Cross-posted from Environmental Law Prof Blog.
Do you realize that the Cross-State Air Pollution Rule finalized by the Environmental Protection Agency last week represents the end of the famed Acid Rain Program? It's a good thing because the Acid Rain Program had outlived its usefulness by several years and its allowance market had collapsed.
Legislated into existence by the Clean Air Act Amendments of 1990, the Acid Rain Program (ARP) was a major experiment with cap-and-trade regulation. It began in 1995, and its first few years were quite a success. With the ability to bank allowances for future years when they might be quite valuable, the power plants included in the program reduced their pollution by more than they had to. In the first five years of the program, EPA’s annual caps allowed them to emit a total of 38 million tons of sulfur dioxide, but the power plants actually only emitted 26 million tons. So when the program was expanded to include smaller power generators in 2000, the big utilities were sitting pretty with about 12 million ton of allowances in the bank (for a blow-by-blow of overallocation in this and other cap-and-trade programs see my article, The Overallocation Problem In Cap-And-Trade: Moving Toward Stringency, 34 COLUM. J. OF ENVTL. LAW 396 (2009).
But in the end, many of the big power plants probably didn’t make as much money selling their banked allowances as they thought they would. In the early 2000s, there was some demand for allowances because all those smaller generators weren’t allocated quite enough allowances to cover their emissions. A power plant selling in the early 2000s could have made about $150 per allowance. If they were really smart (or lucky), they sold allowances in the mid-2000s. In these years, the Bush Administration was implementing the Clean Air Interstate Rule (CAIR), which allowed the use of ARP allowances and made them more valuable. From 2005 to 2007, allowances traded for an average of more than $600. (For price information see EPA's auction results.)
Then, in July 2008, the DC Circuit struck down CAIR in North Carolina v. EPA, and in November, President Obama was elected. The power plants and other market actors realized that the ARP allowance party was ending, and the value of allowances plummeted. In 2009, allowances sold for $62; in 2010, they sold for $36, and earlier this year, they were selling for $2. Talk about a burst bubble, or a market collapse… that’s what the end of the Acid Rain Program looked like.
In great contrast to CAIR, the new Cross-State Air Pollution Rule does not allow the carryover of ARP allowances. Given that there were still more than twelve million tons-worth of banked allowances in 2009, this is a very good thing for the new rule’s stringency and for the environment. Although the size of the bank had decreased in the early and mid-2000s to about 6 million allowances, it grew again in the late 2000s as the program operated under the outdated and overly-lenient caps that had been set by Congress in 1990.
Kudos to the Obama EPA for putting the Acid Rain Program and its overallocated allowances to rest!
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Lesley McAllister | July 12, 2011
Cross-posted from Environmental Law Prof Blog. Do you realize that the Cross-State Air Pollution Rule finalized by the Environmental Protection Agency last week represents the end of the famed Acid Rain Program? It’s a good thing because the Acid Rain Program had outlived its usefulness by several years and its allowance market had collapsed. Legislated […]
Ben Somberg | July 8, 2011
Last month, the American Chemistry Council sent a letter to Jacob Lew, Director of the Office of Managmenet and Budget, calling on OMB to “take greater responsibility in the coordination and review of chemical safety assessments” and to “require EPA to submit all ongoing EPA IRIS assessments to the NAS for independent review.” The letter […]
Lena Pons | July 7, 2011
The Administration has been busy promoting President Obama’s new approach to regulatory review, which required federal regulatory agencies to produce plans for how they would review existing regulations and look for regulations to cut. But while the mad dash to find regulations the administration can trot out as misguided or outdated continued, the agencies were delayed […]
Sandra Zellmer | July 6, 2011
This post was written by CPR Member Scholar Sandra Zellmer and John H. Davidson, an emeritus professor of law at the University of South Dakota. It appeared first in the Omaha World-Herald. As the Missouri River nears the 500-year flood mark, we sympathize with those whose homes and businesses are flooded. And we recognize that […]
Shana Campbell Jones | July 5, 2011
Let’s go on a road trip. Whether it’s the beach or the mountains, we all know what going on a road trip means: great memories, possible adventure, time to mosey around the country we love. The Chamber of Commerce is also planning a road trip this summer, headed by former Sen. Evan Bayh (D-IN) and Andrew Card, George […]
Amy Sinden | June 30, 2011
Upon reading the White House Office of Information and Regulatory Affairs’ (OIRA) latest annual Report to Congress on the Benefits and Costs of Federal Regulations, one can be forgiven for wondering momentarily whether the 2008 election was just a dream and whether we’re still in the midst of a Republican administration. OIRA is telling us that […]
Rena Steinzor | June 28, 2011
Cross-posted from ACSblog. A series of catastrophic regulatory failures in recent years has focused attention on the weakened condition of regulatory agencies assigned to protect public health, worker and consumer safety, and the environment. The failures are the product of a destructive convergence of funding shortfalls, political attacks, and outmoded legal authority, setting the stage […]
Sidney A. Shapiro | June 24, 2011
On Wednesday, former senator Evan Bayh joined former George W. Bush Chief of Staff Andy Card at the Chamber of Commerce to formally announce their plans to tour around the country campaigning against regulations. The pair have already jumped into a series of falsehoods, endorsing, for example, the discredited SBA-sponsored study claiming regulations cost $1.75 […]
Catherine O'Neill | June 24, 2011
The EPA has developed an inexplicable penchant for making decisions that please no one. So, it should come as no surprise that its announcement today regarding the ongoing, will-they-won’t-they Boiler MACT saga falls into this category too. The agency traded in the indefinite delay it gave itself last month to “reconsider” the final Boiler MACT standards it […]