The Clean Air Act is a law that was made to clean up air pollution. It has been amended a handful of times since its creation in 1963. The Act's evolution eventually gave the Environmental Protection Agency (EPA) power to establish a market in emission allowances.
The 1963 Clean Air Act relied on states to issue and enforce regulations regarding air pollution. Concerned that states were not doing enough, and that air pollution was an interstate problem because wind carries pollutants across borders, Congress amended the Clean Air Act in 1970. The Clean Air Act of 1970 required the newly established Environmental Protection Agency to set and enforce national standards for air pollution.
The 1990 Clean Air Act Amendments, on which current regulations are based, were the most far-reaching. The Clean Air Act authorizes the Environmental Protection Agency to set National Ambient Air Quality Standards (NAAQS) which establish acceptable concentrations of six criteria pollutants: ozone, carbon monoxide, sulfur dioxide, lead, nitrogen dioxide and particulate matter.
Levels of pollutants are measured by state and local environmental agencies at air monitoring sites in cities and towns across the U.S. Every major metropolitan area has at least one monitoring site. States and local governments that are not in compliance with EPA air quality standards may be forced to take costly measures to reduce pollutants, including imposing stricter standards for emissions from motor vehicles, requiring the use of alternative clean fuels, and placing additional controls on industries and business.
In November 1996, the EPA issued a proposal to tighten standards for particulate matter and ozone under the National Ambient Air Quality Standards (NAAQS). The proposed changes immediately became controversial and questions were raised about the costs of the standards and their potential benefits. After much debate, the regulations were issued in July 1997, although enforcement measures have been postponed.
In March 2005, the U.S. Environmental Protection Agency announced new Clean Air regulations concerning power plant emissions of nitrogen oxides, sulfur dioxide, and mercury. Under the Clean Air Interstate Rule, emissions of sulfur dioxide and nitrogen oxides will be reduced in 28 eastern states and Washington, DC. The Clean Air Mercury Rule will reduce mercury emissions from coal-fired power plants by 70% by 2018.
The Involvement of Futures Exchanges
The 1990 amendments to the US Clean Air Act empowered the EPA to establish a market in emission allowances. This opened the door for involvement of futures exchanges.
In 1993, the Chicago Board of Trade administered its first cash SO2 emission allowance auction for the EPA. It occurred as part of an EPA program to cut SO2 emissions in half by 2010. Each allowance would permit the emission of one ton of SO2, a major contributor to acid rain.
The Chicago Climate Exchange (CCX), started business in 2003 as the world’s first and North America’s only active voluntary, legally binding integrated trading system to reduce emissions of all six major greenhouse gases (GHGs), with offset projects worldwide.
CCX members are leaders in greenhouse gas (GHG) management and represent all sectors of the global economy, as well as public sector innovators. Reductions achieved through CCX are the only reductions made in North America through a legally binding compliance regime, providing independent, third party verification by the Financial Industry Regulatory Authority (FINRA, formerly NASD). The founder, Chairman and CEO of CCX is economist and financial innovator Dr. Richard Sandor, who was named a Hero of the Planet by Time Magazine in 2002 for founding CCX, and in 2007 as the "father of carbon trading."
CCX emitting members make a voluntary but legally binding commitment to meet annual GHG emission reduction targets. Those who reduce below the targets have surplus allowances to sell or bank; those who emit above the targets comply by purchasing CCX Carbon Financial Instrument (CFI™) contracts.
NYSE Euronext launched an international carbon trading market in 2008 to position itself for an expected increase in emission credits trading as governments and industry step up efforts to cut pollution. This created competition for the European Climate Exchange, where most of Europe's carbon credit exchange trading takes place. In January 2005 the EU-wide CO2 emissions trading system formally entered into operation. Within the new trading system, the right to emit a particular amount of CO2 became a traded commodity - called European Union Allowances (EUAs) - and affected companies, traders and investors would face new strategic challenges.
The CME Group Inc. has said it's interested in developing carbon trading products, while NYMEX Holdings Inc., owner of the New York Mercantile Exchange, also plans to offer contracts for carbon trading in the first quarter of 2008.
- Clean Air Act. The Environmental Literacy Council.
- "CBOT Sells Pollution". Futures.
- CCX Overview. Climate Exchange.
- Convenience Yields for CO2 Emission Allowance Futures Contracts. IDEAS.
- "NYSE Euronext, Partner Launch CO2 Exchange". Reuters.