urmec Stales
                          Envtronnientai Protection
           Oecarroer ' 992
                                      Rain   Program
                         Overview        -:-
                           In order to reduce acid rain in the United States and Canada. Title IV
                           ot the Clean Air Act Amendments of 1990 established the Acid Rain
                           Program. The program will cut sulfur dioxide emissions in half and
                           substantially reduce nitrogen oxides emissions from electric utility
                           plants. This fact sheet presents an overview of the Acid Rain Program
                           and is one of a series containing information about.the program.
Hphe overall goal of the Acid Rain
 J. Program is to achieve signifi-
cant environmental benefits
through reductions in emissions of
sulfur dioxide (SOi) and nitrogen
oxides (NOx),  the primary causes
of acid rain. To achieve this goal at
the lowest cost to society, the pro-
gram employs both traditional and
innovative, market-based ap-
proaches for controlling air pollu-
tion. In,addition,  the program
encourages energy efficiency and
pollution prevention.
  Title IV of the dean Air Act sets
as its primary goal the reduction of
annual SQz emissions by 10 million
tons below 1980 levels. To achieve
SOi E«l«*tM* (N
0 0

SO2 Emissions

No Add Rain Program
Add Rate Pragma
i I till

I960 1990 2000 2010
                               Tha Acid Rain Program will rMutt in a 10
                               million ton reduction in SOa amiaatona
                               from 1980 lavala by tba yaar 2010.
                   Acid Rain Formation
                        Emissions mix Into tt»
                        atmosphere forming
                        suiftfffc and nitric acids
                           Addfc Compounds
       and ottwr sources
       tftct bum fa** fuels'
       emit S02md NOX
                           Vehicles err
Sulfur dloxlda and nttrogan oxktoa omiaaiona raact with watar vapor «"d oxidarta In
uVitm^r, andarV chamically tranaformad Into acidic eompounda. Thaaa
 cornpounda^ira dapoattad In rain or anow; tho compounda alao Join airborna
 partieiaa and failto aarth aa dry dapoaftloa
these reductions, the law requires a
two-phase tightening of the restric-
tions placed on fossil fuel-fired
power plants.
  Phase I begins in 1995 and af-
fects 110 mostly coal-burning
electric utility plants located in 21
eastern and midwestem states.
Phase n, which begins in the year
2000, tightens  the annual  emis-
sions limits imposed on  these
large, higher emitting plants and
also sets restrictions  on smaller,
cleaner plants  fired by coal, oil,
and gas. The program affects ex-
isting utility units with an output
capacity of greater than 25 mega-
watts and all new utility units.
   The Act also calls for a 2 million-
ton reduction in NOx emissions by
the year 2000. A significant portior
of this reduction will  be achieved
by coal-fired utility boilers that will
be required to install  low NO*
burner technologies and to meet
new emissions standards.
 The Acid Rain Program
 Operating Principles:
 Workable, Flexible,

   The Acid Rain Program is impU
 mented through an integrated sc
 of rules and guidance designe
 to accomplish  three  primar
    • Achieve environmental ben
     fits through reductions in SC
     and NOx emissions.
                               Printed on paper that contains at least 50% recycled fiber.

        U.S. S02 Emissions Distribution--By Source

                           Other Comoust.-2.6%
        Ind, Combustion-116%
                      U.S. NOx Emissions Distribution~8y Source
     Transporation-3 7%
                            Ind/Mfg Proc.-4,6%

                   ind, Combustion-1!i.
                                                   Other Combust-3 8%
                                                         11 ^'-y. i""!if,: '',	:,"".' ".HI '"I'i'fin'l'T'iLr1!!""!'!	"
                        Sourea: U.S. EPA. The NAPAP Emissions Inventory (Version 2). November 1989.
  • Facilitate active  trading of
    allowances and use of other
    compliance options to mini-
    mize compliance costs, maxi-
    mize economic efficiency, and
    permit   strong  economic

  * Promote pollution prevention
    and energy efficient strategies
    and technologies.

  Each individual rule fulfills a
vital function in  the  larger pro-
gram. The allowance trading sys-.
tern creates low-cost rules of
exchange that minimize govern-
ment intrusion and .make allow-
ance, trading  a viable compliance
strategy; the permitting process af-
fords sources maximum flexibility
in selecting the most costiffective
approach to  reducing emissions;
the continuous emission monitor-
ing (CEM) system provides cred-
ible accounting of emissions to
ensure the integrity of the market-
based  allowance  system and the
aduevement of the reduction goals;
the Excess Emissions Rule provides
incentives to ensure self-enforce-
ment, greatly reducing the need for
government action; and, finally, the
Appeals Procedures Rule allows the
regulated community to appeal de-
cisions with which it may disagree.
Additional rules under develop-
ment will address the reduction of
utility NOx emissions and afford '
industrial facilities the opportunity
to "opt-in"  to the Acid Rain

