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Remarks by Brian McLean
6th Annual Allowance Auctions
March 25, 1998
Today we are announcing the results of our 6th annual auctions for sulfur dioxide allowances conducted for EPA by the Chicago Board of Trade (CBOT). The Clean Air Act of 1990 created the SO2 allowance trading program and encouraged the development of other market-based approaches to air quality management. Since 1990, EPA has established the rules for this program and industry has taken advantage of its flexibility by reducing SO2 in the most cost-effective ways possible.
Everyone is aware of the success of the acid rain trading program, now in its 4th year. Emissions are down, utilities are complying, trading is up, and allowance prices are much lower than industry–and EPA, for that matter–predicted. This demonstrates that when emissions are capped and accounted for through accurate monitors, an efficient market can develop and costs of meeting our environmental goals can be reduced.
Based on our experience with SO2 allowance trading, EPA has been helping the Ozone Transport Commission, comprised of twelve northeastern states, to develop its trading program for NOx, and beginning later this year we will be operating the OTC's emissions and allowance tracking systems.
We are also developing a NOx trading program to help states reduce the transport of ozone from the midwest to the eastern US. States may elect to reduce the cost of compliance with ozone regulations by participating in this program. The proposed model trading rule is currently undergoing interagency review and should be available for public comment within the next few weeks.
Of course emissions trading is always part of any climate change program discussion as well, and we plan to offer our experience as domestic and international trading programs take shape.
It's interesting to remember that 6 years ago, the auction was a large part of the allowance market–the several hundred thousand allowances auctioned dominated the allowance market activity. Now the auction is one piece of a much larger and thriving market.
We are happy that once again CBOT has worked with us to provide the auction results to you, and I look forward to the remarks of other participants here today regarding this year's results.