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May 11, 2011

Average prices for spot sulfur dioxide emissions allowances at EPA auction set new lows

Source: U.S. Energy Information Administration based on Environmental Protection Agency data.
Note: Represents quantity weighted average price paid by winning bidders in the annual spot auction for emissions allowances.

The weighted average spot price for sulfur dioxide (SO2) emissions allowances awarded to winning bidders at Environmental Protection Agency's (EPA) annual auction on March 29, 2011 was only $2.81 per ton, the lowest price since the auction began in 1993. Total expenditures by winning bidders for the available 125,000 tons of spot SO2 allowances were only $372,012 compared to over $144 million in 2006.

Each year, EPA holds an auction for SO2 emissions allowances set aside in an Auction Allowance Reserve to let interested parties such as electric power plant owners, environmental groups, emissions brokers and others acquire up to 125,000 tons of emissions allowances under Phase II of Title IV of the Clean Air Act Amendments. This program provides a source of allowances beyond those initially allocated and facilitates price discovery.

Several factors account for declines in SO2 emissions allowance prices since 2006: a lagging economy, increased use of natural gas for power generation (there is virtually no SO2 in natural gas), a growing bank of existing allowances, and the knowledge that current allowances will cease to have value under future air emissions regulations.