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A New Standard of Performance: An Analysis of the Clean Air Act's Acid Rain Program

August 1996

Citation: ELR 10411

Author: Dallas Burtraw and Byron Swift

Editors' Summary: Title IV of the Clean Air Act Amendments of 1990 contains an innovative performance-standard approach to pollution abatement. The Acid Rain Program that Title IV established imposes a national cap on utilities' sulphur dioxide (SO2) emissions, the principal cause of acid rain, and grants allowances to utilities to emit specific amounts of SO2. The emissions cap approach and provisions allowing utilities to trade these allowances among themselves were intended to create market forces that would push utilities to find the most efficient and least expensive ways to achieve SO2 pollution reduction.

This Article concludes that the Acid Rain Program has significantly outperformed the more traditional command-and-control approach used to achieve environmental goals. The Article analyzes the program's successes and failures and compares Title IV's emission cap and allowance trading approach to the previous statutory and regulatory approach to addressing SO2 pollution—the new source performance standards. The Article then analyzes the results of the first year of operation of Title IV, which has resulted in SO2 emissions that are 40 percent less than the Acid Rain Program allows, at a cost of compliance dramatically less than originally anticipated. This result has occurred primarily because market forces have driven innovation and investment. In addition, the penalty system associated with the emission cap approach has resulted in virtually 100 percent compliance without enforcement action. The Article concludes with suggestions for improving the program by reforming state regulatory policies, revising Title IV's permit requirement, and creating more flexibility for testing effective emissions monitoring technologies.

Dallas Burtraw is a fellow at Resources for the Future, a nonpartisan research institution specializing in environmental and natural resource economics. Byron Swift is a Senior Attorney with the Environmental Law Institute. The authors wish to thank Ron Lile, Erin Mansor, Clean Air Capital Markets, and the U.S. Environmental Protection Agency's (EPA's) Acid Rain Division for their assistance.

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