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Clean Air Interstate Rule, Acid Rain Program, and Former NOx Budget Trading Program 2011 Progress Report

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SO2 and NOx Emissions, Compliance, and Market Analyses Report

Program Basics | 2011 Progress Reports | CAIR, ARP, and NBP Affected States and Units | Emission Reductions | CAIR and ARP Program Compliance | Controls and Monitoring | Continuous Emission Monitoring Systems | Quality Assurance of Emissions Data | Market Activity

2011 ARP and CAIR at a Glance

CAIR and ARP Annual SO2 Emissions: 4.5 million tons (56 percent below 2005)

CAIR Ozone Season NOx Emissions: 566 thousand tons (30 percent below 2005)

CAIR and ARP Annual NOx Emissions: 2.0 million tons (46 percent below 2005)

Near perfect compliance with the CAIR and ARP programs

Program Basics

The Clean Air Interstate Rule (CAIR) and the Acid Rain Program (ARP) are both cap and trade programs designed to reduce emissions of sulfur dioxide (SO2) and nitrogen oxides (NOx) from power plants.

The ARP, established under Title IV of the 1990 Clean Air Act (CAA) Amendments, requires major emission reductions of SO2 and NOx, the primary precursors of acid rain, from the power sector. The SO2 program sets a permanent cap on the total amount of SO2 that may be emitted by electric generating units (EGUs) in the contiguous United States. The program is phased in, with the final 2010 SO2 cap set at 8.95 million tons, a level of about one-half of the emissions from the power sector in 1980. NOx reductions under the ARP are achieved through a program that applies to a subset of coal-fired EGUs and is closer to a traditional, rate-based regulatory system. Since the program began in 1995, the ARP has achieved significant emission reductions. For more information on the ARP, please visit the ARP website.

Some of the files that constitute this report are provided in Excel spreadsheet format. Open it with your installed version of Excel or download a free copy of the Microsoft Excel viewer.

The NOx Budget Trading Program (NBP) operated from 2003 to 2008. The NBP was a cap and trade program that required NOx emission reductions from power plants and industrial units in the eastern U.S. during the summer months. For more information on the NBP, please visit the NOx Budget Trading Program/NOx SIP Call website.

CAIR addresses regional interstate transport of ozone and fine particle pollution. CAIR requires certain eastern states to limit annual emissions of NOx and SO2, which contribute to the formation of smog (ground-level ozone) and soot (fine particulate matter). It also requires certain states to limit ozone season NOx emissions, which contribute to the formation of smog during the summer ozone season (May through September). CAIR includes three separate cap and trade programs to achieve the required reductions: the CAIR NOx ozone season trading program, the CAIR NOx annual trading program, and the CAIR SO2 annual trading program. The CAIR NOx ozone season and annual programs began in 2009, while the CAIR SO2 annual program began in 2010. The reduction in ozone and fine particles (PM2.5) formation resulting from implementation of CAIR provides health benefits as well as improved visibility in national parks and improvements in freshwater aquatic ecosystems in the eastern U.S. For more information on CAIR, please visit the CAIR website.

CSAPR and Litigation

The Cross-State Air Pollution Rule (CSAPR) was promulgated to require 28 states in the eastern half of the U.S. to significantly improve air quality by reducing power plant emissions that cross state lines and contribute to ozone and fine particle pollution in other states. CSAPR includes three separate cap and trade programs to achieve these reductions: the CSAPR NOx ozone season trading program, the CSAPR NOx annual trading program, and the CSAPR SO2 annual trading program. CSAPR was scheduled to replace CAIR starting on January 1, 2012. However, on December 30, 2011, the U.S. Court of Appeals for the District of Columbia Circuit stayed CSAPR pending judicial review and on August 21, 2012 the court decided to vacate the rule. That judgment is not yet final and on October 5, 2012 the U.S. Government filed a petition for rehearing en banc, asking the full court to reconsider that decision. In the meantime, as the court stated in its opinion, CAIR remains in place and states and affected sources are expected to comply with the rule. For more information on CSAPR, please visit the CSAPR website.

Figure 1 contains important milestones for CAIR, ARP, CSAPR, and the former NBP.

Figure 1: History of CAIR, ARP, CSAPR, and Former NBP

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History of CAIR, ARP, CSAPR, and former NBP

Source: EPA, 2012

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2011 Progress Reports

Each year EPA releases reports summarizing progress under both CAIR and the ARP. In thes 2011 reports, EPA combines data for both CAIR and the ARP into one report to more holistically show reductions in power sector emissions of SO2 and NOx and the collective effect of these regional programs on human health and the environment. This report presents 2011 data on combined emission reductions and compliance results for CAIR and the ARP as well as some historic NBP emissions data, and analyzes emission reductions and market activity. A future report will evaluate changes in a variety of human health and environmental indicators.

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CAIR, ARP, and NBP Affected States and Units

Affected States

The ARP is a nationwide program affecting large fossil fuel-fired power plants across the country. CAIR covers 27 eastern states and the District of Columbia (D.C.) and requires reductions in annual emissions of SO2 and NOx from 24 states and D.C. (to achieve improvements in fine particle pollution in downwind areas) and emission reductions of NOx during the ozone season from 25 states and D.C. (to achieve improvements in ozone pollution in downwind areas). The former NBP affected 20 eastern states and D.C. State coverage for CAIR, ARP, and NBP is shown in Figure 2.

