U.S. power plant emissions of sulfur dioxide dropped sharply in the first half of the year as the electricity industry prepared for tighter regulation in 2010, Genscape said Monday.

Sulfur dioxide emissions were down 24 percent compared to the first half of 2008, much more than would be expected due to the recession and lower electricity demand, the power industry data provider said in its quarterly review of energy trends.

The industry is clearly going through a dress rehearsal for the implementation of the Clean Air Interstate Rule (CAIR) in 2010, and judging by allowance prices as well as the fundamental data, it is a stellar performance, Genscape said.

Other emissions also were down, though exact comparisons with SO2 were complicated by different rules governing the three pollutants, Genscape Senior Vice President Abudi Zein said.

This year versus last, nitrogen oxide emissions fell 5 percent in May and 11 percent in June, mostly due to the recession, the report said.

Second-quarter carbon dioxide emissions were down 10 percent in the Regional Greenhouse Gas Initiative service area, where they can be monitored, mostly due to cool weather in the Northeast and the recession, Genscape said.

But the decline in SO2 is largely because of the new rules coming in 2010 and an allowance scheme that favors early implementation, the power data provider said.

Most of the decline in sulfur emissions is not due to the recession or even to the switch from high-sulfur coal to lower sulfur grades and to gas, Genscape said, noting many plants have installed equipment to remove SO2 from emissions.

It makes sense to start cutting emissions early if the equipment is in place since pre-CAIR vintage allowances will retain their full face value of a ton of SO2, while from 2010 onward, each permit will be worth only half a ton, Genscape said.

The drafters of energy legislation in Congress included a similar provision to encourage early adoption of greenhouse gas emission reductions, if the law passes and is signed into law, Genscape said.

On other power industry fronts, Genscape said the decline in power generation because of the recession accelerated to more than 10 percent year-over-year in the second quarter.

Lack of demand has caused generating companies to rely more on nuclear plants and hydroelectric power and less on oil-fired generation.

Where gas competes with coal, gas has gained, but bulging stores of gas more than price appeared to drive the trend, Genscape said.

In the Plains, growing wind power is cutting into coal-fired electricity output because gas-fired backup is quicker to dispatch when the wind dies, the report said.

As with natural gas, stores of coal are at exceptionally high levels, even though mines have done a better job than in the past of cutting production, Genscape said.

The challenge for producers is to maintain discipline even as the economy recovers, Genscape said.

(Reporting by Bruce Nichols; Editing by Christian Wiessner)

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