Risk glossary

 

SO2 allowance trading

Allowance trading is the centrepiece of the US Environmental Protection Agency’s (EPA) acid rain programme. Allowances are the currency with which compliance with SO2 emission requirements is achieved. They authorise a unit within a utility or industrial source to emit one US ton of SO2 during a given year or any year thereafter.

Utilities that can use high-sulphur coal – which commands a lower price per British thermal unit than low-sulphur coals – can buy an SO2 allowance and bundle it with a high-sulphur coal purchase to produce more energy.

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