The Effect of the Title IV Acid Rain Control Provisions on SO2 Compliance Costs

Title IV of the 1990 Clean Air Act AmendmentS instituted a number of regulatory mechanisms designed to lower the cost of reducing emissions of acid rain-causing pollution from electric utility power plants. In this paper we estimate the cost-savings associated with three flexibility-enhancing provisions of Title IV: (1) intra-utility allowance tra~ing, (2) allowance banking, and (3) inter-utility allowance trading. Utility compliance costs under each provision were estimated and compared with compliance costs under a less flexible command- and-control policy using the Utility sen Compliance Planning Model (USCPM), a dynamic optimization model hat we have developed. The results of the analysis indicate that each of the flexibility enhancing provisions analyzed can contribute to significant overall cost-savings. Another important result is that substantial cost-savings are possible even in the absence of an active inter-utility allowance trading market.