Acid Rain
Program
2003 Progress Report
SEPTEMBER 2004
   CLEANAIR
   MARKET PROGRAMS

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The Acid Rain Program Progress Report is published annually by EPA to update
the public on compliance with the Acid Rain Program, the status of implementa-
tion, and progress toward achieving environmental goals. The Acid Rain Program
2003 Progress Report updates data reported in previous years, specifically:
    SC>2 emissions, allowance market information, and program compliance

    NOx emissions and program compliance

    Status and trends in acid deposition, air quality, and ecological effects
Detailed unit-level emissions data are available on EPA's Clean Air Markets web-
site. For more information on the Acid Rain Program, including additional infor-
mation on SO2 and NOX emissions, acid deposition monitoring, and the environ-
mental effects of acid deposition, please visit EPA's Clean Air Markets website at
www.epa.gov/airmarkets.
                          EPA Acid Rain Program
                            2003 Progress Report
                             EPA 430-R-04-009

                         Clean Air Markets Division
                         Office of Air and Radiation
                    U.S. Environmental Protection Agency

                              September 2004

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Summary
Congress created the Acid Rain Program in Title IV of the 1990 Clean Air Act Amendments. The Acid
Rain Program has the goals of lowering the electric power industry's annual emissions of:

     Sulfur dioxide (802) to half of 1980 levels, capping them at 8.95 million tons starting in 2010,
      and

     Nitrogen oxide (NOx) to 2 million tons lower than the forecasted level for 2000, reducing
      annual emissions to  a level of 6.1 million tons in 2000.

In 2003, Acid Rain Program emission controls on the electric power industry resulted in:

     SO2  emissions of 10.6  million tons, a reduction of 38 percent from 1980 levels. Emissions were
      4 percent higher in 2003 than in 2002. This small increase resulted from increased production
      of electricity by coal-fired and oil-fired units that emit much more SO2 than natural gas units
      that  generated less power in 2003. The main cause of this was the substantial increase in natural
      gas prices. Large, early SO2 reductions that were very beneficial at the program's outset enabled
      banked allowances to be available to cover these emissions.
           emissions of 4.2 million tons, which were close to 4 million tons less than the emissions
      forecasted for 2000. Other regulations, such as the NOx Budget Program in the Northeast, also
      contributed to this reduction in emissions.

As in years past, the  electric power industry achieved nearly 100 percent compliance with Acid Rain
Program requirements  only 1 unit had emissions exceeding the SO2 allowances that it held and
no units were out of compliance with the NOx program. This exceptionally high level of compliance
was, in part, achieved as a result of the Acid Rain Program's continued provision of accurate and com-
plete SO2 and NOX emissions data. This process was augmented by a substantial auditing effort and
accountability through rigorous, yet streamlined, reporting systems.

SO2 and NOX are the key pollutants in the formation of acid rain. These pollutants also contribute to
the formation of fine particles (sulfates and nitrates) that are associated with significant health effects
and regional haze. Additionally, NOX combines with volatile organic compounds (VOCs) to form
ozone (smog), and nitrates that are transported and deposited at environmentally detrimental levels in
parts of the country.  The United States (U.S.) electric power industry accounts for approximately 67
percent of total annual SO2 emissions and 22 percent of total annual NOx emissions.

Since the Acid Rain Program began in 1995, the lower SO2 and NOx emissions levels from the power
sector have contributed to significant  air quality and environmental improvements that EPA's Clean
Air Status  and Trends Network (CASTNET) and other long-term environmental monitoring networks
are reporting.

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Over the last decade:

   Ambient SO2 and sulfate levels are down more than 40 percent and 30 percent, respectively, in the
    eastern U.S.

   Wet sulfate deposition, which acidifies sensitive lakes, streams and forest soils, has decreased 39
    percent in the northeastern U.S. and 17 percent in the southeastern U.S.

   Some modest reductions in inorganic nitrogen deposition and wet nitrate concentrations have
    occurred in the Northeast and Mid-Atlantic regions, but other areas have not shown much
    improvement.

   Signs of recovery in acidified lakes and streams are evident in the Adirondacks, the northern
    Appalachian Plateau, and the upper Midwest. These signs include lower concentrations of sulfates,
    nitrates, and improvements in  acid neutralizing capacity.
  The Acid Rain Program has produced remarkable and demonstrable results. It has reduced S02 emissions faster and
  at far lower costs than anticipated, yielding wide-ranging health and environmental improvements. In fact, during
  2003, the Office of Management and Budget found the program accounted for the largest quantified  human health
  benefits  over $70 billion annually  of any federal regulatory program implemented in the last 10 years, with
  annual benefits exceeding costs by more than 40:1.

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Origins of the

Acid  Rain  Program

Acid deposition, more commonly known as acid
rain, occurs when emissions of sulfur dioxide
(SO2) and nitrogen oxides (NOX) react in the
atmosphere (with water, oxygen, and oxidants) to
form various acidic compounds. Prevailing winds
transport the acidic compounds hundreds of miles,
often across state and national borders, where
they may impair air quality and damage public
health, acidify lakes and streams, harm sensitive
forest and coastal ecosystems, degrade visibility,
and accelerate the decay of building materials.

The Acid Rain Program, established under Title IV
of the 1990 Clean Air Act Amendments, requires
major reductions of SO2 and NOX emissions. The
SO2 program sets a permanent cap on the total
amount of SO2 that may be emitted by electric
power plants in the contiguous U.S. at about one-
half of the amount of SO2 these sources emitted in
1980. Using a market-based cap and trade mecha-
nism allows flexibility for individual combustion
units to select their own methods of compliance.
One allowance provides a regulated unit limited
authorization to emit one ton of SO2. Provisions
of the 1990 Clean Air Act outline the allocation
of allowances to regulated units based on historic
fuel consumption and specific emission rates
prior to the start of the program. For any year,
the number of allowances totals the SO2 emis-
sions cap.

The program uses a more traditional approach to
NOx emission limitations for certain coal-fired elec-
tric utility boilers, with the objective of achieving a
2 million ton reduction from projected NOx emis-
sion levels that would have been emitted in 2000
without implementation of Tide IV.