Figure 2: CAIR, ARP, and NBP States

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CAIR, ARP, and NBP States

Source: EPA, 2012

Affected Units

The CAIR SO2 and NOx annual programs generally apply to large EGUs — boilers, turbines, and combined cycle units that primarily burn fossil fuels to generate electricity for sale. The CAIR NOx ozone season program includes EGUs as well as, in some states, large industrial units that produce electricity or steam primarily for internal use and that have been carried over from the NBP. Examples of these units are boilers and turbines at heavy manufacturing facilities such as paper mills, petroleum refineries, and iron and steel production facilities. These units also include some steam plants at institutional settings such as large universities or hospitals.

In 2011, there were 3,345 affected EGUs at 951 facilities in the CAIR SO2 and NOx annual programs and 3,307 EGUs and industrial facility units at 949 facilities in the CAIR NOx ozone season program (see Table 1, below). The variation in the number of units covered under the programs is due to the difference in states that are included in each program (see Figure 2, above). EGUs in the CAIR programs cover a range of unit types, including units that operate year round to provide baseload power to the electric grid as well as units that provide power on peak demand days only and may not operate at all during some years.

The SO2 requirements under the ARP apply to the 3,640 fossil fuel-fired combustion units at 1,245 facilities across the country that serve a large generator (greater than 25 megawatts) that provides electricity for sale. The vast majority of ARP SO2 emissions result from coal-fired EGUs, although the program also applies to oil and gas units. Of the 3,345 units in the CAIR SO2 program, 2,631 (79 percent) were also covered by the ARP in 2011. The other units are largely fossil fuel generation units that entered SO2 control under the broader applicability requirements of CAIR.

The ARP also requires NOx emission reductions for older, large coal-fired EGUs by limiting their NOx emission rate (expressed in lb/mmBtu). The goal of the NOx program is to limit NOx emission levels from affected coal-fired boilers so that their emissions are at least two million tons less than the projected level for the year 2000 without implementation of Title IV. In 2011, 930 units at 375 facilities were subject to the ARP NOx program.

Table 1: Affected Units in CAIR and ARP, 2011

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Fuel ARP SO2 Program ARP NOx Program CAIR NOx Ozone
Season Program
CAIR NOx and SO2
Annual Programs
Coal EGUs 1,028 918 845 895
Gas EGUs 2,381 8 1,685 1,969
Oil EGUs 200 0 543 451
Industrial Units 4 0 203 0
Unclassified EGUs 9 0 2 4
Other Fuel EGUs 18 4 29 26
Total Units 3,640 930 3,307 3,345

Notes:

Source: EPA, 2012

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Emission Reductions

Milestone Years for Measuring Progress under CAIR and ARP

1980: The Clean Air Act specified that annual SO2 emissions be cut to 10 million tons below the 1980 level

1990: Baseline emission levels for the ARP

1995: First year of the ARP (Phase 1)

2000: Phase 2 of the ARP

2005: Baseline emission levels for CAIR

2008: Training year for CAIR NOx monitoring. Units participating in the two CAIR NOx trading programs were required to monitor and report their emissions, but were not required to hold allowances for compliance

2009: First year of CAIR NOx annual and CAIR NOx ozone season programs (Phase 1). Training year for CAIR SO2 monitoring

2010: First year of CAIR SO2 annual program (Phase 1)

Overall Trends

Table 2, below, shows a large reduction in annual SO2 and NOx emissions from CAIR and ARP sources between 2005 and 2011. Tons of SO2 emitted fell 56 percent from the 2005 level, and annual NOx emissions dropped 46 percent. During this same period, ozone season NOx emissions from CAIR sources alone decreased by approximately 30 percent. These reductions occurred while electricity demand (measured as heat input) remained relatively stable, indicating that the reduction in emissions was not driven by decreased electric generation. Instead, there was a significant drop in emission rate for sources in all three programs: 54 percent for SO2 sources, 43 percent for annual NOx sources, and 26 percent for ozone season NOx sources. A drop in emission rate represents an overall increase in the environmental efficiency of these sources as power generators installed controls, ran their NOx controls year round, switched to different fuels, or otherwise cut their SO2 and NOx emissions while meeting relatively steady demand for power. Most of the reductions since 2005 are from early reduction incentives and stricter emission limits under CAIR.

Between 2010 and 2011, CAIR and ARP sources continued to reduce their SO2 emissions and emission rate. Annual NOx emissions from CAIR and ARP sources also fell. CAIR sources’ ozone season NOx emissions fell slightly (five percent), and facilities were all below both the CAIR NOx ozone season and CAIR NOx annual budgets for the year.

Visit EPA’s Quarterly Emissions Tracking site for the most up-to-date emissions and control data for sources in CAIR and the ARP.

