BEFORE THE ILLINOIS POLLUTION CONTROL BOARD

Qualifications
CASA Category Descriptions
CASA Project Specifications
Economic Impacts
Figure 2-1: PM2.5 Nonattainment Areas
Figure 2-2: 8-Hour Ozone Designations
Table 3-1
Estimated Annual Reductions in Incidence of Health Effects in U.S.3
Ozone – Related Endpoints
Table 3-3
Upwind State
1. Table 3-4
County
1. Table 9-1
  1. NOx Ozone Season
Qualifications
CERTIFICATE OF SERVICE
1. Dorothy Gunn
2. Clerk
  1. Illinois Pollution Control Board
Illinois Pollution Control Board

BEFORE THE ILLINOIS POLLUTION CONTROL BOARD

IN THE MATTER OF:

)

PROPOSED NEW CAIR SO

, CAIR NO

)

ANNUAL AND CAIR NO

OZONE SEASON

)

R06-26

TRADING PROGRAMS, 35 ILL. ADM.

)

(Rulemaking- Air)

CODE 225, CONTROL OF EMISSIONS

)

FROM LARGE COMBUSTION SOURCES,

)

SUBPARTS A, C, D and E

)

NOTICE

TO: Dorothy Gunn, Clerk

Illinois Pollution Control Board

James R. Thompson Center

100 West Randolph, Suite 11-500

Chicago, Illinois 60601-3218

SEE ATTACHED SERVICE LIST

PLEASE TAKE NOTICE that I have today filed with the Office of the Pollution Control

Board the TESTIMONY OF GARY E. BECKSTEAD, DAVID E. BLOOMBERG, ROSTON

COOPER, RORY DAVIS, ROBERT KALEEL, YOGINDER MAHAJAN, JAMES R. ROSS

AND JACQUELYN SIMS, of the Illinois Environmental Protection Agency a copy of which is

herewith served upon you.

ILLINOIS ENVIRONMENTAL

PROTECTION AGENCY

By: ______________________

Rachel L. Doctors

Assistant Counsel

Division of Legal Counsel

DATED: September 22, 2006

1021 North Grand Avenue East

P.O. Box 19276

Springfield, Illinois 62794-9276

THIS FILING IS SUBMITTED

217.782.5544

ON RECYCLED PAPER

217.782.9143 (TDD)

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

BEFORE THE ILLINOIS POLLUTION CONTROL BOARD

TRADING PROGRAMS, 35 ILL. ADM.

)

(Rulemaking- Air)

CODE 225, CONTROL OF EMISSIONS

)

FROM LARGE COMBUSTION SOURCES,

)

SUBPARTS A, C, D and E

)

TESTIMONY OF GARY E. BECKSTEAD

Qualifications

My name is Gary Beckstead. I am here representing the Illinois Environmental Protection

Agency (“Illinois EPA”) where I am the Manager of the Regulatory Unit in the Air Quality

Planning Section of the Division of Air Pollution Control in the Bureau of Air.

My academic credentials include a Bachelor of Ceramic Engineering Degree from Georgia

Institute of Technology, Atlanta, Georgia, and a Master of Science Degree in Applied Earth

Sciences from Stanford University, Stanford, California. I have been employed by Illinois EPA

since April 1991 and have worked my entire career with the Illinois EPA in the capacity of

writing and technically supporting regulations for the control of air pollution in Illinois.

My testimony today will address other regulatory programs and requirements that impact the

proposed CAIR rule before the Board today. I will be discussing Governor Blagojevich’s

Sustainable Energy Plan, the Acid Rain program, the NO

SIP Call, the Clean Air Visibility

Rule (CAVR) including BART, and a planned statewide NO

and SO

control strategy.

Background

As Mr. Ross has presented in his overview of this proposed Illinois rule, U.S. EPA is requiring

Illinois electric generating units (EGUs) to reduce NO

and SO

emissions consistent with the

federal CAIR that was promulgated on May 12, 2005. Illinois EGUs are major contributors of

these air pollutants, which are important precursors of PM

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

(NO

only). The Illinois EPA has proposed a rule that will satisfy the federal CAIR

requirements and, through the allocation methodology chosen, encourage impacted sources to

utilize energy efficiency, renewable energy, and clean coal technology in Illinois so that the

increasing demand for electricity in future years can be met without increasing air pollution.

In July 1997, U.S. EPA established the 8-hour ozone and PM

2.5

National Ambient Air Quality

Standards (NAAQS). Therefore, Illinois EPA not only must meet the federal CAIR

requirements, but also must attain these NAAQS. As Mr. Kaleel has presented in his testimony,

modeling on both a regional scale and at the state level indicates that substantial reductions of

and SO

will be necessary to attain the NAAQS in Illinois’ two designated nonattainment

areas of Chicago and Metro East St. Louis. The reductions of NO

and SO

resulting from the

proposed rule will assist Illinois in reaching attainment in these two-nonattainment areas and in

minimizing transport of air pollution to downwind states, but other control strategies and

regulations will also be necessary before Illinois will be in compliance with the NAAQS.

The potential reductions, co-benefits, and impacts that other regulations will have on the Illinois

proposed CAIR are discussed in the following paragraphs.

