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Topics: Net present value, Sulfur dioxide, Investment Pages: 3 (923 words) Published: April 14, 2014
1.What is the impact of the Clean Air Act amendments of 1990 on the Southern Company’s Bowen plant? The Clean Air Act amendments of 1990 regulate the emissions of sulfur dioxide starting in 1995. The intention of this legislation is to control the formation of acid rain. Between 1995 and 1999, the Bowen plant will receive allowances to emit 254,580 tons of sulfur dioxide per year. Starting in 2000, the Bowen plant will receive allowances to emit 122,198 tons of sulfur dioxide per year. To comply with the law, the Bowen plant will either have to reduce its emissions of sulfur dioxide to below the amount for which it has been given an allowance or need to purchase additional allowances from other firms, which would permit it to release larger quantities of sulfur dioxide. Going forward, the Bowen plant can pursue three options to comply with the new law; these options are described in Question 2.

2.What possibilities does Southern Company have in complying with the new law? Going forward, the Bowen plant can pursue three options to comply with the new law. The first option is to continue to burn high-sulfur coal. Under this option, the plant will emit more sulfur dioxide than its allowances permit, and therefore it will need to purchase allowances from the open market or from other plants owned by the Southern Company. The second option is to install wet-limestone flue gas desulfurization equipment, also known as scrubbers. The scrubbers will remove 90% of the plant’s sulfur dioxide emissions. By pursuing this option, the plant will generate excess allowances which it can sell on the open market to capture additional revenue. The third option is to switch to burning low-sulfur coal starting in 1996. By pursuing this option, the plant will generate excess allowances between 1996 and 1999 which it can sell on the open market. However, starting in 2000, the plant would need to purchase additional allowances.

3.What is Southern’s least cost alternative?...
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