New York (Platts)--6May2008

A large pool of unused emissions allowances, increased use of low-sulfur coal,
more scrubbers being built and natural gas as a fuel for utilities -- are
reducing sulfur dioxide emissions and their allowance prices but increasing
carbon dioxide emissions, Genscape's senior vice president for data resources
said.

Abudi Zein attributed the drop in SO2 spot prices to the 13 million unused
allowances from 2008 and earlier. "That is why the market is where it is,"
Zein said April 30 at a panel discussion on the status of SO2 and nitrogen
oxide markets at the Environmental Markets Association's conference in Miami.

Platts assessed spot price for SO2 has been trending below $400 since the US
Environmental Protection Agency conducted its annual SO2 allowances auction at
the end of March.

Zein calculated that SO2 emissions have decreased 4% from 2.8 million short
tons at this time in 2007 to 2.7 million st in 2008. Genscape tracks
utilities' generation and fuel burns. The use of coal by the US power
generating fleet has increased, but this increase has not translated into
higher emissions because utilities in the Midwest are using more low-sulfur
coal and natural gas.

At the same time, data show that CO2 emissions have risen because coal use has
increased, he said.

CAIR forces fewer emissions

But, scrubber installations across the coal-fired utility fleet in
anticipation of the EPA's Clean Air Interstate Rule, which takes effect
January 2009, have further dampened enthusiasm among the natural players or
utilities in the marketplace.

Once fully implemented across 28 states and the District of Columbia by 2015,
CAIR will reduce SO2 emissions 73% below 2003 levels to 2.5 million st and NOx
emissions by 63% to 1.3 million st, according to EPA.

EPA has estimated that scrubbers will be installed on 80 GW of coal-fired
utilities by 2010, in the first phase of the CAIR rule, and is projecting that
another 60 GW will be scrubbed by 2015, according to Sam Napolitano, director
of EPA's Clean Air Markets Division, who also spoke at the EMA meeting.

Napolitano said utility heavweights, notably the Tennessee Valley Authority,
Southern Company, American Electric Power and Dominion, had taken the
initiative to install scrubbers soon after the rule was finalized.

Zein estimates the coal-fired utility fleet will be mostly in compliance by
2013 at the earliest and 2014 by the latest, based on the pace of scrubber
installation. Some utilities will find it hard to comply and may end up
switching fuels or shutting down, but those will be few in number.

--Amena Saiyid, amena_saiyid@platts.com