|NEW YORK - The world's largest energy bourse, the New York Mercantile Exchange, is considering trading the rights for power plants to emit the pollutant sulfur dioxide, which have tripled in price since January.|
"Our research people are meeting people in the business to evaluate what kind of market it would make," said NYMEX spokeswoman Nachamah Jacobovits. "It's a possibility," she said, without elaborating on whether the market would be futures or spot or something similar.
Amendments in 1990 to the federal Clean Air Act created U.S. sulfur dioxide (SO2) allowance trading to reduce emissions of the gas, which is a component of acid rain and can harm the environment and human health.
In spot markets already trading, SO2 emitters, such as power plants, earn allowances by installing expensive scrubbers at plants to reduce emissions, or by switching to low-sulfur coal or cleaner natural gas.
They then sell those allowances, which are recorded by the U.S. Environmental Protection Agency, to traders for utilities who have chosen to buy them rather than to reduce emissions.
U.S. regulations require electric utilities to reduce their SO2 emissions from 1980 levels. Nobody knows how the regulations will be changed in the future, but traders have bought up allowances on fears there will be further rules on tightening of emissions.
Since the beginning of the year SO2 allowances have tripled to a record high of about $655 a ton, traders said this week.
Emissions prices have soared to the point that Ohio utility Cinergy Corp. (CIN.N: Quote, Profile, Research) said in October the costs were a factor in its lower third quarter earnings.
Competition is increasing. A developing exchange in the Midwest, the Chicago Climate Exchange, is set to launch an SO2 allowance futures trade program on Dec. 6.
It's uncertain whether there is enough volume to support both markets, said Evan Ard, a spokesman for Evolution Markets in New York, which trades coal and emissions credits.
"There's not going to be a huge amount of volume at first, but the market may develop; it's all about whoever can stick in the market," said Ard.
While the number of power plants with scrubbers could increase from one-third of the total number of power plants to two-thirds in coming years, the increasingly strict regulations to come could make the market grow.
Steve Fine of policy and management consultants ICF Consulting said coming regulations could increase the price of allowances to $1,000 a ton. "Under virtually any conceivable future regulatory scheme ... you're going to be seeing cuts in the SO2 cap to 50 percent and then further down 70 percent from where limits have us currently," he said.
"Those kinds of reductions are not going to be attainable through fuel switching (to low sulfur fuels) alone."
Story by Timothy Gardner
REUTERS NEWS SERVICE