EPA to Auction Sulfur Pollution Permits : Environment: The market approach is aimed at cutting power plant emissions and thereby combatting acid rain.

Announcing its first major step to combat acid rain under last year’s sweeping Clean Air Act, the Environmental Protection Agency said Monday it will hold an annual auction of emissions permits required for polluting power plants to stay in operation.

Under the plan, which also provides for fixed-price pollution permits, private citizens, market professionals, and practically anybody except federal government employees will be allowed to enter the market, buying and selling sulfur dioxide “allowances” as they would blue-chip stock issues, mutual funds or sugar futures.

The Bush Administration conceived of the market-based approach to combatting sulfur dioxide pollution and resultant acid rain when it sent the massive clean air package to Congress in 1989.

Under plans outlined Monday and scheduled for official publication within the next few days, EPA proposed to auction 150,000 allowances and make direct sales of 25,000 per year from 1993 to 1995. After that, it will auction 200,000 and sell 50,000 directly each year. The permits would be good for one year.

Coal- and oil-burning power plants through the South and Midwest are blamed for killing thousands of lakes in the northeastern United States and across Canada with sulfur dioxide falling as acid rain.

In response, Congress in the new federal clean air amendments mandated a 10-million-ton- per-year reduction in sulfur dioxide emissions by the turn of the century with the marketplace providing the incentive for utilities to clean up dirty plants.

The trading system includes a formula that sets emissions levels on the basis of plants’ past consumption of coal or oil. The overall effect is designed to reduce emissions.

EPA hopes that utilities will be able to focus acid rain control efforts at power plants where emission cuts will be the most efficient. The agency expects that some utilities will be make rapid emissions cuts, then sell their unused allowances to others.

The South Coast Air Quality Management District has a committee at work on creating a similar emissions trading program to replace some of its smog control regulations.

One “allowance” or permit under the federal program will give a power plant permission to emit one ton of sulfur dioxide per year. Utilities will not be able to exceed their allowances and remain in operation.

Under the plan announced Monday, EPA will accept bids from utilities each year no later than March, and will sell to the highest bidders. Once the government allowances have been auctioned, private holders will be able sell their holdings.

Sometime after the annual auction, the direct sale will be held with allowances going for $1,500 each on a first-come, first-served basis, with private investors invited to get in line.

Under direction from Congress, the implementation plan is designed to first go after the largest, dirtiest power stations.

To encourage development of a vigorous market, the plan calls not only for both auction and direct sales but also establishes a system whereby the allowances will be marketed on both a “spot” and “futures” basis.

Those purchased in the “spot” market can be immediately used by utilities to come into compliance with their sulfur dioxide emission limits, while “futures” must be held for seven years before they can be applied.

Sale of the first allowances will take the federal government into an untried realm of pollution prevention, using market incentives in place of fines or suspended operations.