From: Jeffrey Tomich, St. Louis Post-Dispatch
Published March 30, 2005 12:00 AM

St. Louis-based Ameren Corp. Addresses Tougher Air-Quality Regulations

Ameren Corp., which operates 12 coal-fired power plants in the Midwest, was the biggest buyer nationwide of federal allowances for sulfur-dioxide emissions, which cause acid rain. It intends to use them to help meet tougher air-quality regulations being phased in over the next decade.


The allowances, purchased for about $32 million in an Environmental Protection Agency auction on Monday, are good for 45,000 tons of sulfur dioxide, or 36 percent of the total offered. Overall, the government auction raised a record $125 million, as new environmental rules announced this month have led to a surge in prices.


Emissions credits are a small part of the estimated tens of billions of dollars that utilities are expected to spend by 2015 to comply with regulations limiting sulfur dioxide, nitrogen oxides and other pollutants. In a recent regulatory filing, St. Louis-based Ameren estimated it will spend $1.4 billion to $1.9 billion on compliance during that time.


The allowances give Ameren's unregulated generating subsidiaries in Illinois more leeway in how and when to spend money on power-plant "scrubbers" and other equipment to cut emissions.


"It gives us flexibility so that we can time equipment installations and where we make those investments," said spokesman Tim Fox. AmerenUE, the company's regulated utility in Missouri, didn't buy any credits at the auction.


The EPA auction began 13 years ago as part of the program to limit emissions from coal-fired power plants and help reduce acid rain. The EPA annually issues to utilities a set number of allowances, each good for emitting a ton of a pollutant, such as sulfur dioxide. The agency also keeps a small percentage of allowances and auctions them once a year.


The EPA on March 11 issued the new Clean Air Interstate Rule, limiting emissions of sulfur dioxide and nitrogen oxides in 28 states in the eastern half of the nation, including Illinois and Missouri.


The regulations, issued as the President's Clear Skies legislation stalled in Congress, are aimed at helping clean up pollution from coal-fired power plans, mostly in the Midwest and South. The Clean Air rule requires plants by 2015 to reduce sulfur-dioxide emissions by 70 percent over 2003 levels and reduce smog-causing nitrogen oxides by 60 percent.


The price of sulfur-dioxide allowances and futures traded on the Chicago Climate Exchange have soared since the EPA signaled in late 2003 that new rules would be issued. Those higher prices were reflected in the EPA's auction, where the average spot price rose to $702.51 a ton from $167.74 three years ago.


Soaring oil, natural gas and coal prices also have helped boost the price of allowances. In addition, many utilities that had saved, or "banked," credits in the late 1990s have been depleting more of them since tougher emissions rules took effect in 2000, said Peter Zaborowsky, managing director at Evolution Markets LLC, an emissions broker in White Plains, N.Y.


The market for emissions credits "wouldn't have gotten this high" without the new environmental rules, he said. "But this was a market that was going to rally. We're in a new world where natural gas prices aren't going back to $2 or $3 (per thousand cubic feet) anytime soon."


Participants in the $3 billion emissions-credit market include not just utilities but also banks, such as Morgan Stanley, which have been buying power plants. Morgan Stanley was the second-biggest buyer of sulfur dioxide allowances at Monday's auction.


EPA officials say the rising price of emissions credits is proof the cap-and-trade system for reducing air pollution is working. As utilities see the price of allowances rising, more are making investments in pollution-control equipment, said Brian McLean, director of the Office of Atmospheric Programs at the EPA.


"As we move on regulations, we also see the market adjusting and sending a signal to companies to take action," McLean said. "Historically, you would see companies wait until the rule is final and the litigation is final" to begin spending money.


Sulfur-dioxide emissions are down almost 7 million tons from 1980 levels, and acid deposition is down 30 percent in the eastern United States, where most of the coal-fired power plants are, according to the EPA.


The results of Monday's auction trouble local environmentalists, because two of the biggest buyers were Ameren and Edison Mission Energy, which bought about 10 percent of the credits for sale. Like Ameren, Edison Mission's Midwest Generation unit, based in Chicago, operates several coal-fueled plants in Illinois.


"There's a lot of buying of pollution credits in the Midwest," said John Thompson, a spokesman for the Clean Air Task Force in Carbondale, Ill. "What that means is that the rest of the nation reduced their pollution so that we could increase ours."


To see more of the St. Louis Post-Dispatch, or to subscribe to the newspaper, go to http://www.stltoday.com. Copyright (c) 2005, St. Louis Post-Dispatch Distributed by Knight Ridder/Tribune Business News.


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