Table 2: Comparison of Emissions, Emission Rates, and Heat Input for CAIR and ARP Sources, 2000–2011

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  SO2 Emissions (thousand tons) SO2 Rate (lb/mmBtu) Heat Input (billion mmBtu)
Primary Fuel 2000 2005 2009 2010 2011 2000 2005 2009 2010 2011 2000 2005 2009 2010 2011
Coal 10,708 9,835 5,653 5,090 4,508 1.04 0.95 0.63 0.53 0.50 20.67 20.77 18.02 19.30 18.18
Gas 28 36 6 7 5 0.02 0.01 0.00 0.00 0.00 3.71 5.35 6.51 7.19 7.37
Oil 464 347 54 44 14 0.76 0.71 0.29 0.21 0.08 1.22 0.98 0.37 0.41 0.33
Other 1 4 8 26 17 0.23 0.27 0.27 0.53 0.28 0.01 0.03 0.06 0.10 0.12
Total 11,201 10,223 5,722 5,168 4,544 0.88 0.75 0.46 0.38 0.35 25.61 27.13 24.95 27.00 26.00
  NOx Emissions (thousand tons) NOx Rate (lb/mmBtu) Heat Input (billion mmBtu)
Primary Fuel 2000 2005 2009 2010 2011 2000 2005 2009 2010 2011 2000 2005 2009 2010 2011
Coal 4,587 3,356 1,847 1,923 1,806 0.44 0.32 0.20 0.20 0.20 20.67 20.77 18.27 19.30 18.19
Gas 321 142 133 140 140 0.17 0.05 0.04 0.04 0.04 3.71 5.35 6.71 7.19 7.37
Oil 195 129 34 34 23 0.32 0.26 0.18 0.17 0.14 1.22 0.98 0.38 0.41 0.33
Other 2 6 5 7 8 0.26 0.42 0.12 0.13 0.13 0.01 0.03 0.09 0.10 0.12
Total 5,104 3,633 2,020 2,103 1,976 0.40 0.27 0.16 0.16 0.15 25.61 27.13 25.45 27.00 26.00
  NOx Emissions (thousand tons) NOx Rate (lb/mmBtu) Heat Input (billion mmBtu)
Primary Fuel 2000 2005 2009 2010 2011 2000 2005 2009 2010 2011 2000 2005 2009 2010 2011
Coal 1,398 695 442 527 511 0.45 0.22 0.17 0.18 0.18 6.19 6.31 5.21 5.85 5.58
Gas 62 43 33 42 39 0.15 0.06 0.04 0.04 0.04 0.84 1.47 1.53 1.97 2.01
Oil 83 72 19 22 14 0.29 0.27 0.18 0.16 0.13 0.57 0.53 0.21 0.27 0.20
Other 1 2 2 2 3 0.15 0.17 0.14 0.12 0.11 0.02 0.02 0.02 0.04 0.05
Total 1,545 812 495 594 566 0.41 0.20 0.14 0.15 0.14 7.62 8.33 6.98 8.13 7.84

Notes:

Source: EPA, 2012

SO2 Emission Reductions

Figure 3, below, shows that the CAIR SO2 program continues and complements the ARP’s history of SO2 emission reductions. In 2011, the second year of operation of the CAIR SO2 trading program, sources in both the CAIR SO2 annual program and the ARP together reduced SO2 emissions by over 11 million tons (71 percent) from 1990 levels (before implementation of the ARP), 6.7 million tons (60 percent) from 2000 levels (ARP Phase 2), and 5.8 million tons (56 percent) from 2005 levels (before implementation of CAIR). All ARP and CAIR sources together emitted a total of 4.54 million tons of SO2 in 2011, well below the ARP’s statutory annual cap of 8.95 million tons.

Annual SO2 emissions from sources in the CAIR SO2 program alone fell from 9 million tons in 2005 to 3.9 million tons in 2011, a 57 percent reduction. Between 2010 and 2011, SO2 emissions fell 543,000 tons (12 percent). However, the 2011 emissions total is higher than the CAIR SO2 program’s state budget total of 3.6 million tons, indicating that affected sources used banked allowances carried over from the ARP for compliance with CAIR (see Table 3, below).

ARP units alone emitted 4.50 million tons of SO2 in 2011, meaning that ARP sources reduced emissions by 11.2 million tons (71 percent) from 1990 levels and 12.8 million tons (73 percent) from 1980 levels.

Figure 3: SO2 Emissions from CAIR SO2 Annual Program and ARP Sources, 1980–2011

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SO2 Emissions from CAIR Annual SO2 Program and ARP Sources, 1980–2011

Note: For CAIR units not in the ARP, the 2009 annual SO2 emissions were applied retroactively for each pre-CAIR year following the year in which the unit began operating.

Source: EPA, 2012

The states with the highest emitting sources in 1990 have generally seen the greatest SO2 reductions under the ARP, and this trend continues under CAIR (see Figure 4, below). Most of these states are upwind of the areas the ARP and CAIR were designed to protect, and reductions have resulted in important environmental and health benefits over a large region.

From 1990 to 2011, annual SO2 emissions in the nationwide ARP and the regional CAIR SO2 program dropped in 42 states and D.C. by a total of approximately 11 million tons. In contrast, annual SO2 emissions increased by a total of only 33,300 tons in six states (Arkansas, Idaho, Nebraska, Oregon, Rhode Island, Vermont) from 1990 to 2011.