The Acid Rain Program is comprised of two
phases for SO2 and NOX.  Phase I applied primar-
ily to the largest coal-fired electric generation
sources from 1995 through 1999 for SO2 and
from 1996 through 1999 for NOX. Phase II for
both pollutants began in 2000. For SO2, it applies
to thousands of combustion units generating elec-
tricity nationwide; for NOX it generally applies to
affected units that burned coal during 1990-1995.

S02 Emission  Reductions
Electric power generation is by far the largest
single source of SO2 emissions in the U.S.,
accounting for approximately 67 percent of total
SO2 emissions nationwide in 2002.l In 2003,
3,497 units were subject to the SO2 provisions
of the Acid Rain Program. That year, 10.6 mil-
lion tons of SO2 were emitted, an increase  of 4
percent from 2002. To  date, Acid Rain Program
sources posted a total annual reduction in  SO2
emissions of approximately 38 percent compared
to 1980 levels (32 percent compared to 1990 lev-
els). Figure 1 shows the trend in SO2 emissions
since 1980  for all Title  IV affected sources.

For 2003, a total of 9.5 million allowances were
allocated. Adding these allowances to the 8.6 mil-
lion unused allowances carried over (or banked)
from prior years, a total  of 18.2 million allowances
were available for use in 2003. Sources emitted 10.6
million tons of SO2 in 2003,  1.1 million tons more
than the allowances granted in the year but far less
than the total allowable level.

FIGURE 1
SO2  Emissions under  the  Acid Rain Program
Source: EPA
   20
      1980 1985  1990  1995 1996  1997  1998  1999 2000  2001  2002 2003
       | Phase I sources
       ] Phase II sources
all sources
allowances allocated forthatyear
  National Emission Inventory 2002: www.epa.gov/ttn/chief/trends/index.html. Emissions from each individual electricity
  generating unit affected by the Acid Rain Program are available on EPA's Clean Air Markets website at www.epa.gov/
  airmarkets.

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FIGURE 2
SO2 Emissions and the
Allowance Bank, 1995-2003
Source: EPA
   25
   20
 .2 15
   10
                                      21.6
                               16.6
                         15.0
                   13.5
             11.7
        8.7
                                            19.9
                                                  18.8
                                                        18.2
       1995
             1996   1997
                         1998    1999    2000    2001
                                                  2002
                                                        2003
       ] Allowances allocated thatyear
       J Unused allowances from previous year (bank)
       i Actual emissions from affected sources
              As shown in Figure 2, the bank was reduced
              by 1.1 million allowances (12 percent) in 2003.
              Over time the bank is expected to continue to
              be depleted as sources use banked allowances to
              continue to comply with the stringent Phase II
              requirements. Figure 3 explains in more detail
              the origin of the allowances that were available
              for use in 2003.

              In 2010, the annual total of allowances allocated
              drops to 8.95 million (representing close to 50
              percent of the emissions  from the power industry
              in 1980) and remains statutorily fixed at that
              annual level permanently.

              Reductions  in SC>2 emissions from other sources
              not affected by the Acid  Rain Program, includ-
              ing smelters and sulfuric acid manufacturing
              plants, and  use of cleaner fuels in residential and
              commercial burners, have also contributed to
              the 41 percent decline of SC>2  emissions from all
              sources since 1980 (National Emission Inventory
              www.epa.gov/ttn/chief/ trends/index.html).
            FIGURES
            Origin of 2003 Allowable SC>2 Emissions Levels
            Source: EPA
             Type of Allowance Allocation

             Initial Allocation

             Allowance Auctions

             Opt-in Allowances

             Total 2003 Allocation

             Banked Allowances

             Total 2003 Allowable
Number ot
Allowances

9,191,897

  250,000

   99,188

  9,541,085

8,646,818

 18,187,903
Explanation of Allowance Allocation Type
Initial Allocation is the number of allowances granted to
units1 based on the product of their historic utilization and
emissions rates specified in the Clean Air Act.
Allowance Auctions provide allowances to the market that
were set aside in a Special Allowance Reserve when the
initial allowance allocation was made.

Opt-in Allowances are provided to units entering the
program voluntarily. There were 11 opt-in units in 2003.
Banked Allowances are those held over from 1995 through
2002, which can be used for compliance in 2003 or any
future year.
             1 In this report, the term "unit" means a fossil-fuel fired combustor that serves a generator that provides electricity for sale.
               The vast majority of SO2 emissions affected by the program come from coal-fired generation units, but oil and natural gas
               units are also included in the program.

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The states with the highest emissions in 1990
achieved the greatest SO2 reductions during the
Acid Rain Program. Most of these states were
upwind of the areas the Acid Rain Program was
designed to protect, and reductions resulted in
important environmental and health benefits over
a large regional scale (see Figure 4). In addition,
the states that reduced emissions had total annual
reductions of approximately 5.5 million tons, while
the states that had increased emissions  largely
attributable to growth and not increases in emis-
sions rates  had much smaller annual increases (a
total increase of approximately 440,000 tons).

For 31 states  and the District of Columbia, aver-
age annual SO2 emissions in 2000-2003 were
lower than annual  emissions in 1990. Among
these states, twelve states decreased their annual
average emissions by more than 100,000 tons
between 1990 and  2000-2003. These states were
Florida, Georgia, Illinois, Indiana, Kentucky,
Massachusetts, Missouri, New York, Ohio,
Pennsylvania, Tennessee, and West Virginia. The
states with the greatest reductions were in the
Midwest and included Ohio (1 million tons of
reduction) and Illinois, Indiana, and Missouri
(over 500,000 tons of reduction each).

In 17 states annual emissions increased between
1990 and 2000-2003. These states were
Arkansas, Colorado, Idaho, Kansas, Louisiana,
Minnesota, Montana, Nebraska, North
Carolina, North Dakota, Oklahoma, Oregon,
South Carolina, Texas, Vermont, Virginia, and
Wyoming. Only one  state increased more than
100,000 tons annually. Of the remaining  states,
one-third had emissions increases of less than
1,500 tons, another third had increases between
1,500 tons and 20,000 tons, and the remain-
ing third had increases between 20,000 and
100,000 tons.

