With the Clean Air Act Amendments of 1990 (CAAA) come many complex decisions for electric utilities. By now the majority of utilities have decided how they will comply with the clean air guidelines and acid rain program limits, at least for Phase I. But for those utilities that have selected coal switching as the preferred method of complying with the law, the task gets more complicated. Burn expensive low-sulfur coal and bank or sell allowances? Or burn just enough low-sulfur coal to meet the rules, and no more? Or perhaps burn high-sulfur coal and buy allowances on the open market?
Choices, options, and strategies abound.
Phase I of the CAAA required a sulfur dioxide (SO2) emissions reduction at many of the largest emitters beginning January 1, 1995. Phase II requires further reductions beginning January 1, 2000. The annual level of emissions for Phase I is approximately 2.5 pounds per million British thermal units (MMBtu). Phase II further restricts SO2 emissions, to approximately 1.2 pounds per MMBtu.
Title IV of the CAAA provides utilities with flexibility in selecting compliance methods. One such method of flexibility is the opportunity to trade emission allowances. For every ton of SO2 emitted at an affected unit, one allowance is consumed. Each utility must carry sufficient allowances to cover its annual level of emissions at affected units by the end of each year.