In 2011, the total SO2 emissions from participating sources were about 252,000 tons above the regional CAIR emission budget. Nine states had emissions below their allowance budgets, collectively by about 555,000 tons. Another 15 states and Washington, D.C. exceeded their 2011 budgets by a total of about 807,000 tons, indicating that, on an aggregate basis, sources within those states covered a portion of their emissions with allowances banked from earlier years, transferred from an out-of-state account, or purchased from the market.

Figure 4: State-by-State Annual SO2 Emission Levels for CAIR and ARP Sources, 1990–2011

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bars
DC
DE
NJ
VT
MD
MA
NH
CT
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Reset graph Scale graph to state

Select a state to display detailed SO2 data.

Cair State Color

  CAIR States controlled for fine particles.

Source: EPA, 2012

Newly Installed Control Devices

Fifteen ARP units installed SO2 controls in 2011. Twelve of these units were analyzed and shown to have reduced their collective SO2 emission rate from 1.25 lb/mmBtu in January to 0.08 lb/mmBtu in December. The remaining sources in the ARP reported a steady annual SO2 rate around 0.34 lb/mmBtu (see Figure 5, below). Had these twelve newly-controlled units maintained their collective annual 2010 emission rate of 1.18 lb/mmBtu through 2011, their estimated emissions would have remained around 146,000 thousand tons. In actuality, the twelve units emitted 50 percent less SO2 in 2011 than in 2010 by adding scrubbers, contributing about eleven percent of the total ARP-wide reduction of 617,000 tons between 2010 and 2011. Because the new controls were installed at different times throughout 2011, the annual reduction reflects only partial operation, and the overall benefits of the new systems could be even greater in 2012.

Figure 5: Monthly SO2 Emission Rates, 2011

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Monthly SO2 Emission Rates, 2011

Note: a total of 15 ARP units added controls in 2011. Three are excluded from this chart due to the use of substitute data during the transition period.

Source: EPA, 2012

NOx Emission Reductions

Ozone Season NOx Reductions

Figure 6, below, shows ozone season NOx emissions from 1990 to the present for CAIR and NBP sources. In 2011, the third year of the CAIR NOx ozone season program, sources from both CAIR and the former NBP, together with a small number of sources that were previously in the NBP but did not enter CAIR, reduced their overall NOx emissions from 819,000 tons in 2005 (before implementation of CAIR) to 572,000 tons in 2011, a decrease of 30 percent. NOx emissions were 1.5 million tons lower (73 percent) than in 1990 and 887,000 tons lower (61 percent) than in 2000 (before implementation of the NBP).

Between 2005 and 2011, ozone season NOx emissions from sources in the CAIR program alone have fallen 246,000 tons, a decrease of 30 percent. From 2010 to 2011, ozone season NOx emissions from sources in the CAIR NOx ozone season program decreased by 28,000 tons (five percent), reversing a one-year increase in emissions from 2009 to 2010. Ozone season NOx emissions totaled 566,000 tons in 2011, nine percent below the regional emission budget of 624,698 tons.

In addition to the CAIR NOx ozone season program and the former NBP, current regional and state NOx emission control programs have also contributed significantly to the ozone season NOx reductions achieved by sources in 2011.

Figure 6: Ozone Season NOx Emissions from CAIR and NBP Sources, 1990–2011

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Ozone Season NOx Emissions from CAIR and NBP Sources, 1990–2011

Note: For CAIR units not in the NBP, the 2008 NOx emissions were applied retroactively to 1990 and 2000 if the unit operated in the previous year’s ozone season.

Source: EPA, 2012

Between 2005 and 2011, ozone season NOx emissions from CAIR and former NBP sources fell in every state participating in the CAIR NOx ozone season program except Pennsylvania, Arkansas, and Kentucky (see Figure 7, below), where emissions increased by a total of 22,000 tons. In the 2011 ozone season, the total emissions from participating sources were about 59,000 tons below the regional emission budget. Seventeen states had emissions below their allowance budgets, collectively by about 108,000 tons. Another eight states and Washington, D.C. exceeded their 2011 budgets by a total of about 49,500 tons, indicating that, on an aggregate basis, sources within those states covered a portion of their emissions with allowances banked from earlier years, transferred from an out-of-state account, or purchased from the market.

Figure 7: State-by-State Ozone Season NOx Emission Levels from CAIR Sources, 2000–2011

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bars
DC
DE
NJ
MD
MA
CT
Reset graph Scale graph to state

Select a state to display detailed ozone season NOx data.

  : SO2 cap
Cap line
Ozone State Color

  CAIR States controlled for ozone.

Note: The 2000 and 2005 ozone season values reflect data that were reported under other programs (ARP and NBP). For facilities that were not covered by another program and did not report 2000 or 2005 emissions, their reported emissions for the earliest subsequent year (usually the 2008 training year) were substituted.

Source: EPA, 2012

Annual NOx Reductions

Figure 8, below, shows that from 1990 to 2011, annual NOx emissions from CAIR and ARP units together dropped by about 4.4 million tons to 2 million tons, a decrease of 60 percent. In 2011, the third year of the CAIR NOx annual program, NOx emissions from all ARP and CAIR units were 1.7 million tons lower (46 percent) than in 2005 and 3.2 million tons lower (62 percent) than in 2000.