S02  Allowance Market
The allowance trading mechanism of the Acid
Rain Program enabled the 3,497 units subject
to the SO2 requirements in 2003 to pursue a
variety of compliance options.  The allowance
market has given some sources the incentive to
FIGURE 4
State by State SC>2 Emissions Levels
Source: EPA
   B Emissions in 1930
   | Phase I average 1935-1993
   QJ Phase II average 2000-2003
   Scale: Largest bar equals 2.2 million tons of emissions in Ohio, 1990

FIGURES
SC>2 Allowance Price Index
Source: Cantor Fitzgerald
   300
   250
       1995   1996
                   1997   1998
                             1999
                                   2000   2001
                                              2002   2003
reduce their SO2 emissions below the level of
their allowance allocation in order to bank their
allowances for use in future years or to sell them
to other sources. Other sources have been able
to postpone or reduce expenditures for control
by purchasing allowances from sources that con-
trolled below their allowance allocation level.

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               Why were  S02 emissions  higher in  2003 than  in 2002?
               In 2003, electricity sales rose by more than 1  percent. Additionally, relative prices changed among fossil fuels that supply over 70
               percent of the nation's power. While coal prices for power generation rose about 1 percent, petroleum prices increased 34 per-
               cent, and natural gas prices increased 55 percent. There was hotter-than-normal summer weather in major parts of the country
               during 2003 and nuclear units were not able to run as hard as they did in 2002. All of this led to coal-fired electricity generation
               increases of about 2 percent, oil-fired generation increases of 25 percent, and natural gas-fired generation decreases of about 9
               percent.1'2 Coal-fired and oil-fired generation have much higher S02 emissions rates than natural gas fired units per unit of elec-
               tricity output. Close to 75 percent of the additional 400,000 tons of S02 emissions emitted from sources in the Acid Rain Program
               during 2003 come from increased coal-fired generation, and the remainder comes from increased oil-fired generation.3
               The early, large reductions in S02 that sources in the Acid Rain Program made at the start of the  Program  in the mid-1990s,
               resulting in emissions that were well below the emissions cap, enabled them to bank allowances to use in situations like
               this where prices quickly changed and were not foreseen well in advance by many sources of generation.  Notably, the overall
               average rate of S02 emissions for coal-fired units did not change substantially from  2002 to 2003, but the amount of coal
               burned (on a Btu-basis) was about 3 percent higher.
               1 Energy Information Administration, Electric Power Monthly. December 2003. March 2004.
               2 Energy Information Administration, U.S. Coal Supply and Demand: 2003 Review, EIA website under coal publications.
               3 EPA's Acid Rain data base for 2003 air emissions.
FIGURE 6
SC>2 Allowances Transferred
under the Acid Rain Program
Source: EPA
      1994   1995   1996   1997   1998   1999   2000  2001   2002   2003
      | Between Economically Related Organizations
      Q Between Economically Unrelated Organizations
            The marginal cost of compliance  the cost of
            reducing the next ton of SO2 emitted from the
            power sector  is reflected in the price of an
            allowance.

            Allowance prices for 2003 experienced an
            upward trend, and closed the year roughly 63
percent above the prior year. Prices were in the
range of $150 to $220 per allowance, ending the
year around $215  (see Figure 5).

In 2003, almost 4,200 allowance transfers affect-
ing roughly 16.5 million allowances (of past,
current, and future vintages) were recorded in the
EPA Allowance Tracking System. Of the allow-
ances transferred, 8 million (49 percent) were
transferred in economically significant transac-
tions (i.e., between economically unrelated par-
ties). The majority of the allowances transferred
in economically significant transactions were
acquired by power companies. Figure 6 shows
the annual volume of SO2 allowances trans-
ferred under the Acid Rain Program since official
recording  of transfers began in 1994.

Figure 7 shows the cumulative volume of SO2
allowances transferred under the Acid Rain
Program. Over 250 million allowances have been
transferred since 1994, with 70 percent of those
transfers submitted by authorized  account rep-
resentatives for private accounts. In December
2001, parties began to use a system developed by
EPA to  allow transfers to occur online. In 2003,
3,536 out of 4,192, or 84 percent, of transfers
were done electronically.2
              All official allowance transactions are posted and updated daily on www.epa.gov/airmarkets.

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S02 Program  Compliance
As in previous years, compliance with the Acid
Rain Program continues to be extraordinarily
high  nearly 100 percent.

In 2003,  one unit out of 3,497 was out of com-
pliance because of 14 tons of excess emissions
above the allowances  it held. The owner was
assessed a penalty of approximately $40,000.

A total of 10.6 million allowances was deducted
from sources' accounts in 2003 to cover emissions.
Figure 8 displays these allowance deductions, as
well as the remaining banked allowances from
1995-2003.

A source that does not hold enough allowances
in its  unit account to cover its annual SO2 emis-
sions  has "excess emissions"  and must pay a
$2,900 per ton automatic penalty. Title IV set
a penalty of $2,000 in 1990, which has been
adjusted annually for  inflation, so the year
2003 penalty was $2,900 per ton.

NOX Emissions  Reductions
Title IV of the 1990 Clean Air Act amendments
requires NOX emissions reductions for certain
coal-fired units. This portion of the Acid Rain
Program  applies rate-based NOX emissions limits
to these units and seeks to attain a 2 million ton
annual reduction from all power industry sources
relative to the NOx emissions levels projected
to occur in 2000  (8.1  million tons) absent the
Acid Rain Program. This goal was first realized
in 2000,  and has  been met every year thereafter,
including 2003.

