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The Observatory · Case 32 · Environment · 1990 to 2012

Acid Rain Program and sulfur trading (United States, 1990 to 2012)

1. Review status

Status

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Sources checked

2026-10-19

Review history

https://michiinstitute.com/members/reviews.html?case=acid-rain-program

Packet built

2026-10-28

2. The article

Congress passed Title IV of the 1990 Clean Air Act Amendments by lopsided votes, capped power plant sulfur dioxide through tradable allowances, and cut emissions at far lower cost than forecast, but later court rulings, other rules and fuel changes make it hard to credit the program alone, and trading moved some pollution to crowded eastern areas.

The record

What the law did

• Title IV of the 1990 Clean Air Act Amendments (42 U.S.C. 7651 and following) states a purpose of cutting annual sulfur dioxide emissions by "ten million tons from 1980 emission levels," plus about two million tons of nitrogen oxides, in the 48 contiguous states and the District of Columbia. Sources may use "an emission allocation and transfer system" to comply. (42 U.S.C. 7651, Cornell Legal Information Institute copy; opened)
• Phase I began January 1, 1995. It named about 110 plants (261 units, 21 states) and set a limit of 2.5 pounds of sulfur dioxide per million Btu. Phase II began January 1, 2000, and covered fossil units above 75 megawatts at 1.2 pounds per million Btu, with a national cap of 8.95 million tons. Each ton emitted needs one allowance. The penalty is $2,000 per ton above allowances held. EPA gave allowances out free, based on historic fuel use. Plants had to run continuous emissions monitors and report to EPA. (Wikipedia, Acid Rain Program; opened. These details come from a secondary source that cites the statute; the statute's penalty section, 42 U.S.C. 7651j, was not opened.)
• The first allowance auction was run by the Chicago Board of Trade in March 1993. (Wikipedia)
• Congress passed the 1990 amendments by wide margins: Senate 89 to 11 and House 401 to 21, according to economists Richard Schmalensee and Robert Stavins, who also report that 87 percent of Republicans and over 90 percent of Democrats voted yes in both chambers. President George H. W. Bush signed the law. (Schmalensee and Stavins, NBER Working Paper 18306; opened)

Timeline

Emissions and deposition

• EPA says power plant sulfur dioxide fell "over 95%" and nitrogen oxides "over 89%," and that wet sulfate deposition fell "by more than 70%" from 1989 to 1991 to 2020 to 2022. EPA credits the "combined effect" of the Acid Rain Program, CSAPR and sector changes, so the figure is not the program alone. (EPA, Acid Rain Program Results; opened)
• EPA's 2022 progress report fact sheet gives 852,000 tons of sulfur dioxide in 2022, 93 percent below 1995, and says 100 percent of plants in the Acid Rain and CSAPR trading programs were in compliance. (EPA fact sheet; opened)
• Wikipedia reports 8.9 million tons in 2007 and 7.6 million tons in 2008, citing EPA. These figures were not checked against the EPA reports. (Wikipedia)

Costs and how the market behaved

• Realized costs were "substantially less than ex ante forecasts," according to Schmalensee and Stavins, who cite annual costs of $0.5 to $2.0 billion. Prices were "remarkably stable" in the first decade, peaked in 2005, fell from $315 to $115 in one day on July 11, 2008, and reached $0.56 in 2012. (Schmalensee and Stavins)
• The Department of Energy's 1991 estimate of scrubber cost was $665 to $736 per ton. Allowance auction prices in March 1993 were $122 to $450. (Wikipedia, which cites these figures)
• Of 263 Phase I units, about 10 percent installed scrubbers and accounted for 28 percent of reductions. Fuel switching or blending accounted for 59 percent. (Schmalensee and Stavins)
• Rail rates for Powder River Basin low-sulfur coal fell by over half from 1979 to 1993 after rail deregulation. The authors attribute about one third of early reductions to that deregulation and two thirds to trading. (Schmalensee and Stavins)