Emissions from CAIR NOx annual program sources alone were 1.35 million tons in 2011, 146,000 tons (10 percent) below the 2011 CAIR NOx annual program’s regional budget of 1.5 million tons. Annual NOx emissions were 1.3 million tons lower (49 percent) than in 2005, and 74,000 tons lower (5 percent) than in 2010.

All ARP sources emitted 1.9 million tons of NOx in 2011. This level is over 6 million tons less than the projected level in 2000 without the ARP, and over three times the Title IV NOx emission reduction objective.

Although the ARP and CAIR NOx programs were responsible for a large portion of these annual NOx reductions, other programs—such as regional and state NOx emission control programs—also contributed significantly to the annual NOx reductions achieved by sources in 2011.

Figure 8: Annual NOx Emissions from CAIR and ARP Sources, 1990–2011

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Annual NOx Emissions from CAIR and ARP Sources, 1990–2011

Note: For CAIR units not in the ARP in 1990, 2000, and 2005, the 2008 annual NOx emissions were applied retroactively for each pre-CAIR year following the year in which the unit began operating.

Source: EPA, 2012

From 1990 to 2011, all states participating in the CAIR NOx annual program decreased their emissions, as indicated in Figure 9, below. Comparing 2005 to 2011, all states in the CAIR region emitted less NOx except Arkansas, which increased its NOx emissions by 3,000 tons. The total NOx emissions from participating sources in 2011 were about 55,000 tons below the regional emission budget of 1,490,264 tons. Twelve states and D.C. exceeded their 2011 budgets by a total of about 174,000 tons, indicating that, on an aggregate basis, sources within those states covered a portion of their emissions with allowances banked from earlier years, transferred from an out-of-state account, or purchased from the market. Sixteen states had emissions below their 2011 allowance budgets, collectively by about 275,000 tons.

Figure 9: State-by-State Annual NOx Emission Levels for CAIR and ARP Sources, 1990–2011

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bars
DC
DE
NJ
VT
MD
MA
NH
CT
RI
Reset graph Scale graph to state

Select a state to display detailed NOx data.

  : SO2 cap
Cap line
Cair State Color

  CAIR States controlled for fine particles.

Source: EPA, 2012

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CAIR and ARP Program Compliance

SO2 Programs

Because SO2 allowances from the ARP are used by sources to comply with the CAIR SO2 annual program, compliance results for both programs are displayed together in this report. Table 3, below, shows how ARP allowances are used for compliance under both programs. All ARP and CAIR SO2 facilities were in compliance with both programs in 2011 and held enough allowances to cover their SO2 emissions.

Table 3: CAIR and ARP SO2 Allowance Reconciliation Summary, 2011

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Total Allowances Held (1995–2011 Vintage) 24,275,585 Held by Affected Facility Accounts 17,042,402
Held by Other Accounts (General and Non-Affected Facilities) 7,233,183
Allowances Deducted for Acid Rain Compliance* -4,507,630
Penalty Allowance Deductions (2012 Vintage) 0
Banked Allowances (after ARP Compliance) 19,767,955 Held by Affected Facility Accounts 12,534,772
Held by Other Accounts (General and Non-Affected Facilities)7,233,183
Acid Rain Program Allowances Deducted for CAIR SO2 Compliance-2,052,711
Banked Allowances (after ARP and CAIR SO2 Compliance) 17,715,244 Held by Affected Facility Accounts 10,482,061
Held by Other Accounts (General and Non-Affected Facilities)7,233,183

*Includes 7,902 allowances deducted from opt-ins for reduced utilization.

Source: EPA, 2012

Compliance Results

As of June 21, 2012, the reported 2011 SO2 emissions by CAIR and ARP sources totaled 4,544,208 tons. Because of variation in rounding conventions, changes due to resubmissions by sources, and allowance compliance issues at certain units, this number is lower than the sums of emissions used for reconciliation purposes shown in Table 3, above. Therefore, the allowance totals deducted for actual emissions in Table 3 differ from the number of emissions shown elsewhere in this report.

CAIR and ARP SO2 Programs
Reported emissions (tons): 4,544,208
Compliance issues, rounding, and report resubmission adjustments (tons): –44,480
Emissions not covered by allowances (tons): 0
Additional vintage 2010 and 2011 allowances deducted for CAIR: +2,052,711
Total allowances deducted for emissions (includes some 2 for 1 CAIR deductions): 6,552,439

2011 was the second year for compliance with the CAIR SO2 program. Under this program, allowances are used to cover emissions based on the vintage year of the allowances, with pre–2010 vintage allowances used at 1 allowance for 1 ton of SO2 emissions, and 2010 and 2011 vintage allowances used at 2 allowances for 1 ton. For facilities covered by both CAIR and the ARP, reconciliation is a two-step process. First, ARP deductions are made. Then, any additional deductions to comply with the CAIR SO2 program are made. The additional deductions under CAIR could be to cover the 2 for 1 use of 2010 and 2011 allowances or to cover emissions for units that are subject to CAIR, but not the ARP.