Allowance Trading
  The Acid Rain Program repre-
sents a  dramatic departure from
traditional command and control
regulatory methods that establish
specific inflexible emissions limita-
tions with which all affected
sources  must comply. Instead, the
program introduces an allowance
trading  system that harnesses the
incentives of the free market to re-
duce pollution.
  Under this system, affected util-
ity units are allocated allowances
annually  based on their historic
fuel consumption and a specific
emissions rate. Each allowance per-
mits a unit to  emit  1 ton of 5O2
during or after a specified year. For
each ton  of SO2 discharged in a
given year, one allowance is retired,
that is,  it can no longer be used.
During Phase n of the program, the
Act sets a permanent celling  (or
cap) at 8.95 million allowances on
total yearly allowance allocations
to utilities. This cap firmly restricts
emissions and ensures that  the
mandated emissions reductions
will be achieved and  environ-
mental benefits maintained.
  Allowances may be bought,
sold, or banked. Any person may
acquire allowances and participate
in the trading system. However, re-
gardless of the number of allow-
ances a source holds, it may not
emit at levels that would violate
federal or state limits set under
Title I of the Act to protect public
  At the end of the year, utilities
are granted a 30-day true-up or
grace period, during which SO2 al-
lowances may be purchased, if nec-
essary, to  cover each unit's
emissions for the year. At the end of
the grace period, the allowances a
unit holds in its compliance ac-
count  must equal  or exceed the
annual-SO2 emissions recorded
by the monitoring system.  Extra
allowances may be sold or banked
for use in future years.

Excess Emissions

   If compliance is not achieved, the
owners or operators of delinquent
units must pay a penalty of $2,000
per excess ton of emissions. In ad-
dition, violating utilities must off-
set the excess SO2 emissions with

allowances in an amount equiva-
lent to the excess. In essence, giving
up allowances to cover excess emis-
sions- will compel delinquent units
to reduce emissions of SO2. A util-
ity may either have allowances
deducted  immediately or submit
an Excess Emissions Offset Plan to
EPA that outlines how these cut-
backs will be achieved.

Auctions, Sales, and IPP
Contingency Guarantee
  EPA holds allowance  auctions
and sales  annually. The  auctions
help to send the market an allow-
ance price signal, as well as furnish
utilities with an additional avenue
for purchasing needed allowances.
The sales offer allowances at a fixed
price of $13X5. Anyone can buy al-
lowances in the direct sale, but in-
dependent power producers (IPPs)
can obtain written guarantees from
EPA stating that they have first pri-
ority. These guarantees, which
are awarded on a first-come, first-
served basis, secure the option for
qualified EPPs to purchase a yearly
amount  of allowances over a  30-
year span. This provision enables
IPPs to assure lenders that they will
have access to the allowances they
need  to build and  operate new

Impetus to Conserve

  The allowance trading system
contains an inherent incentive for
utilities  to conserve energy, since
for each ton of SO2 that a utility
avoids emitting, one fewer allow-
ance  must be retired.  Energy-
efficient utilities are then able to
sell their surplus allowances at a
profit. As also provided in the Act,
                      Phase I Sources
                      Phase II Sources
 During Phaaa I, 268 unfta «t 110 aourcaa, located primarily In tha Midwaat and
 Northaa«*»JwlU ba affactad by acid rain regulations. During Phaaa II, tha number of
 affactad untta will Incraaaa to 2,200, aa amallar, claanar powar planta ara Includad in
 tha regulatory natwork.
EPA has set aside a  reserve of
300,000 allowances to stimulate en-
ergy efficiency. Those utilities that
either implement demand-side en-
ergy conservation programs to cur-
tail emissions or install renewable
energy generation facilities may be
eligible to receive extra allowances
from this reserve.

The Allowance Tracking
  EPA will institute an electronic
recordkeepingand notification sys-
tem called the Allowance Tracking
System (ATS) to keep  track of al-
lowance transactions and the status
of allowance accounts.  ATS will be
the official tally of allowances by
which EPA will determine compli-
ance  with the emissions  limita-
tions. Any party interested in
participating in the trading system
may open an ATS account by sub-
mitting an application  to EPA. Ac-
counts will contain information on
unit account balances, emissions,
account representatives  (which
must be appointed by each trading
party), and serial numbers for each
allowance. ATS will be computer-
ized to expedite the flow  of data
and to assist in the development or
a viable market for allowances.

   Each source appoints one indi-
vidual, the Designated Repre-
sentative, to represent the owners
and operators of the source in all
matters relating to the holding and
disposal of allowances for its unite
that are-affected by the Clean Aii
Act. The  Designated  Repre-
sentative is also responsible for al
submissions pertaining to permits
compliance plans, emission moni
 toring reports, offset plans, compli
 ance certification,  and othe
 necessary information.

