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California Carbon

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Acid Rain Program (SO2)

Market Overview

In 2000, the EPA began Phase II of the sulfur dioxide (SO2) program.  Under Title IV of the 1990 Clean Air Act Amendments, SO2 emissions must be reduced by 10 million tons from 1980 levels. The program is a national program that currently affects all existing utility generators with an output capacity of greater than 25 megawatts and all new utilities.  Phase II sets a permanent SO2 cap of 8.95 million tons (allowances) for the affected utilities.  CAIR rules enacted on March 10, 2005 will initiate further cuts in SO2 emissions.  In 2010, SO2 emissions were reduced by a further 4.3 million tons.  Participants were required to turn in two allowances for every ton of pollution.  Deeper cuts will be achieved (5.4 million tons) in 2015 when 2.87 allowances will be required per ton of SO2.

Allowance trading is the centerpiece of the EPA's Acid Rain Program, and allowances are the currency with which compliance with the SO2 emissions requirements is achieved. Through the market-based allowance trading system, utilities regulated under the program, rather than a governing agency, decide the most cost-effective way to use available resources to comply with the acid rain requirements of the Clean Air Act.  Title IV of the Clean Air Act Amendments established a national cap on SO2 emissions that allocated a limited number of allowances to sources.  The allowances can be traded, but sources must hold and surrender enough allowances to cover their annual emissions at the end of each year.

The SO2 market is a liquid market with active spot, forward, and options markets. Market participants range from small coops to multi-regional utilities to hedge funds to multinational banks.  Market factors include weather, economic growth, fuel prices, and legislative rulings and uncertainty.

BGC Environmental Brokerage Services is a leading Brokerage in the SO2 program.  Our SO2 brokers are knowledgeable, experienced, and professional.  We provide unmatched market access, and vital market information to our clients, through voice contact, real time market updates on our website, and daily bulletin emails. 


BGC Environmental Brokerage Services offers a full service suite of brokerage and clearing services tailored to meet the client's individual trading needs.  Trades are confirmed by voice, however, bid and offer information is available electronically. 

SO2 Transaction types include:

  • Spot Trades
  • Forward Settlements
  • Options
  • Swaps

These transactions can be executed using the master brokerage agreement, which enables clients to transact simply and anonymously with over 400 clients who have enacted similar agreements.  This is the preferred method of transacting as it eliminates the need to negotiate bilateral agreements with each counter-party, thereby making the transactions quick and efficient.  BGC also provides assistance to clients who choose to settle using a bilateral contract, most commonly used in more complicated structured transactions.

BGC also offers clearing services which provide additional security and anonymity to both counter-parties.  Both SO2 allowances and purchase monies are escrowed by BGC in order to assure performance by all parties to the transaction.


In addition to providing a marketplace for SO2, BGC Environmental Brokerage Services also offers emissions trading consulting services.  For industry coalitions, private companies, and government entities we offer:  

  • assessment of the impacts of current and future rules and regulations.
  • delivery of expert testimony.
  • market assessments to determine the type, usability, availability, expected cost, and feasibility of transacting SO2.
  • market penetration studies for clients seeking to understand how environmental credits can be leveraged to help launch or gain better market penetration for technologies that reduce pollution.
  • emissions trading feasibility studies, offered to regional, foreign, and state governments to assist them in determining if environmental problems can be addressed using market based programs.
  • Emission Trading Seminars -often requested by companies that have a need for a better understanding of the emissions markets pertinent to their business.  These customized seminars offer detailed information on relevant emissions markets, trading strategies, regulatory and fiscal impacts of trading.