In 2011, over 24 million SO2 allowances were available for compliance under both programs (9 million vintage 2011 and over 15 million banked from prior years). Just over 4.5 million allowances were deducted for ARP compliance and an additional 2 million allowances were deducted to complete reconciliation for CAIR. After reconciliation for both programs, over 17.7 million ARP SO2 allowances were banked and carried forward to the 2012 compliance year.

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NOx Programs

CAIR NOx Compliance Results

Tables 4 and 5, below, show how NOx allowances were used in 2011. All covered facilities were in compliance with the CAIR NOx ozone season programs in 2011 and held enough allowances to cover their NOx emissions. Only one facility did not hold enough allowances to cover its 2011 emissions for the CAIR NOx annual program. That facility automatically surrendered a 3-for-1 penalty deduction.

Table 4: CAIR NOx Ozone Season Allowance Reconciliation Summary, 2011

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Total Allowances Held (2003–2011 Vintage) 1,017,412 Held by Affected Facility Accounts 878,921
Held by Other Accounts (General and Non-Affected Facilities) 138,491
Allowances Deducted for CAIR NOx Ozone Season Trading Program -566,237
Penalty Allowance Deductions (2012 Vintage) 0
Banked Allowances 451,175 Held by Affected Facility Accounts312,684
Held by Other Accounts (General, State Holding, and Non-Affected Facilities)138,491

Source: EPA, 2012

Table 5: CAIR NOx Annual Allowance Reconciliation Summary, 2011

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Total Allowances Held (2009–2011 Vintage) 1,882,226 Held by Affected Facility Accounts1,723,690
Held by Other Accounts (General and Non-Affected Facilities)158,536
Allowances Deducted for CAIR NOx Annual Trading Program -1,352,403
Penalty Allowance Deductions -9
Banked Allowances 529,814 Held by Affected Facility Accounts371,278
Held by Other Accounts (General, State Holding, and Non-Affected Facilities)158,536

Source: EPA, 2012

Compliance Results

As of June 21, 2012, the reported 2011 ozone season NOx emissions by CAIR sources totaled 566,049 tons, and annual emissions totaled 1,354,114 tons. Because of variation in rounding conventions, changes due to resubmissions by sources, and allowance compliance issues at certain units, these numbers are different from the sums of emissions used for reconciliation purposes shown in Table 4 (ozone season reconciliation) and Table 5 (annual reconciliation). Therefore, the allowance totals deducted for actual emissions in Tables 4 and 5 differ from the number of emissions shown elsewhere in this report.

CAIR NOx Ozone Season
Reported emissions (tons) 566,049
Compliance issues, rounding, and report resubmission adjustments (tons) +188
Emissions not covered by allowances (tons) 0
Total allowances deducted for emissions 566,237
CAIR NOx Annual Program
Reported emissions (tons) 1,354,114
Compliance issues, rounding, and report resubmission adjustments (tons) -1,708
Emissions not covered by allowances (tons) -3
Total allowances deducted for emissions 1,352,403
ARP NOx Compliance Results

The ARP NOx Program does not impose a cap on NOx emissions and does not rely on allowance trading. The program allows affected sources to comply either by meeting a unit-specific emission rate or by including two or more units in an emission rate averaging plan. These options provide affected sources with the flexibility to meet the NOx emission reduction requirements in a cost-effective manner. Of the 930 units that were subject to the ARP NOx Program in 2011, one facility faces a monetary penalty for noncompliance with the ARP NOx program.

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Controls and Monitoring

To meet the ARP and CAIR emission reduction targets, some sources opt to install control technologies. A wide set of controls are available to help reduce emissions. The following is an analysis of controls on ARP and CAIR program coal-fired units and CAIR NOx program combined cycle units in 2011.

SO2 Controls in 2011

SO2 control options available to sources include switching to low sulfur coal, employing various types of flue gas desulfurization (FGDs), or utilizing fluidized bed limestone units. FGDs on coal-fired generators are the principal means of controlling SO2. As discussed in detail above, 15 units in the ARP added new SO2 controls in 2011. Of those 15 units, 11 are in the CAIR SO2 annual program. Across both programs the share of generation, measured in megawatt hours (MWh), at controlled units grew to 61 percent of coal-fired generation in 2011 (see Table 6, below).

Table 6: SO2 Controls in 2011 on Coal-Fired Units in the ARP and CAIR Annual SO2 Program

SO2 Control Type Number of Units Share of Units Share of MWh Generation
FGD 444 41% 61%
Other 44 4% 1%
Uncontrolled 593 55% 38%

Note: Due to rounding, percentages shown may not add up to 100%.

Source: EPA, 2012

NOx Controls in 2011

Sources have a variety of options by which to reduce NOx emissions. New selective catalytic reduction units (SCRs), the most efficient NOx controls, were installed at 28 generation units under the CAIR NOx ozone season program in 2011. Units with add-on controls—SCR or selective non-catalytic reduction (SNCR)—accounted for 59 percent of coal-fired generation and 82 percent of generation at combined cycle units (gas- or oil-fired). Although 112 coal-fired units and 15 combined cycle units remain uncontrolled, they represent only two percent of coal-fired generation and one percent of combined cycle generation under the CAIR NOx ozone season program (see Table 7, below).

