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Quick Facts About The Acid Rain Program

Cap and Trade
Additional Information

How it Works

The "Cap" puts a ceiling on Emissions

The Acid Rain Program set a nationwide cap on SO2 emissions from electric-generating facilities. Already, emissions have been reduced by more than 6.5 million tons from 1980 levels, measuring approximately 10.6 million tons in 2001. By 2010, the program will lower the cap to 8.95 million tons - a 50 percent reduction from 1980 SO2 emissions

Emissions Allowances Reinforce the Cap

Each allowance authorizes one ton of SO2 emissions. Limiting the number of available allowances ensures the cap's integrity. Allowances are allocated among sources based on emission performance standards and representative fuel use. At the end of each year, every source must have enough allowances to cover its emissions for that year. Unused emissions may be sold, traded, or saved (banked) for future use.

Sources Have Many Options for Reducing Emissions

Sources may choose from many alternatives that best meet their needs, including installing pollution control equipment; switching from high-sulfur coal to medium or low-sulfur coal, fuel blends, or natural gas; employing energy efficiency measures and/or renewable generation; buying excess allowances from other sources that have reduced their emissions; or using a combination of these and other options.

Monitoring and Penalties Ensure Compliance

An EPA-certified monitoring system at each source continuously measures and records mass emissions of SO2 to account for every ton of SO2 emitted. Sources must then retire one allowance for each ton emitted. Those that don't have enough allowances to cover their annual emissions are automatically fined and must surrender future year allowances to cover any shortfall.

Why it Works

The Cap Provides Environmental Certainty

Even in the case of high growth in the electricity industry, the cap restricts total emissions. This provides a distinct advantage over traditional command-and-control regulatory methods that establish source-specific emission rates and can't ensure that aggregate emissions don't rise as new sources come on-line or as existing sources are used more.

Limiting Allowances Creates Economic Value

A limit on allowances creates scarcity; scarcity ensures economic value for allowances; and value provides incentive to reduce emissions.

Lower Compliance Costs Raise the Environmental Bar

Because a cap and trade system allows companies to choose the lowest cost compliance option, regulators can pursue more ambitious environmental goals for a given expenditure. For example, before Congress agreed to a 10-million-ton reduction goal under the Acid Rain Program, most alternative proposals sought only an 8-million-ton reduction using conventional approaches.

Accurate Monitoring Improves Accountability

Accurate monitoring of all emissions and timely reporting ensure that a ton from one source is equal to a ton form any other source and that the integrity of the cap is maintained. Participating sources must fully account for each ton of emissions according to stringent protocols. The resulting compliance information is unprecedented in its accuracy and comprehensiveness. All data are publicly available on Data and Maps, providing complete transparency.

State and Local Authorities Retain Flexibility

States and localities may impose stricter limits on sources to address specific local air quality concerns. These limits must be met regardless of a source's accumulated allowances.

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