Sulfur Dioxide Allowances: The Price of Pollution
Journal of Financial Education, Vol. 31, pp. 118-126, Winter 2005
11 Pages Posted: 27 Feb 2006
This case discusses a method for enforcing the Clean Air Act's acid rain provisions. Utilities may purchase sulfur dioxide allowances, which give them permission to emit a certain amount of the pollutant, or they may install pollution control equipment or use low sulfur fuel. Which alternative is more cost-effective for a utility at a given point in time? This case gives students the opportunity to apply option pricing principles to a company's decision to purchase clean air equipment versus buying the right to pollute.
Keywords: Case study, sulfur dioxide, options
JEL Classification: G13,G31,G38
Suggested Citation: Suggested Citation