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Results of Annual S02 Allowance Auction Announced

Release Date: 03/23/2004
Contact Information:

John Millett, 202-564-7842 /

(Washington, D.C. - March 23, 2004) Private citizens, brokers and power plants bought and sold 250,011 tons of sulfur dioxide (SO2) at the 12th annual acid rain allowance auction on March 22 at the Chicago Board of Trade. An EPA progress report on the Acid Rain Program released in November 2003 details the emissions reductions resulting from the program .

Each “allowance” is the equivalent of one ton of acid rain-causing SO2, which is emitted from power plants. EPA’s Acid Rain Program uses a market-driven cap-and-trade system to cut SO2 emissions from power plants. SO2 emissions from electric power generation continue to decline, down by more than 7 million tons since 1980, improving human and environmental health, earlier, and at less cost, than would have occurred with more conventional approaches.

The auction, conducted by the Chicago Board of Trade, includes two "vintages" of allowances. Vintage describes the earliest year an allowance may be applied against SO2 emissions. In addition to year 2004 allowances, the Clean Air Act mandated that EPA auction additional allowances seven years in advance to help provide stability in planning for capital investment. These advance allowances will be usable in 2011.

Summary Results of the 2004 SO2 Allowance Auction:

Allowances Offered125,00011125,000--
Allowances Sold125,00011125,000--
Total Bids648
Successful Bids252
Clearing Price (lowest price at which a successful bid was made)$ 260.00$ 128.00
Average Price$ 272.82$ 128.00

EPA has been working with the Chicago Board of Trade, as well as the power industry and brokers and traders, since the program’s inception. The result is a viable SO2 allowance market and a demonstration that a mandatory emissions cap along with emissions trading can improve the environment at a lower cost than traditional control approaches. Detailed results of this year’s acid rain auction and information about how the trading program works are available on EPA’s Web site:

A national emissions cap, combined with SO2 allowance trading, has been effective both in terms of cost reduction and human health and environmental benefits since the program began in 1995. Current estimates indicate compliance costs 75 percent below those originally predicted by EPA. Acid deposition in the eastern United States has declined by approximately 30 percent, and many lakes and streams are showing signs of recovery.

The Clean Air Act established an annual national cap on SO2 emissions. Power plants hold annual allowances that they can use to cover SO2 emissions up to the cap level. In addition, the Clean Air Act mandates that a limited number of those allowances are withheld and auctioned. The auctions help ensure that new electric generating plants have a source of allowances beyond those allocated initially to existing units.