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The US S02 permit trading experience: key issues in implementing emissions trading



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21 M ay 1998

GPO Box 1563 Canberra ACT 2601

Telephone (06) 272 2000 Facsimile (06) 272 2001 International code 616 http://www.abare.gov.au

The US S 0 2 permit trading experience: Key issues in implementing emissions trading

‘The US sulfur dioxide emissions trading scheme has effectively met environmental goals while reducing compliance costs compared with ‘command and control’ program s’, Mr John Harding, Vice President of Product Research and Development at the Chicago Board of Trade said today in addressing ABARE’S International Greenhouse Gas Emissions Trading

Conference in Sydney.

Mr Harding also pointed to a falling quota price trend as evidence of the efficiency of the S 0 2 trading scheme. Mr Harding pointed to a number of reasons for the falling quota price, including a lowering of the marginal abatement associated associated with emission reducing technologies and falling prices for low sulfur coal. However, Mr Harding told the conference that a major but unexpected cause of the falling emissions prices resulted from utilities

‘banking’ some of their quota allocation. ‘Many utilities opted not to use some of their allocated quota in anticipation of more stringent future emission reduction targets, thus reducing the demand for emission quotas’, Mr Harding said.

Ms Sharon Saile, of the Acid Rain Division at the US Environmental Protection Agency (EPA) outlined the importance of the role played by the US EPA in achieving an effective emissions trading program. In particular, Ms Saile highlighted the contribution that the EPA ’s ‘permit allocation rule’ played in minimising the transaction costs associated with emissions trading. ‘In order to minimise the transaction costs, relatively more permits were allocated to utilities with higher marginal abatement costs’, Ms Saile said.

Mr Ron Knapp, C hief Executive of the W orld Coal Institute, applauded the US sulfur dioxide trading scheme and called for a greenhouse gas trading scheme that allowed for international and intranational permit trade. ‘The closer the characteristics of an emissions market reflect the characteristics of a normal market for a physical commodity, the more efficient and cost effective the outcome will be’, Mr Knapp said.

Speakers at the session ‘Making it happen’ were: Ms Sharon Saile, Acid Rain Division, US Environmental Protection Agency; and Mr Ron Knapp, Chief Executive, World Coal Institute; and Mr John Harding, Vice President, Product Research and Development, Chicago Board o f T ra d e.

For further information contact Brian Fisher on 0412 324 152. For copies of the Conference proceedings, contact Denise Flamia on (02)6272 2211 For all media enquiries contact Shelley Kissing on 0412 324 152 or on (02)6272 2291 after the Conference.

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