Total NOX mass emissions for coal-fired electric
generating units affected by the NOX program
component were reduced to 3.8 million tons
from  5.5  million tons in 1990. NOx  emissions
from  the  entire power industry were  4.2 million
tons in 2003 (see Figure 9). Reductions from all
power generation in 2003 were 2.5 million tons
(or 37 percent) below  1990 emissions levels and
about half (3.9 million tons) of the forecasted
 FIGURE?
 Cumulative SC>2 Allowances Transferred
 (through 2003)
 Source: EPA
   300
   250
     1994   1995  1996   1997   1998   1999   2000   2001   2002  2003

        EPA Transfers to Account Holders
      I Private Transactions
FIGURES
SC>2 Allowance Reconciliation
Summary, 2003
 Total Allowances Held in
 Accounts as of 3/1/2004
 (1995 through 2003 Vintages)1
  Unit Accounts
  General Accounts2
 Allowances Deducted for
 Emissions (1995 through 2003)3
 2004 Penalty Allowances Deducted
 Banked Allowances
  Unit Accounts
  General Accounts
14,025,337
 4,162,566
  10,595,944
         14
   7,591,959
 3,429,393
 4,162,566
   1 The number of allowances held in the Allowance Tracking System (ATS)
   accounts equals the number of 2003 allowances allocated (see Figure 3) plus
   the number of banked allowances. March 1, 2004 represents the Allowance
   Transfer Deadline, the point in time at which unit accounts are frozen and
   after which no transfers of 1995 through 2003 allowances will be recorded.
   The freeze on these accounts is removed when annual reconciliation is
   complete.

   2 General accounts can be established in the ATS by any utility, individual or
   other organization.

   3 Includes 1,383 allowances deducted from opt-in sources for reduced
   utilization.
                                                        7

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FIGURES
NOx Emissions under the
Acid Rain Program
Source: EPA
      1990   1995   1996   1997
                                  1999   2000   2001   2002   2003
       | NOX Program affected sources
       J Title IV sources not affected by NOX Program
FIGURE 10
State by State NOX Emissions Levels
Source: EPA
   B Emissions in 1990
   O Phase I average 1996-1999
   Q Phase II average 2000-2003
   Scale: Largest bar equals 500,000 tons of emissions in Ohio, 1990


            levels for 2000. These reductions have been
            achieved while the amount of fuel burned to pro-
            duce electricity, as measured by heat input, has
            increased 30 percent since 1990. Without further
            reductions in emission rates or  the institution of a
  NOX Compliance  Plan Options
  Standard Limitation. A unit with a standard limit meets
  the applicable individual NOX limit prescribed for its
  boiler type under 40 CFR 76.5, 76.6, or 76.7.
  Early Election. Phase II Group 1 NOX affected units
  could meet a less stringent Phase I  NOX limit begin-
  ning in 1997, three years before they would normally be
  subject to an Acid Rain NOX limit. In return for accepting
  a NOX limit three years earlier than would normally be
  required, an early election unit does not become subject
  to the more stringent Phase II NOX limit until 2008.
  Emissions Averaging. Many companies have their
  units meet their NOX emissions reduction requirements
  by choosing to become subject to a group NOX limit, rath-
  er than meeting individual NOX  limits for each unit. The
  group limit is established at the end of each calendar
  year, and the group rate for the  units must be less than
  or equal to the Btu-weighted group rate units would have
  had if each had emitted at their standard limit rate.
  Alternative Emission Limitation (AEL). A utility can
  petition for a less stringent AEL if it properly installs
  and operates the NOX emissions reduction technology
  prescribed for that boiler, but is unable to meet its  stan-
  dard limit. EPA determines whether an AEL is warranted
  based on analyses of emissions data and information
  about the NOX control  equipment.


cap on NOx emissions, however,  NOx emissions
from power plants may rise with increased use of
fossil fuels in some areas of the country.

As with SO2, the states with the highest NOX
emissions in 1990 tended to achieve  the greatest
emission reductions (see Figure 10). The Acid
Rain Program was responsible for a large  portion
of the annual NOx reductions, but other pro-
grams that  control NOx, such as the OTC NOx
Budget Program, the NOX SIP call's NOX Budget
Trading Program, and state programs have also
contributed to NOx reductions, particularly in
the Northeast. Overall, the states that reduced
NOX emissions from all sources had total annual
average reductions of approximately 1.9 million
tons for the years 2000-2003, while the states
that increased NOX emissions had much smaller
increases (a total increase of approximately
79,000 tons).

For 36 states and the District of Columbia,
average annual NOx emissions from 2000  to
8

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  NOX Emissions
  NOX emissions come from a wide variety of sources
  including those affected by the Acid Rain Program. NOX
  emissions from electric power generation account for
  approximately 22 percent of NOX emissions from all
  sources. NOX emissions from transportation sources
  are 55 percent of all NOX emissions. Nationally, total
  NOX emissions have decreased 12 percent from 1990
  through 2001. NOX emissions from transportation sources
  decreased 14 percent, but NOX emissions from heavy
  duty vehicles increased by 10 percent. The emission
  decreases from electric power generation and other
  fuel  combustion sources are due in part to a variety of
  federal and state emission reduction programs (including
  the Acid Rain Program, the  Ozone Transport Commission
  NOX Budget Program, and the NOX SIP call) and federal
  enforcement actions (National Emissions Inventory
  www.epa.gov/ttn/chief/trends/index.html).
2003 were lower than annual NOx emissions
in 1990. The states with the greatest reductions
included Pennsylvania (more than 200,000 tons
of reductions) and Indiana, Kentucky, New York,
Ohio, Texas, and West Virginia (with more than
100,000 tons of reductions each).
Twelve  states had average annual emissions
from 2000-2003  that were greater than annual
1990 NOx emissions: Arizona, Arkansas, Idaho,
Kansas, Minnesota, Mississippi, Montana,
Nebraska, Oregon, Utah, Vermont, and
Washington. One-third of the states had increas-
es well under 2,000 tons. Another third had
increases between 2,000  tons and 6,500 tons,
and the remaining states  had increases between
6,500 tons and 22,000 tons.

