The paper analyzes the effect of the US 1990 Clean Air Act Amendments on Wyoming low sulfur coal demand. The demand for Wyoming coal is estimated using an adaptation of Heckman's (1979) two-stage estimator. The results indicate that variation in sulfur allowance prices has little impact on the demand, although it may affect demand indirectly by inducing distant electric utilities to purchase Wyoming coal. Transportation costs appear to dominate the Wyoming coal market accounting for as much as 70% of the delivered price of coal.

Sulfur dioxide (SO₂) is emitted into the atmosphere by both natural and anthropogenic sources. Natural sources account for approximately 4% of total emission and includes sea spray from oceans, decomposition of organic compounds, volcanoes and forest fires (Record et al., 1982). Anthropogenic sources are the primary contributor of sulfur emissions. Electric utilities account for an estimated 60% of SO₂ emissions in the US (Record et al., 1982). Coal fired power plants are the primary source in this category emitting an estimated 14.4 million tons, some 91% of the utility total (Raufer and Feldman, 1987). Most recent EPA data reports ranking the top emitters of SO₂ list the top 64 and 95 out of the top 100 polluters as electric utilities (EPA AIRS, 2002).

Emissions of SO₂ into the atmosphere have adverse effects on human health, environment, and physical capital (US EPA 2002). Scientific evidence has identified a relationship between high levels of particulate matter (PM) caused in part by atmospheric SO₂, and increased risk of illness and premature death from heart and lung disorders. Fine PM when breathed deep into the lungs increases the severity of common health problems such as asthma and bronchitis. EPA studies have shown that increased level of fine PM leads to a proliferation of hospitalization due to cardio-respiratory symptoms, aggravated asthma symptoms and acute respiratory symptoms. It is estimated that, when it is fully implemented by 2010, the human health benefits of the Acid Rain Program will be valued at $50 bn annually (US EPA, 2002).

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