The most effective control technology available for the reduction of oxides of nitrogen (NOx) from coal-fired boilers is selective catalytic reduction (SCR). Installation of SCR on coal-fired electric generating units (EGUs) has grown substantially since the onset of the U.S. Environmental Protection Agency's (EPA) first cap and trade program for oxides of nitrogen in 1999, the Ozone Transport Commission (OTC) NOx Budget Program. Installations have increased from 6 units present in 1998 in the states that encompass the current Cross-State Air Pollution Rule (CSAPR) ozone season program to 250 in 2014. In recent years, however, the degree of usage of installed SCR technology has been dropping significantly at individual plants. Average seasonal NOx emission rates increased substantially during the Clean Air Interstate Rule (CAIR) program. These increases coincided with a collapse in the cost of CAIR allowances, which declined to less than the cost of the reagent required to operate installed SCR equipment, and was accompanied by a 77% decline in delivered natural gas prices from their peak in June of 2008 to April 2012, which in turn coincided with a 390% increase in shale gas production between 2008 and 2012. These years also witnessed a decline in national electric generation which, after peaking in 2007, declined through 2013 at an annualized rate of -0.3%. Scaling back the use of installed SCR on coal-fired plants has resulted in the release of over 290,000 tons of avoidable NOx during the past five ozone seasons in the states that participated in the CAIR program.
Implications: To function as designed, a cap and trade program must maintain allowance costs that function as a disincentive for the release of the air pollutants that the program seeks to control. If the principle incentive for reducing NOx emissions is the avoidance of allowance costs, emissions may be expected to increase if costs fall below a critical value, in the absence of additional state or federal limitations. As such, external factors as the cost of competing fuels and a low or negative growth of electric sales may also disincentivize the use of control technologies, the continuation of desirable emission rates will be best maintained by the implementation of performance standards that supplement and complement the emissions trading program.