Table 7: NOx Controls in 2011 CAIR NOx Ozone Season Program

NOx Control Type Number of Coal-Fired Units Share of Coal-Fired
MWh Generation
Number of Combined Cycle
Units (Gas- or Oil-Fired)
Share of Combined Cycle
(Gas- or Oil-Fired)
MWh Generation
Combustion 421 38% 64 13%
Non-Controlled 112 2% 15 1%
Other Control 38 1% 87 5%
SCR 217 53% 348 82%
SNCR 121 6% 0 0%

Note: Due to rounding, percentages shown may not add up to 100%.

Source: EPA, 2012

Twenty-four units in the CAIR NOx annual program installed add-on controls in 2011. The 349 coal-fired units with add-on controls (either SCRs or SNCRs) generated 58 percent of annual generation, and the 403 combined cycle units with SCRs generated 76 percent of annual generation (see Table 8, below). Similar to the CAIR NOx ozone season program, uncontrolled units represent two percent of coal-fired generation and one percent of combined cycle generation under the CAIR NOx annual program.

Table 8: NOx Controls in 2011 CAIR NOx Annual Program

NOx Control Type Number of Coal-Fired Units Share of Coal-Fired
MWh Generation
Number of Combined Cycle
Units (Gas- or Oil-Fired)
Share of Combined Cycle
(Gas- or Oil-Fired)
MWh Generation
Combustion 421 38% 117 19%
Non-Controlled 91 2% 19 1%
Other Control 40 2% 85 4%
SCR 229 51% 403 76%
SNCR 120 7% 0 0%

Note: Due to rounding, percentages shown may not add up to 100%.

Source: EPA, 2012

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Continuous Emission Monitoring Systems

Accurate and consistent emissions monitoring is the foundation of a cap and trade system. EPA has developed detailed procedures (40 CFR Part 75) to ensure that sources monitor and report emissions with a high degree of precision, accuracy, reliability, and consistency. Sources use continuous emission monitoring systems (CEMS) or other approved methods. Part 75 requires sources to conduct stringent quality assurance tests of their monitoring systems, such as daily and quarterly calibration tests and a semiannual or annual relative accuracy test audit. These tests ensure that sources report accurate data and provide assurance to market participants that a ton of emissions measured at one facility is equivalent to a ton measured at a different facility.

While many CAIR units with low levels of emissions did not have to use CEMS, the vast majority of NOx emissions—over 99 percent—were measured by CEMS. Coal-fired units were required to use CEMS for NOx concentration and stack gas flow rate to calculate and record their NOx mass emissions. Oil-fired and gas-fired units could use a NOx CEMS in conjunction with a fuel flow meter to determine NOx mass emissions. Alternatively, for oil-fired and gas-fired units that either operated infrequently or had very low NOx emissions, Part 75 provided low-cost alternatives to conservatively estimate NOx mass emissions.

Similarly, CEMS monitored over 99 percent of SO2 emissions from CAIR sources, including 100 percent from coal-fired units and 20 percent from oil-fired units. The relatively low percentage for oil-fired units is consistent with the decline in oil-fired heat input, as most of these units were used infrequently and qualified for reduced monitoring.

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Quality Assurance of Emissions Data

The quality of ARP and CAIR data rests on two founding principles: reporting a complete data record for every hour of operation and monitoring key parameters using CEMS or an approved alternative. The implementation of a strong quality assurance/quality control (QA) program is essential to ensuring that data are accurate and emission reductions are real.

The QA program encompasses the entire process of measuring pollutants, handling the data and reporting results. Regulations specify that monitors meet stringent standards to demonstrate their precision and reporters must use EPA software to validate and submit electronic reports. Standardized and centralized electronic reporting allows the Agency to efficiently track, process and validate the large volume of data using automation. All emissions are monitored and reported hourly including emissions during start-up, shutdown, and upset or uncontrolled conditions. This ensures that the record is complete and that QA rests on a solid statistical footing.

In 2009, EPA launched the Emissions Collection and Monitoring Plan System (ECMPS) to reengineer several applications onto a unified platform. EPA provides the ECMPS client tool to the regulated community. ECMPS uses an XML-based data format to perform up to 6,000 QA checks on the reports generated by CEMS data acquisition systems. It provides an immediate feedback report that allows the user to correct problems before data submittal. ECMPS has cut resubmissions significantly by consistently applying comprehensive validation and verification. Making it easy for reporters to submit clean data promotes efficiency and focuses attention on what is important.

EPA performs two types of QA post-submission: a repeat of the ECMPS checks to verify data accuracy and completeness and electronic audits including statistical analyses. Statistical and ad hoc audits provide a test bed for developing new QA procedures and are one of the key avenues by which EPA continues to improve data collection. QA is further supported by field audits, the Protocol Gas Verification Program and the Minimum Competency Requirements for Air Emissions Testing. Put together, these efforts ensure that the programs are effective and comprehensive.

CAIR and ARP have achieved an unparalleled level of performance with respect to the accuracy, precision, and timeliness of emission reports. These high levels of data quality and source compliance were achieved through careful program implementation and continuous improvement while working closely with the regulated community.

