provisions for initial

equipment certification procedures, periodic quality assurance and quality control procedures,

recordkeeping and reporting, and procedures for filling in missing data periods. Sources report

hourly emissions data to EPA on a quarterly basis. The emissions monitoring and reporting

systems are critical to the program. They instill confidence in allowance transac tions by

certifying the existence and quantity of the commodity being traded and assure that NOx

averaging plans are working. Monitoring also ensures, through accurate accounting, that the

SO2 and NOx emissions reduc tion goals are met.

For more information, see the Continuous Emissions Monitoring Fac t Sheet.

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Excess Emissions

If annual emissions exceed the number of allowances held, the owners or operators of

delinquent units must pay a penalty of $2,000 (adjusted for inflation) per excess ton of SO2 or

NOx emissions. In addition, violating utilities must offset the excess SO2 emissions with

allowances in an amount equivalent to the excess. A utility may either have allowances

deducted immediately or submit an excess emissions offset plan to EPA that outlines how

these cutbacks will be achieved.

Designated Representatives

Each source appoints one individual, the Designated Representative, to represent the owners

and operators of the source in all matters relating to the holding and disposal of allowances for

its units that are affec ted by the Clean Air Ac t. The Designated Representative is also

responsible for all submissions pertaining to permits, compliance plans, emission monitoring

reports, offset plans, compliance certification, and other necessary information. A source may

appoint an Alternate Designated Representative to act on behalf of the Designated

Representative.

Permitting

The Designated Representative for each source is required to file an acid rain permit

application for the source and a compliance plan to the Title V permitting authority for each

affected unit at the source. The Acid Rain permits and compliance plans are simple, allow

sources to fashion a compliance strategy tailored to their individual needs, and foster trading.

For example, they allow sources to make real-time allowance trading decisions through the use

of automatic permit amendments.

Acid rain permits, which are also issued by the relevant Title V permitting authority, require

that each unit account hold a sufficient number of allowances to cover the unit's SO2

emissions in each year, comply with the applicable NOx limit, and monitor and report emissions.

Permits are subject to public comment before approval.

For more information, see Acid Rain Permits and Applicability.

Compliance Options: Freedom to Choose

The Acid Rain Program allows sources to select their own compliance strategy. For example, to

reduce SO2 an affec ted source may repower its units, use cleaner burning fuel, or reassign

some of its energy production capacity from dirtier units to cleaner ones. Sources also may

decide to reduce electricity generation by adopting conservation or efficiency measures. Most

options, like fuel switching, require no special prior approval, allowing the source to respond

quickly to market conditions without needing government approval. For NOx, the source may

meet the performance standard on a utility-unit basis, enter into an emissions averaging plan,

or apply for an alternative emissions limitation.

In either case, the program allows affected utilities to combine these and other options in

ways they see fit in order to tailor their compliance plans to the unique needs of each unit or

system.

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A Model Program

EPA gained broad input into the development of the Acid Rain Program by consulting with

representatives from various stakeholder groups, including utilities, coal and gas companies,

emissions control equipment vendors, labor, academia, Public Utility Commissions, state

pollution control agencies, and environmental groups.

EPA is maintaining this open door policy as it implements the program, and it continues to

solicit ideas from the numerous and diverse individuals and groups interested in acid rain

control. In addition, EPA is collaborating with groups who wish to evaluate the benefits and

effects of the program through economic and environmental studies.

The Acid Rain Program is already being viewed around the world as a prototype for tackling

emerging environmental issues. The allowance trading system capitalizes on the power of the

marketplace to reduce SO2 emissions in the most cost-effective manner possible. The

permitting program allows sources the flexibility to tailor and update their compliance strategy

based on their individual circumstances. The continuous emissions monitoring and reporting

systems provide the accurate accounting of emissions necessary to make the program work,

and the excess emissions penalties provide strong incentives for self-enforcement. Each of

these separate components contributes to the effec tive working of an integrated program that

lets market incentives do the work to achieve cost-effec tive emissions reduc tions. The

General Accounting Office recently confirmed the benefits of this approach, projecting that the

allowance trading system could save as much as $3 billion per year—over 50 percent—

compared with a command and control approach typical of previous environmental protec tion

programs.

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