    The Designated Representativ
 for each source is required to file

                             • , 1	:.-
                                                                ;%  ,	..•	
            i         , '  "'"iir
permit application  for the source
and a compliance plan for each af-
fected unit at the source. The per-
mits and compliance plans feature
the same flexibility that charac-
terizes the Acid Rain Program as a
whole by complementing the
market-oriented allowance system
and fostering trading. For example,
they allow sources to make real-
time allowance trading decisions
through the use of automatic per-
mit amendments. The permits and
compliance plans also let sources
fashion a compliance strategy
tailored to their individual needs.
  The permits stipulate the basic
allowance allocation for each  af-
fected unit at a source. Permit ap-
plications must certify  that each
unit account will hold'a sufficient
number of allowances to cover the
unit's SO2 emissions for the year
and will comply with the applica-
ble N'Ox limit In addition, the
compliance plans  may  specify
alternative meafures that will be
taken to comply with the require-
ments. Permits are subject to public
comment before approval.
     ;,   ;,„ "., , i, ,,  i I ,     „ ,, ^_-_ •    -I.
Compliance Options:
Freedom to  Choose

  The Acid  Rain Program allows
sources to select .their own compli-
ance strategy.	'For	example^	to re-
duce SOa an affected source may
repo wer its units, use cleaner burn-
ing fuel, or reassign some of its en-
ergy production capacity from
dirtier units to  cleaner ones.
  A source also may elect to install
scrubber equipment at one or more
units that reduces emissions by 90
percent or  more, and  possibly
receive  extra allowances and an
extension on Phase I compliance
deadlines. Sources also may decide
to reduce electricity generation and
compensate  for reduced output in
one of several ways, such as adopt-
ing conservation or efficiency
measures. Some of the options af-
ford the unit special treatment,
such as a compliance extension or
extra allowances.  Some options,
                          11 , 	• ..a ,.
                          i1' 1 Ilili' W' IU
 ';',,"" f	,» '<"'!„,' ; .. i'KllME I li: •!	 ilhiUli,;!"	"""'	Ill
like fuel switching, require no spe-
cial prior approval.
   In either case, the program al-
lows affected utilities  to combine
these and other options in any way
they see fit in order to tailor their
compliance plans to  the unique
needs of each unit or system.

Continuous Emission
   Under the Acid Rain Program,
each unit must continuously meas-
ure and record its emissions of SOx,
NOx, and carbon dioxide, as well as
volumetric flow, opacity,.and dilu-
ent gas.  Most plants must be
equipped with a continuous emis-
sion monitoring (CEM) system.
The CEM system is critical to the
program. It instills confidence in
allowance transactions by certify-
ing the existence and quantity of
the commodity being traded.
Monitoring  also ensures, through
accurate accounting/ that the emis-
sions  reduction goals are met.
Unlike traditional regulatory pro-
grams, which measure specific
emissions rates, the Add Rain Pro-	
gram"' will" focus	attention	on total	
   The .GEM Rule also contains pro-
visions forMitia! equipment certi-
fication procedures, periodic
quality assurance and quality con-
trol procedures, recordkeeping and
reporting,, and procedures for fill-
ing in missing data periods. Plants
wul report emissions  data to EPA
on a quarterly basis.

 A Model Program
   EPA established the Acid Rain
 Advisory Committee  (ARAO to
 gain broad input into the develop-
 ment of the'Acid Rain Program, to
 promote collaboration, and to build
 consensus. ARAC consisted of rep-
 resentatives from various stake-
 holder groups, including utilities,
 coal and gas companies, emissions
 control equipment vendors, labor,
 academia, Public Utility Commis-
 sions, state pollution control agen-
 cies, and environmental  groups.
Prior to trie proposal of these rules,
ARAC convened six public meet-
ings with hundreds of participants.
The input received  through this
process was critical to the develop-
ment of the program.
  EPA is maintaining this open
door policy as it implements the
program, and it continues to solicit
ideas from the numerous and di-
verse individuals and groups inter-
ested in acid  rain control.  In
addition, EPA will evaluate the
benefits and effects of the program
through economic and environ-
mental studies.
  The Acid Rain Program is al-
ready being viewed around the
world as the prototype for tackling
emerging environmental issues.
The allowance trading system capi-
talizes on the power of the market-
place to reduce SO2 emissions in
the most cost-effective manner pos-
sible. The permitting program al-
lows sources the flexibility to tailor
and update their compliance strat-
egy based on their individual cir-
cumstances. The CEM system
provides the accurate accounting of
emissions  necessary to make the
program work, and  the excess
emissions penalties provide strong
incentives  for  self-enforcement.
Each of these separate components
contributes to the effective working
of an integrated program that lets
market incentives do the work to
achieve cost-effective emissions
 For More Information

   Write to:

   US. EPA
   Acid Rain Division (6204J)
   401 M Street, SW.
   Washington, DC 20460

   If you would like to receive other
 fact  sheets on  the  Acid Rain
 Program, call the Acid Rain Hotline
 at 617-674-7377 or the EPA Public
 Information  Center  (PIC) at