Who benefited and who paid

• A 2005 EPA working paper by Ronald Shadbegian, Wayne Gray and Cynthia Morgan looked at 1995 only. It estimated benefits of about $56 billion and costs of about $558 million (1995 dollars). It found net benefits in every EPA region, but Region 5 (the Midwest) paid about 45 percent of costs and got about 26 percent of benefits. The poor got benefits slightly below their share of costs (ratio 93). The authors concluded "no significant environmental justice concerns." Benefits depend on a $5.4 million value of a statistical life and on one mortality study. (EPA NCEE Working Paper 05-09; opened)
• A 2018 study by Chan, Chupp, Cropper and Muller modeled 761 coal units in 2002. Trading saved about $200 million (1995 dollars), roughly 20 percent of compliance costs. Compared with a no-trade case, damages were $2.1 billion higher (about 386 deaths) because emissions moved from low-cost western plants to eastern plants in denser areas, mostly in Pennsylvania, Ohio, West Virginia, Maryland and northern Virginia. Their phrase: "Ton-for-ton trading increases damages." (Journal of Environmental Economics and Management, 2018, University of Maryland copy; opened)
• A 2002 study by Jason Corburn compared 110 Phase I plants with census data for the first three years. Trading did not appear to concentrate pollution on poor or minority neighborhoods in those years; the author limits the finding to the early period. (Environmental Conservation 28(4), abstract; abstract only opened)
• Barreca, Neidell and Sanders (2021) used Phase I as a natural experiment. They estimate lower cardiorespiratory mortality, with about 5,000 avoided deaths a year at ages 35 to 64 and 21,000 at 65 and over by 2005, and annual benefits of $51 to $109 billion against costs of roughly $3 billion. They warn the particle effect rests on a model and that benefit figures depend on valuation choices. (Journal of Public Economics, author copy; opened)

Disputed numbers

| Item | Figure A | Figure B | Notes | |---|---|---| | Annual cost, mature program | $0.5 to $2.0 billion (Schmalensee and Stavins) | about $3 billion per year (Barreca et al.) | Different years and methods | | Annual benefit | $59 to $116 billion, 2000 dollars (Schmalensee and Stavins, table) | $51 to $109 billion, 2005 (Barreca et al.); about $56 billion, 1995 (EPA 2005 paper) | Valuation and year differ | | 2005 allowance price | over $1,200 (Schmalensee and Stavins) | about $1,600 in December trades (Wikipedia) | Spot versus trades; not reconciled | | Share of savings from trading | trading saved about 20 percent of 2002 costs (Chan et al.) | earlier forecasts of $784 million to $1.92 billion a year (cited by Chan et al.) | Authors say a looser cap and later scrubbers explain the gap | | Credit for early cuts | one third rail deregulation, two thirds trading (Schmalensee and Stavins) | EPA's combined figure with CSAPR and "sector changes" | Not separated by EPA |

What this case shows

1. A rule ordinary people could read and judge. The cap was one number, the allowance was one ton, and emissions were metered and reported daily. Anyone could, in principle, compare a plant's emissions to its allowances. EPA still publishes yearly compliance reports. (Statute; EPA fact sheet)
2. A vote with broad support. The 1990 law passed 89 to 11 and 401 to 21 with large majorities in both parties. That is a record of a public question answered by elected representatives, not by an agency alone. (Schmalensee and Stavins)
3. Forecasts were checkable, and they were wrong in a useful direction. Costs came in well below ex ante forecasts. The public record lets later researchers show why: low-sulfur coal and rail rates mattered. (Schmalensee and Stavins; Chan et al.)
4. Who was included is a measurable question. The program had named winners and losers by region. The Midwest paid more than it received in the 1995 snapshot, and eastern communities near coal plants saw damages rise relative to a no-trade case. The data let outsiders test the claim. (EPA 2005 paper; Chan et al.)
5. What the law gave, courts and rules took. After CAIR was vacated in 2008 and CSAPR followed, allowance prices fell to near zero. A market built by statute depended on later rulemaking that most people could not follow. (Schmalensee and Stavins)

