Member-only story
The great sulphur dioxide allowance bull market
What lessons can we learn from the first cap-and-trade system?
The EU’s carbon market was not the worlds first cap-and-trade system to tackle a serious environmental problem. That honour goes to the United States sulphur dioxide (SO2) allowance trading system.
Flue gas emissions from coal-fired power generation released huge quantities of sulphur dioxide (SO2) and nitrogen oxides (NOx) emissions high into the atmosphere. They weren’t the only source of these chemicals, but they were by far the most important.
By the late 1980s, there was growing concern in the US and other countries that SO2, and, to a lesser extent, NOx was reacting in the atmosphere to form sulfuric and nitric acids. These acids were particularly damaging to forests and aquatic ecosystems. The problem became known as “Acid Rain”.
The first cap-and-trade market
In response to this threat, the Clean Air Act Amendments of 1990 (CAAA) were signed into law. Title IV of the CAAA established a cap-and-trade system for SO2 pollution allowances. At the time, putting a price on the right to pollute was seriously controversial, but it formed the foundations of which we now recognise in the EU ETS and other cap-and-trade systems around the world.
