Buying Up the Right to Pollute (WC Archive)

When the US Environmental Protection Agency runs its annual auction for sulfur dioxide pollution allowances, polluters aren't the only organizations allowed to bid. As it turns out, anyone can -- including environmental activists who want to hold onto the allowances to prevent their use. Wired has a fascinating article about this today.

Allowance auctions force polluters to bid for the right to emit a given amount of SO2 (each allowance is worth one ton) over the course of a year. Companies that produce more SO2 as the year progresses have to buy allowances from other, cleaner, companies, reduce their emissions, or face EPA fines. Owners of SO2 allowances who choose not to sell their rights therefore keep that much SO2 out of the atmosphere. The Acid Rain Retirement Fund, based at the University of Southern Maine, actively purchases and "retires" pollution allowances.

Surprisingly, cost of each one-ton-allowance isn't all that high.

John Millett, a spokesman for the EPA, said the organization is not surprised that private citizens from environmental groups have taken part. "It was part of the market," he said. "We're treating emissions like a commodity that can be traded by anyone, just like any other commodity. It's part of the innovation of this program."
Bidders at this year's auction shelled out on average $272.82 for each 2004-vintage allowance. Allowances are usable at any time during or after their vintage. The price reflects an increase of nearly $100 from last year's auction of 2003-vintage allowances.

The auctions are held annually, but blocks of 2,500 allowances are regularly traded on the Chicago Board of Trade.

Given that over 250,000 allowances are sold each year, it's unlikely that a single environmental group could corner the market. Nonetheless, it's exciting to see the mechanisms designed for the convenience of polluters used in this way by organizations like ARRF. "Acid rain retirement" may not clear the air completely, but each ton bought and retired is one fewer ton of sulfur dioxide in the air, and that doesn't hurt.

More info:Professor Michael Hamilton, who runs ARRF, wrote to let us know that donations to the project can be made online through www.networkforgood.org.

The latest ARRF information release can be found in the extended entry...

LEGAL RIGHT TO EMIT 14,000 POUNDS OF AIR POLLUTION PURCHASED

BY ACID RAIN RETIREMENT FUND

The Acid Rain Retirement Fund was a successful bidder for the
right to emit 14,000 pounds of air pollution per year in the annual
auction of sulfur dioxide emissions allowances conducted March 22, 2004
by the Chicago Board of Trade. With their bid of $300.00 per ton,
A.R.R.F. purchased the legal right to emit 7 tons of sulfur dioxide in
2004 and every year thereafter.

Maine is downwind of the 105 dirtiest coal-fired power plants in
the U.S., most of which are located in the Ohio River Valley. One is in
New Hampshire, five in New York, 21 in Pennsylvania. They pollute so
much they're listed by name in the Clean Air Act of 1990.

Along with allowances purchased in prior years, A.R.R.F. now
owns the right to emit 186,000 pounds (93 tons) of sulfur dioxide per
year, plus whatever amount it has not emitted in previous years. This
may not sound like much, unless one considers that one ton of sulfur
dioxide makes enough acid rain to kill any lake in Maine.

Because A.R.R.F. did not exercise its right to emit any
pollution during 1996-2003, "banking" its emissions allowances for
the future, A.R.R.F. now holds the legal right to emit a total of
926,000 pounds--or 463 tons--of sulfur dioxide in 2004. Because it does
not use its rights, the air we breathe will be cleaner by that amount.
In 2005, the allowances A.R.R.F. already owns will be worth more than 1
million pounds of air pollution.

Each year the U.S. Environmental Protection Agency auctions off
to the highest bidder about 250,000 pollution allowances that enable
companies to emit one ton of sulfur dioxide. A non-profit,
all-volunteer, community educational group, the Acid Rain Retirement
Fund raises money and bids alongside polluters for as many allowances as
their funds can buy. But instead of using or trading them, A.R.R.F.
retires them permanently, taking allowances off the market and keeping
sulfur dioxide out of the air.

