Success of Acid Rain Program in the US and WHY?

Regulations on sulphur dioxide emissions worldwide started as early as the mid-1900s. In today's post, I'm going to discuss the Acid Rain Program in the US, which started in 1970 and examine the 'secrets' behind its success.

In the US, The Clean Air Act achieved significant amendments since 1970 and established national standards for air pollutant and list of six criteria pollutants (including SO2) to be regulated by the Environmental Protection Agency (EPA). One of these early and most successful regulations on SO2 is the US's Acid Rain Program, which reduces SO2 emission through a market-based cap and trade system. The phase I of this program began as early as 1995 and had influences on 263 units (termed 'Table A' units) at 110 major coal-burning electric utility plants lied in 21 eastern and midwestern states. Another 182 units also joined Phase I of Acid Rain Program as substitutions or compensating units. In Phase I Table A units were allocated allowances equivalent to an emission rate of 2.5 pounds of SO2 per million Btu of heat input times the unit's heat rate in the 1985-1987 reference period (Chan et al. 2015). Phase II of the program began in 2000 and added more units to it. The units affected expended to over 2000 including smaller units fired by coal, oil, and gas. The program was quite effective, as it has achieved a 64% reduction compared to 1990 levels in 2009. The following graph demonstrates the decline of SO2 emission from 1985 to 2010 (Paramanand, 2012).

fig.1 Yearly Sulfur Dioxide and Nitrous Oxide Emission (in tons)

One of the reasons that the Acid Rain Program was so successful was the flexibility granted to the utilities to choose their method of compliance. This flexibility directly led to a high cost-effectiveness. For phase I, the estimated cost was $678 million to $1,511 million, while the cost has been now approximately $814 million. Actual compliance cost for phase II is now estimated to be $1.1 to $1.8 billion per year, much lower than the projected cost of $7.5 billion per year. Overall, fuel blending and fuel switching have been the most favored approaches to comply with the program. Utilities found it cost-effective to retrofit plants to utilize different types of coal and switch from high-sulphur coal to low-sulphur one or use a combination of both. The industry also benefited additional cost reduction due to the Stagger Act of 1980, which ended the monopoly Burlington Northen Railroad company had out of the Powder River Basin (the primary mine) (Paramanand, 2012 cited Ellerman, et al., 2000). With the increased competition in the railroad industry, the cost of transportation decreased. Moreover, the Acid Rain Program created incentives for research and development to reduce cost and improve efficiency, as utilities can sell unused permits (Paramanand, 2012 cited Popp, 2003). The program has caused the growth of secondary markets for emission permits. 

What's more, the market-based incentive programs to being efficient and cost-effective promoted the innovations in scrubber technology. According to Kumar and Managi (2010), technological progress for scrubber has increased 8% a year. The improvement in technology further lowered the cost to reduce SO2 emission and increased the efficiency.

The success of Acid Rain Program in the US was a combination of successful policy-making and development of the technologies and transportation. The market-based cap and trade system provides industries incentives to seek for the most efficient and cost-effective approach to sulphur reduction, while the progress in technology and lower transportation further lower the cost and increased efficiency. Moreover, the EPA's year allocated permits for auction and the Clean Air Market Database helped correct market failure, and lead to the efficient allocation of goods and services. The program is worth learning for many other nations for sulphur mitigation and can be used for reference to reduce other air pollutants.