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Market Activity

In a cap and trade program, sources may consider several emission reduction alternatives, and are allowed to trade allowances as part of their compliance strategy. Through trading, the overall market can achieve emission targets at a lower cost than through a command and control program because abatement costs are not the same for all sources, and allowance trading allows those sources to arrange for the cheapest possible reductions among covered sources to meet the overarching cap. A market for emission allowances will emerge, and the allowance price will reflect the marginal cost of emission reductions. Emission control decisions will be made based on the cost of control options relative to the market price of allowances. The allowance price motivates those who have relatively low cost opportunities for emission reductions to make those investments and then sell any surplus allowances to those with higher marginal abatement costs.

SO2 Allowance Market in 2011

ARP allowance prices declined over the course of 2011 and prices continued to be significantly lower than prices projected as part of the final CAIR rulemaking.1 In this second year of CAIR SO2 compliance, prices for pre-CAIR and CAIRARP allowance vintages were below $5.00 per ton for all or part of the year. Total emissions decreased by 543,000 tons and were 4.41 million tons below the ARP cap, but emissions exceeded the CAIR cap by about 940,000 tons. Sources were able to use banked ARP allowances for compliance above the cap. After 2011 compliance surrenders, about 7.7 million pre-CAIR ARP allowances and 9.9 million CAIR ARP allowances were banked for possible future use. The availability of these banked allowances put downward pressure on allowance prices in both markets. See Table 9 for a summary of the SO2 allowance market at the close of 2011.

Table 9: Characteristics of the SO2 Allowance Market after Compliance (close of 2011)

Pre-CAIR Vintages CAIR Vintages Total
Total Value of the Banked
ARP Allowances Remaining after Compliance
$19.3 million $14.9 million $34.2 million
Year-End Price (per Allowance) $2.50 $1.50 n/a
Total Allowance Volume after Compliance 7,708,272 9,933,598 n/a

Note: Total value of allowance market is a snapshot based on the 2011 year-end nominal prices and total allowance volume available after 2011 compliance and surrender of allowances required by EPA enforcement consent decrees. For 2011, CAIR compliance required the surrender of two CAIR ARP allowances or 1 Pre-CAIR ARP allowance for each ton emitted.

EPA, 2012 and BGC Environmental Brokerage Services Market Price Index, 2012

NOx Allowance Markets in 2011

The 2011 CAIR NOx Ozone Season allowance market continued its price decline from the previous year closing at the end of December at $9 per ton (see Figure 10, below). The NOx Annual allowance price followed the same trend, declining to around $74 per ton by the end of the year.

In 2011, the third year of the CAIR Ozone Season and Annual NOx programs, CAIR sources emitted about 566,000 tons of NOx during the ozone season (May through September), below the overall budget and a 5 percent decrease from 2010 levels. CAIR sources emitted about 59,000 tons less than their overall ozone season budget, thereby increasing the CAIR ozone season NOx allowance bank to reach about 451,000 allowances. Not surprisingly, the downward tendency of ozone season allowance prices continued through most of 2011. Emissions of CAIR Annual NOx were 1.35 million tons, about 146,000 tons less than the overall budget. The CAIR Annual NOx bank grew to more than 529,000 allowances. Current annual and ozone-season CAIR NOx allowance prices are well below the marginal cost for NOx reductions projected at the time of the final rule, and are in part subject to downward pressure from the available banks of allowances.2

Figure 10: NOx Annual and Ozone Season Allowance Spot Price (Prompt Vintage), January–December 2011

Download or view a larger image

NOx Annual and Ozone Season Allowance Spot Price (Prompt Vintage), January-December 2011

Note: Prompt vintage is the vintage for the “current” compliance year.

Source: BGC Environmental Brokerage Services Market Price Index, 2012

Transaction Types and Volumes

Allowance transfer activity includes two types of transfers: EPA transfers to accounts and private transactions. EPA transfers to accounts include the initial allocation of allowances by states or EPA, as well as transfers into accounts related to special set-asides. This category does not include transfers due to allowance retirements. Private transactions include all transfers initiated by authorized account representatives for any compliance or general account purposes.

To help better understand the trends in market performance and transfer history, EPA classifies private transfers of allowance transactions into two categories:

While all transactions are important to proper market operation, EPA follows trends in the distinct transaction category with particular interest because these transactions represent an actual exchange of assets between unaffiliated participants. In 2011, about a third of each program’s traded allowances were exchanged between unrelated parties, often with a broker facilitating the trade (see Table 10). This proportion is similar to what was seen in 2010.

Table 10: 2011 Allowance Transfers under CAIR and ARP

Allowances Transferred Share of
Program’s 2011 Transfers
CAIR NOx Ozone Season Program Distinct Organizations80,63427%
Related Organizations 216,38373%
CAIR NOx Annual Program Distinct Organizations337,94944%
Related Organizations423,289 56%
ARP and CAIR SO2 Annual Program Distinct Organizations3,109,77737%
Related Organizations5,320,04163%

Source: EPA, 2012

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Notes


  1. U.S. EPA, Regulatory Impact Analysis for the Final Clean Air Interstate Rule, Docket No. EPA-HQ-OAR-2003-0053-2158, 7-9.

  2. Ibid.

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