Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

Clean Air Rules: A New Roadmap for the Power Sector

How new market-based regulations fit with today’s programs.

Fortnightly Magazine - June 2007

2010 (in 2007 dollars), and that 2010 to 2014 vintage allowances would be worth approximately $368 per allowance due to the 2:1 retirement ratio. With 2007 vintage allowances trading at approximately $425 per ton as of early April 2007, observers generally agree that the SO 2 market is undervalued. But with allowance demand low as sources finalize compliance plans, there is little current support for higher prices.

EPA’s modeling of the NO X market projects prices in the annual market to be $1,440/ton in 2010. Although there will be two distinct markets, EPA expects that the prices in both the annual and seasonal markets will be established by the cost of controls for annual compliance. There has been trading activity in the 2009 seasonal market, but allowances for the new annual NO X CAIR market have yet to trade. Observers expect that trading will not occur until CAIR State Implementation Plans (SIPs) have been approved and NO X allowance accounts are populated later this year.

For both the SO 2 and NO X markets, it will take time for buyers and sellers to continue to assess the fundamentals of the changes introduced by CAIR, but this is secondary to the achievement of the environmental accountability and results of the program.

CAIR requires that covered states submit SIPs to EPA by September 2006. The agency also promulgated a federal implementation plan (FIP) that implements the model-trading rules for every CAIR state and offered to leave it in place for states not wishing to submit a SIP. Eleven of the states have thus far submitted the required SIPs and several other states have chosen to leave the FIP in place, at least temporarily. All of the SIPs adopt the model-trading rules, and EPA expects all 29 affected jurisdictions to participate in the EPA-run program.

States choosing to adopt the model rules have some flexibility in participating, including determining NO X allowance allocations independently; non-EGUs from the NO X Budget Trading Program; and the opt-in methodologies in the CAIR model rules. Nearly all states submitting SIPs thus far establish their own allocation methodologies, often including special set-asides both for new sources and providing incentives for various state priorities, like renewable energy or add-on controls. In some cases, states roll any unclaimed set-aside allowances back into the main allowance pool; others hold them over for possible distribution in the future.

Most states thus far have chosen to include the model rule provisions that allow sources to opt-in. Of the 19 states plus D.C. that are subject to the NO X SIP Call and also CAIR (note that Rhode Island was included in the former, but not the latter), all but five have indicated they will include the NO X Budget Trading Program is non-EGUs in the applicability for the CAIR NO X ozone-season program.

Whether sources in a state are subject to a SIP or a FIP, NO X allowances under CAIR will be allocated by the end of this year (SO 2 allowances already have been allocated under Title IV). Figure 3 shows the advanced