NOX  Emissions Limits
Instead of using cap and trade to achieve NOx
emissions reductions, the Acid Rain Program estab-
lishes NOx emissions limitations (Ib/mmBtu) for the
boilers of most coal-fired electric generation units.
The Acid Rain Program NOX regulation (40  CFR
part 76) establishes emissions  limits for each
boiler type (see Figure 11). Unit operators have
several options for complying with the limits (see
text box on NOx Compliance Plan  Options).
FIGURE 11
Number of NOX Affected Units
by Boiler Type
Source: EPA
 Coal-Fired Boiler Type
 Phase I Group 1 Tangentially-fired
 Phase I Group 1 Dry Bottom
 Wall-fired
 Phase II Group 1
 Tangentially-fired
 Phase II Group 1 Dry Bottom
 Wall-fired
 Cell Burners
 Cyclones > 155 MW
 Wet Bottom > 65 MW
 Vertically-fired
 Total
FIGURE 12
Compliance Options in the
NOX Program, 2003
Source: EPA
 Compliance Option
 Standard Emission Limitation
 Early Election
 Emissions Averaging
 Alternative Emission Limitation
 Total
Standard
Emission
Limit (Ib/
mmBtu)
0.45
0.50

0.40

0.46

0.68
0.86
0.84
0.80
Number
of Units
   132
   119

   302

   306

    37
    56
    26
    26
  1,004
     Units covered by
     Compliance Option
            121
            271
            623
             25
          1,040*
 "The total number of units covered by specific NOX compliance options is
 greater than 1,004 because some units have multiple compliance plans. For
 calendar year 2003,28 units had both early election and averaging plans, and
 8 units had both AEL and emissions averaging compliance plans (1,004 plus
 28 plus 8 equals 1,040).
NOX  Program  Compliance
In 2003, 1,049 Acid Rain Program units were
required to meet NOx emission limitations. Of
these 1,049 coal-fired units, 45 have been retired,

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              Continuous  Emissions
              Monitoring Systems (CEMS)
              Electricity generating units under the Acid Rain Program
              are required to measure and record emissions using
              Continuous Emissions Monitoring Systems (CEMS) or an
              approved alternative measurement method. Since the
              program's inception in 1995, the emissions data  con-
              tinuously reported by sources, verified and recorded by
              EPA, and posted for public consumption on the Internet
               have been among the most complete and accurate
              data ever collected by EPA. Electronic audit capabilities
              include software that performs rigorous checks to ensure
              the completeness, high quality, and integrity of the
              emissions data. In 2003, for the third consecutive year,
              100 percent of affected sources were reporting hourly
              emissions electronically. CEMS are a cornerstone of the
              program's accountability and transparency.


            leaving 1,004 NOX units that must meet their
            NOx emissions  limits through compliance with
            their respective NOx compliance plans.3 Figure
            12 summarizes the compliance options chosen for
            NOx affected units in 2003. Emissions averaging
            was the most widely chosen compliance option;
            57 emissions averaging plans involving 623 units
            were employed in 2003. No units were out of
            compliance with the NOX program.
Status  and  Trends  in  Acid

Deposition,  Air Quality  and

Ecological  Effects
The emission reductions achieved under the Acid
Rain Program have led to important environ-
mental and public health benefits. These include
improvements in air quality with significant ben-
efits to human health,  reductions in acid deposi-
tion, the beginnings of recovery from acidifica-
tion of fresh water lakes and streams, improve-
ments  in visibility, and reduced risk to  forests,
materials and structures.

To evaluate the impact of emissions reductions
on the environment, scientists and policymakers
use data collected from long-term national moni-
toring networks such as the Clean Air  Status and
Trends Network (CASTNET) and the National
Atmospheric Deposition Program (NADP).

Data collected from monitoring networks show
that the decline in SC>2 emissions from the power
industry has decreased acidic deposition and
improved air quality. The decline in NOx emis-
sions, however, has not been as significant and
the environmental improvements are not as wide-
              Deposition  Monitoring  Networks
              To evaluate the impact of emissions reductions on the environment, scientists and policymakers use data collected from
              long-term national monitoring networks such as the Clean Air Status and Trends Network (CASTNET) and the National
              Atmospheric Deposition Program (NADP). Deposition and air quality monitoring data from these and other air quality monitor-
              ing networks can be accessed on or through the CASTNET website at www.epa.gov/castnet. CASTNET provides atmospheric
              data on the dry deposition component of total acid deposition, ground-level ozone, and other forms of atmospheric pollution.
              CASTNET is considered the nation's primary source for atmospheric data to estimate dry acidic deposition and to provide
              data on rural ozone levels. Used in conjunction with other national monitoring networks, CASTNET data are used to deter-
              mine the effectiveness of national  emission control programs. Established in 1987, CASTNET now comprises over 70 monitor-
              ing stations across the U.S. The longest data records are primarily at eastern sites.  EPA operates a majority of the monitoring
              stations; however, the National Park Service operates approximately 30 stations in cooperation with EPA.
              CASTNET continues to provide accountability and performance measure-related information for the Acid Rain Program and is
              available to provide deposition and air quality baselines to support future accountability and program evaluation needs. As such,
              both near and long-term program goals involve advancing the monitoring  and assessment capabilities of the network to better
              inform transport and air quality model evaluation. Future changes will also provide critical information for implementation of an
              integrated monitoring strategy for the U.S. and Canada.
              Detailed compliance information by unit can be found on EPA's Clean Air Markets website at www.epa.gov/airmarkets.
10

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spread. Although the Acid Rain Program has met
its NOX reduction targets, total nitrogen deposi-
tion has increased in many areas of the country
due to other sources such as motor vehicles and
agriculture.
FIGURE 13
Regional Changes in Deposition of Sulfur and
Nitrogen from 1989-91  to 2001-03
Source: EPA
Acid Deposition
During the late 1990s, following implementation
of Phase I of the Acid Rain Program, dramatic
regional improvements in SC>2 and ambient sul-
fate concentrations were observed at CASTNET
sites throughout the Eastern U.S. This is due to
the large reductions in SC>2 emissions from Acid
Rain sources. Analyses of regional monitoring
data from CASTNET show the geographic pat-
tern of SO2 and airborne sulfate in the Eastern
U.S.  Three-year mean, annual concentrations of
SC>2 and sulfate from CASTNET long-term mon-
itoring sites are compared  from 1989 through
1991 and  2001 through 2003 in both tabular
results and graphically (see Figures 13-18).4>5

From 1989 through 1991, prior to implementa-
tion of Phase I of Title IV, the highest ambient
concentrations of SC>2 in the East were observed
in Western Pennsylvania and along the Ohio River
Valley. Ambient SC>2 concentrations have decreased
significantly since 1991, with average concentra-
tions in the Eastern U.S. decreasing 57 percent in
the Northeast and 38  percent in the Mid-Atlantic
region (see Figures 13, 14a and 14b).

