Acid Rain: the Southern Company (a) Case Analysis
Acid Rain: The Southern Company (A) Case Analysis | Production Processes and Costs | | | |
In the year 1992, the Southern Company that held the Bowen plant, a coal-fired steam electric plant had to decide on the various options available to comply with the amendments in the Clean Air Act, effective 1995.
The Bowen plant was an unusually large plant with a capacity to serve the residential, commercial and industrial demands of 1 million people. The Bowen generators consumed 8.338 million tons of coal and generated 21,551 million kilowatt-hours of electricity. During 1990, Bowen plant emitted over 30 tons of sulfur dioxide per hour, an important precursor of acid rain. In 1990, Congress passes the
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* The electricity generated by the plant remains constant throughout the operation of the plant, that is, amount of electricity generated is 21,551 million kilowatt hours every year. * The amount of coal required to generate the electricity amount remains fixed to 8.338 million tons when high-sulfur coal is used and 8.391 million when low-sulfur coal is used. * In 1990, the revenue generated by electricity is $5.6 cents per kilowatt hour on an average, and will more or less the same. * The rate of buying or selling allowances is estimated to be $250 in year 1995 and will increase at a rate of 10% every year till 2010. After 2010, the rates will remain constant. * As per the amendments in the Clean Air Act, in Phase One, Bowen plant will be allowed to emit 254580 tons of sulfur dioxide and in Phase Two, 122198 tons of sulfur dioxide. * There are firms ready to sell or buy the allowances for sulfur dioxide emissions.
Option 1: Burning High-Sulfur Coal without Scrubbers; Purchase Allowances
In this option, we consider using the existing infrastructure. Since, the companies are allowed to buy extra emissions from some other firms, we will consider that.