Any private citizen, broker, utility or environmental group may acquire EPA's allowances from auctions and direct sales and as a result, allowances will be bought, sold or banked just like other commodities. EPA is encouraged by the fact that a number of utilities have already begun discussions among themselves for allowance trades. The auction and direct sale concept is an outgrowth of the innovative emission allowance program under the acid rain provisions of the new Act. This program mandates a 10 million ton reduction of SO2 emissions from 1980 levels by the year 2000. A plant's total annual SO2 emissions cannot exceed its allowances, and only EPA can create an allowance.
Allowances are transferable, allowing market forces to determine their price.
If a source reduces its SO2 emissions more than required, it will have left-over allowances it can sell to another utility or bank for its future use. By providing for such transactions, total emission reductions will be achieved in the most cost-effective manner, and the utility industry will have the flexibility to choose among various options for reducing emissions. The final auction and sale rules announced today are distinct from the proposed acid rain trading, permit and monitoring rules announced by EPA Oct. 29, which basically provided allowances to 110 existing electric utilities. As part of the allowance program, the Act requires EPA to set aside, for EPA-sponsored auctions and direct sales, up to 2.8 percent of the total allowances that would otherwise be available to existing utility sources each year. EPA expects these auctions and sales to stimulate the allowance trading market, establishing an initial market price early in the program.