Before the program, in 1989 through 1991 (see
Figures 15a-15b), the highest ambient sulfate con-
centrations, greater than 7  ug/m3, were observed
in Western Pennsylvania, along the Ohio  River
Valley, and in Northern Alabama. Most of the
Eastern U.S. experienced annual ambient sulfate
concentrations greater than 5 ug/m3.

Like SO2 concentrations, ambient sulfate con-
centrations have decreased since the program
was implemented, with average concentrations
decreasing  approximately 30 percent in all
regions of the Eastern U.S. Both the size  of the
affected region and magnitude of the highest con-
 Measurement    Unit
 Wet sulfate      kg/ha
 deposition
 Wet sulfate      mg/L
 concentration
 Ambient        ug/m3
 sulfur dioxide
 concentration

 Ambient sulfate  ug/m3
 concentration
 Wet inorganic   kg/ha
 nitrogen
 deposition

 Wet nitrate      mg/L
 concentration
 Total ambient   ug/m3
 nitrate
 concentration
 Based on data compiled
 annually by the National
 Atmospheric Deposition
 Program/National Trends
 Network (NADP/NTN)
 nadp.sws.uiuc.edu and the
 Clean Air Status and Trends
 Network (CASTNET) www.
 epa.gov/castnet.
Region
Mid-Atlantic
Midwest
Northeast
Southeast
Mid-Atlantic
Midwest
Northeast
Southeast
Mid-Atlantic
Midwest
Northeast
Southeast
Mid-Atlantic
Midwest
Northeast
Southeast
Mid-Atlantic
Midwest
Northeast
Southeast
Mid-Atlantic
Midwest
Northeast
Southeast
Mid-Atlantic
Midwest
Northeast
Southeast

1989
-91
28
25
23
18
2.3
2.2
1.8
1.4
13
11
7
5
6.4
5.6
3.9
5.6
5.9
6.0
5.3
4.3
1.4
1.4
1.3
0.8
3.5
4.0
2.0
2.2
Average
2001
-03
20
16
14
15
1.7
1.6
1.3
1.1
8
6
3
3
4.7
3.9
2.7
3.9
5.3
5.8
4.4
4.2
1.2
1.4
1.1
0.8
3.0
3.8
2.0
2.1

Percent
Change
-29
-36
-39
-17
-26
-27
-28
-21
-38
-45
-57
-40
-27
-30
-31
-30
-10
-3
-17
-2
-14
0
-15
0
-14
-5
0
-5
  Points on maps represent location of monitoring sites.

  Based on data compiled annually by the National Atmospheric Deposition Program/National Trends Network (NADP/NTN)
  nadp.sws.uiuc.edu and the Clean Air Status and Trends Network (CASTNET) www.epa.gov/castnet.

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           FIGURE 14a
           Annual Mean Ambient Sulfur Dioxide
           Concentration 1989 through 1991
           Source: CASTNET
FIGURE 141)
Annual Mean Ambient Sulfur Dioxide
Concentration 2001 through 2003
Source: CASTNET
           centrations were dramatically reduced following
           implementation of Title IV. The largest decreases
           were observed along the Ohio River Valley (see
           Figures 15a-15b).

           Analyses of the NADP long-term monitoring
           data show that wet sulfate deposition, sulfate
           that falls to the earth through rain, snow, and
           fog, has also decreased  since the Acid Rain
           Program was implemented. A strong correlation
           between large scale SC>2 emissions reductions
           and large reductions in  sulfate concentrations in
           precipitation has been noted for the Northeast,
           one of the areas most affected by acid deposi-
           tion. Some of the greatest reductions in wet sul-
           fate deposition occurred in the Mid-Appalachian
           region, including Maryland, New York, West
           Virginia, Virginia, and most of Pennsylvania. Wet
           sulfate deposition decreased throughout the early
           1990s in much  of the Ohio River Valley and
           Northeastern U.S. Other less dramatic reductions
           were observed across much of New England,
           portions  of the  Southern Appalachian Mountains
           and in the Midwest. Average decreases in wet
           deposition of sulfate range from 39  percent in
the Northeast to 17 percent in the Southeast (see
Figures 16a-16b).

A principal reason for reduced concentrations
of sulfate in precipitation in the Northeast is a
reduction in the long-range transport of sulfate
from emission sources located in the Ohio River
Valley. The reductions in sulfate documented in
the Northeast, particularly across New England
and portions of New York, were also affected
by SO2 emissions reductions in Eastern Canada.
Concurrent with these sulfate reductions were
similar reductions in precipitation acidity,
expressed as hydrogen ion (H+) concentrations
(NADP).

Sources affected by the Acid Rain Program
account for a portion of nationwide NOX emis-
sions. Emissions trends from other source catego-
ries also affect air concentrations and deposition
of nitrogen. Significant improvements in nitrogen
deposition have not been evident since the Acid
Rain Program began.

