In his article, "Why Taxes Don't Distort Emissions Trading" (Dec. 1, 1994, p. 37), Michael Thomas suggests that utilities should flow through the proceeds of emission allowance sales to ratepayers...
Marketing & Competing
low-sulfur 2.5-pound variety. Of course, sufficient allowances would need to be purchased, furnished by the coal supplier, or used from the utility's emission allowance bank to make the 5.0-pound coal equivalent to the 2.5-pound coal from an emissions standpoint.
By contrast, if the price of SO2 emissions should fall to $150.00, the 5.0-pound coal would carry a comparative effective cost of 117.75 cents per MMBtu, making it 7.25 cents cheaper per MMBtu than the
2.5-pound coal with the lower sulfur content, when integrated with CAAA compliance needs.
A Workable Plan
Using this strategy, any utility that has selected coal switching as its method of compliance may be able to take advantage of varying levels of sulfur content in coals that it uses for Phase I and Phase II of the CAAA.
This approach is very dependent on the price and availability of allowances. But it provides an opportunity for the utility to use its coal procurement strategy to bundle packages of coal and allowances that will potentially lower fuel costs. The aggressive high-sulfur coal producer also has an opportunity to make sales that otherwise may not be available. t
David A. Spainhoward serves as corporate planning specialist for Big Rivers Electric Corp., Henderson, KY. David E. Schultz, P.E., also at Big Rivers, is manager of bulk-power sales and corporate planning.
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