as “progressive flow control,” which limits the size of the aggregate bank. (Banking is discussed later in this chapter.)

NOx SIP Call Trading Program

The next bellweather in emissions trading is expected to be the initial implementation of the NOx SIP call trading program in 22 states and the District of Columbia during the 2004 summer O3 season. The program will target large stationary sources of NOx emissions, mostly electricity-generating facilities, by requiring that the affected states revise their SIPs to achieve NOx emission-reduction targets assigned by EPA. EPA will allow, but not require, states to participate in an interstate trading program. This program will subsume the current OTR trading program and is expected to meet or exceed the annual cost of the SO2 Acid Rain Program. The program imitates the SO2 trading program in many respects, but like the OTC program, it has limited opportunity for inter-annual banking of emission allowances.

Cap and Trade in Proposed Multipollutant Legislation

At this writing, new programs are under consideration that would mandate further multipollutant emission reductions from the electric utility industry in a cap-and-trade program. Among others, the Bush administration has proposed the Clear Skies Act, which would set caps and provide a trading program for SO2, NOx, and mercury emissions. Senator James Jeffords, Senator Tom Carper, and other senators and congressmen have proposed programs that would extend the emission controls to include CO2 and would mandate shorter times and steeper goals for compliance. For the first time, these proposals offer the opportunity to apply multipollutant control measures by using cap-and-trade techniques in an entire electricity-generating industry sector. If properly structured, the programs have the potential to make a valuable and relatively cost-effective contribution to the nation’s AQM system.

Key elements of the proposed legislation are highly controversial, and the different versions may have substantially different effects on emissions, on compliance strategies used by the regulated facilities, and on regions of the country. Some important differences in these proposals are whether to regulate CO2, whether to include mercury in the trading system or mandate reductions at each facility, and the method for allocating permits. This committee was not charged to evaluate these proposals in depth and has not done so. In designing the proposals, the challenges and opportunities discussed in the next section may prove useful in ensuring that any proposal is optimally designed and implemented.

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