Congress established the world’s first cap-and-trade system by creating the Acid Rain Program (ARP) during its 1990 amendments to the Clean Air Act. The purpose of the ARP was to reduce acid rain deposition by decreasing sulfur dioxide (SO2) emissions from power plants to 50 percent below 1980 levels by 2010. To achieve this goal, regulators capped the annual aggregate SO2 emissions from central and midwestern power plants and created an allowance trading market.
The ARP is largely considered a successful cap-and-trade system. By 2007, the program had achieved its 2010 reduction goal at an estimated cost that was considerably lower than that of command-and-control regulations, which mandate that each power plant adopt a specific technology to reduce SO2 emissions or a standard that requires each power plant to emit below a specific fraction of SO2 emissions per unit energy produced (Carlson et al. 2000).1 The success of the ARP informed the architecture of other programs, including the world’s largest cap-and-trade program: the E.U. Emissions Trading System (Convery 2008).
This backgrounder describes the SO2 allowance market of the ARP, reviews the ARP’s effectiveness, discusses the monitoring systems of the ARP, summarizes publicly available ARP data sets, and highlights limitations of the ARP.