Examination of EPA Auction results 1993-2004 indicates "groups
or individuals like A.R.R.F. who purchased emissions allowances for
purposes other than releasing air pollution now own the right to emit
1,168 tons," according to Michael Hamilton, Associate Professor of
Political Science at the University of Southern Maine. Although most
have purchased only one or a few tons, this adds up to considerably more
than the 720 tons/year given by law to the Miami Fort #5 generating unit
in Ohio.

Since many purchases were made in earlier years, and unused
allowances have accumulated, these groups now own the right to emit
9,195 tons of sulfur dioxide in 2004. This is more than the annual
allocation of allowances to 68 of the 105 dirtiest generating units in
the United States, 22 more than last year. This means "someday one of
these plants will need emissions allowances owned by someone like
A.R.R.F. who won't sell them, and they'll have to clean up their
pollution," according to Hamilton.

Sulfur dioxide is the principal contributor to acid rain that
falls on Maine, causing respiratory disorders, impairing visibility,
harming the health of fish and wildlife, and degrading Maine lakes.
Acid rain brings with it mercury deposition, and together they cause
tremendous damage to our health and environment in Maine. People are
warned not to eat more than a little fish taken from lakes and streams
in Maine, due to unhealthy levels of mercury contaminiation. Recent
research at the University of Maine shows lakes and streams in New
England have been slow to recover from the effect of acid rain, compared
to some in Wisconsin, New York and Pennsylvania.

Many lakes in Maine are affected by acid precipitation. Rain is
considered abnormally acidic when it has a pH below 5.0, and lakes are
considered acidified with a pH of less than 5.5. According to the Maine
Department of Environmental Protection, about 100 lakes in Maine have pH
lower than 5.5. They say about half these lakes are naturally acidic,
the other half caused by acid rain.

The pH of rain and snow in Maine varies between 3.9 and 5.0.
The pH of precipitation recorded in December 2001 was 4.6 at Acadia
National Park, 4.5 at Bridgeton, 4.7 at Caribou, and 4.5 at Greenville.
"These readings indicate abnormal acidification" according to Hamilton.
A measurement of 4.5 pH is ten times more acidic than 5.5pH, which is
the normal pH of rainfall.

On March 22, 2004 the U.S. Environmental Protection Agency sold
allowances to emit 125,011 tons of sulfur dioxide first usable in 2004
in its "spot auction." The highest successful bid was for
$300.00/ton. American Electric Power Co., which operates several of the
dirtiest coal-fired plants in the Ohio River Valley, purchased 59.99% of
the spot auction allowances. The lowest successful bid was $260/ton,
considerably more than the lowest spot auction bid in 2003, which was
about $171/ton.

Another 125,000 tons worth of allowances first usable in 2011
were auctioned off for $128-129/ton to two bidders. American Electric
Power Co. purchased 99.96% of these advance-auction allowances at
$128/ton, about $40/ton more than one year ago. Apparently American
Electric Power Co. plans to continue significant sulfur dioxide
emissions in excess of their statutory allowances for many years in the
future. In total, over $50.1 million was spent on emissions allowances
in these two auctions.

The Acid Rain Retirement Fund uses participation in pollution
markets as a way to educate children and adults about the sources and
detrimental affects of air pollution and acid rain, and actions people
can take to reduce such pollution. This year, A.R.R.F. purchased
emissions allowances with funds donated by folks in Maine and from all
over the U.S., including sixth graders at South Kortright Central School
in South Kortright, NY, and Jesuit High School in New Orleans, LA.

For more information, visit the A.R.R.F. website at
http://www.usm.maine.edu/~pos/arrf.htm or write: Acid Rain
Retirement Fund, P.O. Box 10272, Portland, ME 04104, or call Michael
Hamilton at 780-4190.

Official EPA Auction results can be viewed at
www.epa.gov/airmarkets/auctions
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