Clean Energy Cost-Savings: A Study of Mexico’s Federal Electricity Commission (CFE)

Clean Energy Cost-Savings: A Study of Mexico’s Federal Electricity Commission (CFE)

Value of Avoided SO 2 Emissions The value of avoided SO 2 emissions can be estimated through an exercise similar to that presented in the previous section. It has been three decades since the Clean Air Act Amendments (CAAA) of 1990 were signed into law in the United States, setting in motion a grand market-based environmental policy experiment. In the late 1980s, countries around the world became concerned by acid rain, a phenomenon caused by SO 2 and, to a lesser extent, NO x reacting in the atmosphere to form sulfuric and nitric acid. Acid rain damages forests and aquatic ecosystems and contributes to the formation of fine particulate matter that is extremely harmful to health. In the United States, the combustion gases generated by coal-fired power plants were at the time the largest source of SO 2 emissions and a significant source of NO x emissions. 1 In response to these and other concerns, the U.S. Congress passed, and then-President George H. W. Bush signed, the CAAA into law. Title IV of said law created a trailblazing SO 2 Allowance Trading System. Though the concept of mandating a cap on emissions and providing an emissions allowance trading market seems commonplace today, back in 1990 this market-based approach to regulating environmental emissions was untested. By the end of the 20th century, the SO 2 Allowance Trading System was considered so innovative and successful that it led to a series of new policies, both in the United States and abroad, for addressing a range of environmental challenges, included the threat of global climate change. The most notable of these innovations was the previously mentioned European Union Emissions Trading System, adopted in 2003. Figure 13 shows the evolution of emission allowance prices for the duration of the program (1994–2010).

Figure 13. SO2 Emission Allowance Pricing (2015 USD per ton)

For the purposes of this study, the assumed value of avoided SO 2 emissions per MWh was the average price of US$150/ton of SO 2 (in 1995 dollars) that prevailed in the US market for the 1994–2004 period, equivalent to $260/ton in current dollars. The results are shown in Figure 14.

1 Robert N. Stavins and Richard Schmalensee, “The SO 2 Allowance Trading System: The Ironic History of a Grand Policy Experiment,” Harvard Kennedy School, 2012. https://www.hks.harvard.edu/publications/so2-allowance-trading-system-ironic-history-grand- policy-experiment

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