The strongest objections, and our answers

1. Objection: Other rules, fuel prices and rail deregulation drove the cuts, not the program. Mitigation: We say so. EPA itself gives a combined figure with CSAPR and sector changes, and Schmalensee and Stavins credit one third of early cuts to rail deregulation. We do not credit the program alone for the 95 percent decline.
2. Objection: The program is a clear success because it cost less than forecast and cut harm. Mitigation: We include that and cite EPA and peer reviewed studies. The same literature reports that benefits depend on assumptions (value of a statistical life, a particle model) and that trading raised damages in some eastern areas versus a no-trade case.
3. Objection: Trading let some plants pollute more, so it hurt local residents. Mitigation: Chan et al. support part of this; Corburn and the EPA 2005 paper found no concentration on poor or minority groups in the early years. We show both and note the studies use different years and methods.
4. Objection: Coal communities bore job and price costs. Mitigation: The sources opened do not give a mining job count. One fact from a secondary source: a dispute over scrubbers at an Ohio plant involved the United Mine Workers because of high-sulfur coal. We do not state a national job figure. See Section 5.
5. Objection: Wikipedia is not a primary source. Mitigation: We use it for dates and early cost estimates and mark those as secondary. Core numbers come from EPA, NBER and peer reviewed papers.

Open questions: what would change our minds

• Phase I and Phase II details (110 plants, 2.5 and 1.2 pounds, $2,000 penalty) come from Wikipedia citing the statute. The statute sections 7651c and 7651j were not opened. Unverified against the primary text.
• The 8.9 million ton (2007) and 7.6 million ton (2008) figures are from Wikipedia and were not checked against EPA reports. EPA's page opened gives only percentages and 2022.
• The 2005 price conflict (over $1,200 versus about $1,600) is not reconciled.
• The Schmalensee and Stavins paper was read through an automated summary of the PDF; page level figures (Table 1) should be rechecked in the original.
• Coal mining job losses in Illinois, Ohio and Appalachia: not researched. We cannot state a number.
• Whether affected communities had a formal say in how allowances were allocated: not checked.
• The D.C. Circuit 2012 CSAPR opinion and the 2014 Supreme Court ruling were not opened.
• Evidence that the program, alone, caused the deposition decline would need a model that separates CSAPR, state rules, gas prices and coal retirements.
• Lake and stream recovery data (EPA reports an 81 percent improvement in monitored sites) are EPA's summary; the monitoring dataset was not opened.

Sources

Found an error or a better source? We keep every correction on the record with its date and reason. Nothing here is quietly rewritten.

3. Sources and their details

One entry per source in the page's Sources table. "Checked" is the date the page says its sources were checked. A Wayback link and SHA-256 appear only where a snapshot has been recorded.

4. Every link used in the article

1. 42 U.S.C. 7651, Cornell Legal Information Institute copy
   https://www.law.cornell.edu/uscode/text/42/7651
2. Wikipedia, Acid Rain Program
   https://en.wikipedia.org/wiki/Acid_Rain_Program
3. Schmalensee and Stavins, NBER Working Paper 18306
   https://www.nber.org/system/files/working_papers/w18306/w18306.pdf
4. EPA, Acid Rain Program Results
   https://www.epa.gov/acidrain/acid-rain-program-results
5. EPA fact sheet
   https://www.epa.gov/system/files/documents/2024-05/power-sector-programs-progress-report-fact-sheet.pdf
6. EPA NCEE Working Paper 05-09
   https://www.epa.gov/sites/production/files/2014-12/documents/benefits_and_costs_from_sulfur_dioxide.pdf
7. Journal of Environmental Economics and Management, 2018, University of Maryland copy
   https://econ.umd.edu/sites/www.econ.umd.edu/files/pubs/1-s2.0-s0095069617301973-main.pdf
8. Environmental Conservation 28(4), abstract
   https://www.cambridge.org/core/journals/environmental-conservation/article/abs/emissions-trading-and-environmental-justice-distributive-fairness-and-the-usas-acid-rain-programme/7B4F16E87AC821DB4E20DA13B768D226
9. Journal of Public Economics, author copy
   https://njsanders.human.cornell.edu/Acid_Rain_Mortality_JPubE.pdf

5. Revision history

First published (earliest change on record): 2026-10-22.

Corrections on the page

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6. How to cite

The Way (Michi Institute). "Acid Rain Program and sulfur trading (United States, 1990 to 2012)." Case 32, The Observatory. Sources checked 2026-10-19. Packet built 2026-10-28. https://michiinstitute.com/cases/acid-rain-program.html

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