The Northeast’s NOX Budget program is similar to the Acid Rain Program in that they are both cap-and-trade programs. The NOX budget however, only operates during the summer months when emissions are highest. Beginning in 1999, the program was
implemented in three phases that will result in a 65 to 75 percent reduction in NOX emissions by 2003 and a final standard equivalent to 0.15 lbs. per MMBtu (Farrell 2000).
While initial market activity resulted in high price volatility, more recent prices have been more stable. NOX allowances for 1999 generally ranged from $1,500 to $3,000 per ton, and in one period reached $7,000. Since 2000 however, prices have stabilized around $750 per ton (OTC 2002). Using this as a point of reference, the approximate impact on the cost of generating electricity can be determined. In 2003, the broader NOX State Implementation
Plan (SIP) regional program is expected to begin adding states to the original Ozone
Transport region to a total of 20 states. One hundred eighty-six gas (300 MW or larger) and coal (600 MW or larger) plants from the NOX SIP call region were selected to determine the average incremental cost of electricity (EPA 2002a). The calculation of incremental cost is the same as the SO2 calculation above, but the data are adjusted for the ozone season, which refers to the summer months when emissions limits apply. The average cost for the 126 coal plants above the limit was $1.3 per MWh and the average cost of the 15 gas plants above the limit was $0.4 per MWh.
8.5.3. Conclusion
Analysis of the SO2 allowance market suggests that coal-fired electricity generators can expect an average cost of $0.50 per MWh to meet current emissions standards.
However, older less efficient plants can expect costs closer to $1.20 per MWh and newer more efficient plants closer to $0.10 per MWh. The NOX allowance market indicates that coal plants can expect an average cost of $1.3 per MWh to meet Phase III emission limits, whereas gas plants were rarely over the limit, and those that were had an average cost of $0.40 per MWh. Allowance prices could change, however, should the NOX budget program become annual or federalized to include all 48 states.
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