Inorganic nitrogen deposition and wet nitrate
concentrations have decreased modestly since
12

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FIGURE 15a
Annual Mean Ambient Sulfate
Concentration 1989 through 1991
Source: CASTNET
FIGURE 151)
Annual Mean Ambient Sulfate
Concentration 2001 through 2003
Source: CASTNET

FIGURE 16a
Annual Mean Wet Sulfate Deposition
1989 through 1991
Source: National Atmospheric Deposition Program
FIGURE 16b
Annual Mean Wet Sulfate Deposition
2001 through 2003
Source: National Atmospheric Deposition Program
                        Wet SO42-
                        (kg/ha)
                        Wet SO42'
                        (kg/ha)
                                                                                       13

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         FIGURE 17a
         Annual Mean Wet Inorganic Nitrogen
         Deposition 1989 through 1991
         Source: National Atmospheric Deposition Program
                FIGURE 171)
                Annual Mean Wet Inorganic Nitrogen
                Deposition 2001 through 2003
                Source: National Atmospheric Deposition Program
                      \
                                 N
                                 (kg/ha)
-1
-2
-3
-4
-5
-6
-7
-8
-9
         FIGURE 18a
         Annual Mean Total Ambient Nitrate
         Concentration 1989 through 1991
         Source: CASTNET
                FIGURE 18b
                Annual Mean Total Ambient Nitrate
                Concentration 2001 through 2003
                Source: CASTNET
14

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1991 in the Mid-Atlantic and Northeast regions,
but have remained relatively constant in the
Midwest and Southeast (see Figures 17a-17b).

Ambient nitrate concentrations (nitric acid plus
particulate nitrate) have also  decreased in the
Mid-Atlantic, but have remained relatively con-
stant in other regions of the Eastern U.S. (see
Figures 18a-18b).

Recovery  of  Acidified

Lakes  and Streams
While climate change, forest maturation, distur-
bances such as pest outbreaks,  and land use history
all impact ecosystems that are also affected by acid
deposition, scientists have demonstrated measur-
able improvements in some lakes and streams
resulting from the Acid Rain Program.6 Scientists
studied lakes and streams in five regions  New
England, the Adirondack Mountains, the Northern
Appalachian Plateau (including the Catskill
Mountains), the Upper  Midwest, and the Ridge/
Blue Ridge  and found signs  of recovery in many,
but not all, of those areas (see Figure 19). These
signs of recovery include reductions in sulfate and
aluminum concentrations and decreases in acidity.

For example, almost all Adirondack lakes had
reductions in sulfate concentrations that coincide
with reductions  in atmospheric concentrations
of sulfur. These  reductions in sulfate, as well
as reductions in nitrate concentrations that do
not appear to be due to changes in atmospheric
deposition, have resulted in increased pH and
acid neutralizing capacity  (ANC is an indicator
of aquatic ecosystem recovery)  as well as reduc-
tions in the amount of toxic inorganic aluminum
in Adirondack lakes.

Increasing ANC was evident in three of the
regions studied (Adirondacks, Northern
Appalachian Plateau, and  Upper Midwest).
One-quarter to one-third of lakes and streams
in these regions  previously affected by acid rain
are no longer acidic at base-flow conditions,
although they are still  highly  sensitive to  future
changes in deposition.
 Improvements  in Surface Water
 Long-term monitoring networks provide information on
 the chemistry of lakes and streams, which allows us to
 look at how water bodies are responding to changes in
 emissions. The data presented here show regional trends
 in acidification from 1990 to 2000 in areas of the eastern
 U.S. For each lake or stream in the network, measure-
 ments of various  indicators of recovery from acidification
 were taken. These measurements were plotted against
 time, and trends for the given lake or stream during the
 ten-year period were then calculated  as the change
 in each of the measurements per year (e.g., change in
 concentration of sulfate per year). Using the trends cal-
 culated for each water body, median regional changes
 were determined for each of the measures of recovery. A
 negative value of the "slope of the trend" means that the
 measure has been declining in the region, while a posi-
 tive value means it has been increasing. The greater the
 value of the trend, the greater the yearly  change in the
 measurement. Movement toward recovery is indicated
 by positive trends in acid neutralizing capacity (ANC) and
 negative trends in sulfate, nitrate, hydrogen ion, and alu-
 minum. Negative trends in base  cations can balance out
 the decreasing trends  in sulfate  and nitrate and prevent
 ANC from increasing.

 FIGURE 19
 Regional Trends  in Lake and
 Stream Acidification 1990-2000
 Source: EPA
    sulfate
    nitrate
     ANC
base cations
                       -1      0      1
                           Slope of Trend
            Maine lakes(n=11)
            Vermontlakes(n=11)
           i Adirondack lakes (n=50)
l Catskill streams (n=4)
l Pennsylvania streams (n=5)
l Virginia streams (n=74)
Source: Stoddard, J. L., J. S. Kahl, E A. Deviney, D. R. DeWalle, C.
T. Driscoll, A. T. Herlihy, J. H. Kellogg, P. S. Murdoch, J. R. Webb,
and K. E. Webster. 2003. Response of surface water chemistry to
the Clean Air Act Amendments of1990. EPA/620/R-03/001, U.S.
Environmental Protection Agency, Washington, DC.)
  Stoddard, J. L., J. S. Kahl, E A. Deviney, D. R. DeWalle, C. T. Driscoll, A. T. Herlihy, J. H. Kellogg, P. S. Murdoch, J. R. Webb, and K. E.
  Webster. 2003. Response of surface water chemistry to the Clean Air Act Amendments of1990. EPA/620/R-03/001, U.S. Environmental Protection
  Agency, Washington, DC.)
                                                                                                                  15

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            Specifically:

                Eight percent of the lakes in the Adirondacks
                are acidic, down from 13 percent in the
                early 1990s.

                Fewer than 1 percent of lakes in the Upper
                Midwest are acidic, down from 3 percent in
                the early 1980s.

                Eight percent of the streams in the Northern
                Appalachian Plateau region are currently
                acidic during base-flow conditions, down
                from 12 percent in the early 1990s.

            In New England and the Ridge/Blue Ridge regions,
            however, there have been no significant improve-
            ments, suggesting that additional reductions are nec-
            essary for ecosystem recovery. Specifically:

                In New England, 5.5 percent of lakes are
                acidic,  an insignificant change from the
                early 1990s when 5.6 percent of lakes in the
                region were acidic.

                There has been no change in the number of
                acidic waters in the Ridge/Blue Ridge region
                in the past decade.

