CAIR Ruling Makes it Cheaper to Turn Off/Bypass Scrubbers, But Unlikely to Happen

Implications:     The Court’s July 11, 2008 decision vacating the Clean Air Interstate Rule (CAIR) caused the price of SO2 emissions allowances to decrease less than the cost of operating a scrubber to reduce the SO2 emissions.  The discussions that follow discuss this and the likelihood of this happening.

Analysis:     The court’s decision struck down the Clean Air Interstate Rule, including the provision requiring the Eastern states to relinquish 2 SO2 allowances for every 1 ton of SO2 emissions in 2010 and 2.86 allowances for every 1 ton of SO2 emissions starting in 2018.  Instead the status quo requirement remains of 1 SO2 allowance for every 1 ton of SO2 nationwide under the existing Clean Air Act Amendment passed by Congress and signed by the first President Bush.               

    As a result, the price of a SO2 emissions allowance has plunged to about $150 each.  This SO2 emissions allowance price is below the variable O&M cost of operating a scrubber.  It could be postulated that a great deal of scrubbers would be turned off/bypassed for economics.  It is unlikely for the following reasons:               

    The coal plant may not have been built with the capability to turn off/bypass the scrubber. 

     The potential bad public relations for emitting large amounts of SO2 when that was not previously happening when the scrubbers were operating on the plant.
 
     The real or implied commitment with stakeholders to remove SO2.

    The need for a regulated utility to have a capital asset like a scrubber being “used and useful” to gain rate recovery (return of and on investment) in rates.  
 
     The treatment of SO2 allowances by some generators as not an asset marked-to-market and traded, and thus never really understanding the value of the SO2 allowances to the company.

    There may be commitments to produce synthetic gypsum (a scrubber byproduct) for the wallboard industry.