            The data on sulfate  concentrations are similar to
            that for ANC; there have been decreases in lake
            sulfate concentrations in some but not all of the
            regions studied. Trends in nitrate concentrations
            were much smaller than trends in sulfate concentra-
            tions, though lakes in the Adirondacks and streams
            in the northern Appalachian Plateau exhibited sig-
            nificant downward trends in nitrate in the 1990s. It
            should be noted, however, that this does not appear
            to reflect changes in emissions or deposition in these
            areas and is likely a result of ecosystem factors that
            are not yet fully understood.
  Long-Term Environmental
  Monitoring at EPA
  EPA's Temporally Integrated Monitoring of Ecosystems (TIME)
  and Long-Term Monitoring (LTM) programs are designed
  to detect trends in the chemistry of regional populations of
  lakes or streams and to determine whether emissions reduc-
  tions have had the intended effect of reducing acidification.
  TIME/LTM monitors  a total of 145 lakes and 147 streams,
  representing all of the major acid sensitive regions of the
  northern and eastern U.S. (upper Midwest, New England,
  Adirondack Mountains, northern Appalachian Plateau
  (including the Catskill Mountains), and the Ridge/Blue
  Ridge Provinces of Virginia). TIME/LTM measures a variety
  of important chemical characteristics, including ANC, pH,
  sulfate, nitrate, major cations (e.g., calcium and magne-
  sium), and aluminum. While the representativeness of the
  TIME/LTM network is somewhat limited, the TIME program
  is the most coherent individual regional dataset for this kind
  of analysis. In addition, the U.S. Geological Survey has been
  measuring surface water quality at several research water-
  sheds throughout the U.S., where sample collection during
  hydrologic events and ancillary data on other watershed
  characteristics have  been used to assess the watershed pro-
  cesses controlling acidification of surface waters.


Quantifying  Costs and  Benefits
of the Acid  Rain  Program
Later estimates of the cost of full implementa-
tion of  the Acid Rain trading program for SC>2
are significantly lower than originally estimated.
Independent analyses have estimated annual costs
in the range  of $1 to $2  billion per year (2000$)
in 2010 when the program is nearly fully imple-
mented, substantially less than were predicted
in 1990. The most recent estimates provided by
Ellerman and by Carlson are $1.3 to  $1.5 bil-
lion/year ($2000)  and $1.1 billion/year by 2010,
respectively7'8. A recent Office of Management
and Budget (OMB) analysis estimated costs of the
SO2 program between $1.1 and $1.8 billion9. EPA
expects NOx costs to be no more than a billion
            7 Ellerman, Denny, "Lessons from Phase 2 Compliance with the U.S. Acid Rain Program," MIT Center for Energy and
              Environmental Policy Research, Cambridge, MA, 2003.

            8 Carlson, Curtis P., Dallas Burtraw, Maureen Cropper, and Karen Palmer (Carlson et al, 2000). "SC>2 Control by Electric
              Utilities: What are the Gams from Trade?" Journal of Political Economy, Vol. 108, No. 6: 1292-1326.

            9 Informing Regulatory Decisions: 2003 Report to Congress on the Costs and Benefits of Federal Regulations and Unfunded
              Mandates on State, Local, and Tribal Entities, 2003 Office of Management and Budget, Office of Information and Regulatory
              Affairs www.whitehouse.gov/omb/inforeg/2003_cost-ben_final_rpt.pdf.
16

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dollars annually, and likely to be substantially less
from the limited analysis that has been done in
this area.

The  OMB study also found that the Acid Rain
Program accounted for the largest quantified
annual human health benefits  over $70 bil-
lion   of any federal regulatory program imple-
mented in the last 10 years, with annual benefits
exceeding costs by more than 40:1.

The  benefits to New Yorkers of improving natural
resources in the Adirondacks are estimated to be
between $300 million and $750 million per year,
according to a new study by Resources for the
Future (RFF). The five-year study, supported  by an
EPA grant, estimates New Yorkers' willingness-to-
pay for total ecological benefits in the Adirondack
Park at  $38 to $113 per household per year.  (This
total benefit estimate is the sum of use and nonuse
benefits  benefits to New Yorkers who use the
Park as  well as to those NY residents who do not
visit the Park but want to know this resource is
being protected.) The Acid Rain Program, Title
IV of the 1990 Clean Air Act Amendments, was
passed in part, in response to the public's concern
about the acidification of lakes and soils in the
Adirondacks. By reducing NOx and SC>2 emis-
sions from power plants, acidic deposition in lakes
and on shallow soils with low acid neutralizing
capacity is also reduced. Until now, policy mak-
ers  had no way of considering the total  economic
value of such environmental improvements. RFF's
rigorous methodology involved extensive use of
focus groups and a carefully crafted survey of a
representative sample of over 1,800 New Yorkers
administered on the internet and by mail. The
project, while specific to the Adirondack Park,
nevertheless suggests benefits can be estimated
using a similar methodology for other ecological
resource improvements that result from improve-
ments in air quality.
  National Tools  for  Further Emission  Reductions
  The Acid Rain Program has proven to be an effective and efficient means of reducing S02 and NOX emissions from power
  plants. However, it is increasingly clear that further reductions are needed not only to continue reductions in acid rain, but
  also to reduce ground level ozone, regional haze, and fine particles. To achieve these important reductions, the EPA has
  developed the Clean Air Rules, a suite of actions that will dramatically improve air quality nationwide. Three of the rules
   the Clean Air Interstate Rule, Clean Air Mercury Rule, and Clean Air Nonroad Rule  specifically address the transport
  of pollution across state borders. They provide much needed, national regulatory controls, like the Acid Rain Program, to
  achieve significant improvements in air quality, health, and quality of life. The proposed Clean Air Mercury and Clean Air
  Interstate Rules, which may use the cap and trade approach to achieve required reductions, create a multi-pollutant strategy
  to reduce power plant emissions of S02, NOX, and mercury. Taken together, this suite of rules in conjunction with state and
  regional programs, will build on past successes and make the next 15 years one of the most productive periods of air quality
  improvement in our history.
                                                                                                               17

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Office of Air and Radiation
Clean Air Markets Division
    EPA 430-R-04-009
1200 Pennsylvania Ave, NW
         (6204J)
  Washington, DC 20460
  www.epa.gov/airmarkets
      September 2004

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