Governor Blagojevich’s Sustainable Energy Plan

The allocation methodology chosen by Illinois EPA in this proposed rule is designed to promote

renewable energy and energy efficient technologies. This supports and complements Governor

Blagojevich’s Sustainable Energy Plan of February 2005 that has the same goals. The

Governor’s Sustainable Energy Plan, which was adopted by the Illinois Commerce Commission

(ICC) in July 2005, includes both a Renewable Portfolio Standard (RPS) and an Energy

Efficiency Portfolio Standard (EPS).

Under the Renewable Portfolio Standard in the Governor’s plan, beginning January 1, 2007, the

State’s largest electric utilities will be supplying 2% of the electrical output to their Illinois

customers with electricity generated from renewable energy sources. Under the Governor’s plan,

the renewable energy quota increases 1% annually to 8% by 2013. This requirement will lead to

more than 3,000 megawatts of power generated from renewable sources by 2013. At least 75%

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

of this renewable energy – or more than 2,000 megawatts – would be generated by wind power.

The Governor’s plan also includes an Energy Efficiency Portfolio Standard that will lead to

greater investment by electric utilities in programs that save energy. By 2007, electric utilities

will meet 10% of growth in demand for electricity through energy efficiency, ramping up to 25%

by 2015. Under the plan, utilities will help their customers install more efficient heating and

cooling systems, lights, and equipment that will slow the growth in energy use and help lower

energy bills for homes and businesses.

The proposed rule to implement CAIR will work in conjunction with the Governor’s plan by

allocating NO

allowances to sources that generate electricity using renewable energy, as well as

for projects that demonstrate improved energy efficiency in generating electricity. These

allowances can also be used for compliance or can be traded. (The Governor’s August 2006

energy proposal to promote IGCC, a recognized clean coal technology, and the use of biofuels in

Illinois are also projects that appear to be supported by the proposed CAIR, but Illinois EPA has

not completed its review of the Governor’s newest proposal and withholds any comments on this

matter as of this writing.)

Acid Rain Program

The Acid Rain Program was established under Title IV of the 1990 CAA Amendments. The

program calls for major reductions of NO

and SO

, the pollutants that cause acid rain, from

electric generating units. The program sets a permanent cap on the total amount of SO

that may

be emitted by electric power plants nationwide at about one-half of the amount emitted in 1980,

and allows flexibility for individual power plants to select their own methods of compliance.

The program also sets NO

emission limitations (in lb/millionBtu) for certain EGUs

The Acid Rain Program featured SO

emissions allowances, which could be traded, where one

allowance was a limited authorization to emit one ton of SO

. Allowances may be bought, sold,

or banked by power plants, brokers, or anyone else interested in holding them. Existing EGUs

were allocated allowances for each future compliance year and all participants of the program are

obligated to surrender to U.S. EPA the number of allowances that correspond to their reported

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

actual annual SO

emissions. Any remaining SO

allowances may be sold or banked for use in

future years.

For SO

the federal CAIR is based on the Acid Rain Program administered by U.S. EPA. States

do not have flexibility of how to allocate SO

allowances. The proposed Illinois rule

incorporates by reference the provisions of the federal model rule for the CAIR SO

trading

program.

The NO

component of the Acid Rain Program established a maximum emission rate for various

types of coal-fired boilers. These limits reflected the use of low-NO

burner technology as

available in the mid-1990s. Flexibility was introduced to this command and control measure

through compliance options such as emissions averaging. This allows power plants to over-

control at units where it is technically easier or more economical to control emissions, thereby

achieving emissions reductions at a lower cost.

In order to comply with the NO

CAIR, the Illinois EPA is proposing to opt-in to U.S. EPA’s

CAIR annual and ozone season NOx trading programs. For the seasonal and annual NOx cap-

and-trade programs, Illinois EPA will allocate NO

allowances equivalent to USEPA’s Annual

and Seasonal NO

allowance budgets as set forth in the proposal and affected sources will be

required to have NO

allowances equivalent to their seasonal and annual emissions. In addition,

affected Acid Rain sources will still be required for the NO

portion of the Acid Rain program to

achieve an annual emission rate at or below mandated levels by the Acid Rain program.

SIP Call

In October 1998, the U.S. EPA determined that sources in 22 states (including Illinois) in the

eastern U.S. and the District of Columbia (23 jurisdictions) emit NO

in amounts that

significantly contributed to nonattainment of the 1-hour ozone NAAQS in one or more

downwind states, and issued a call for revisions to States’ implementation plans. This action is

commonly referred to as the “NO

SIP Call.”

The NO

SIP Call required each of the named upwind jurisdictions to submit revisions to U.S.

EPA for their State Implementation Plans (SIPs) to reduce the contribution of sources in the

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

upwind states to ozone problems downwind. U.S. EPA then identified measures it determined to

be highly cost-effective: (1) for EGUs serving generators greater than 25 MWe; (2) from

industrial boilers and turbines greater than 250 mmBtu, referred to as non-EGUs; (3) from

cement kilns; and (4) from large stationary internal combustion engines. U.S. EPA established

emission budgets for each jurisdiction covering the source sectors therein based on certain

emission rates for each sector. U.S. EPA also gave the states flexibility for the EGU and Non-

EGU sectors when it established the NOx SIP call trading program for EGUS and Non-EGUs

that it would administer for states that chose to participate. In particular, the NO

SIP Call

capped emissions from all affected EGUs and Non-EGUs during the ozone season (May 1

through September 30).

To comply with NO

SIP Call requirements, Illinois adopted regulations to reduce NO

emissions from cement kilns, non-EGUs, and EGUs. These regulations can be found in Subparts

T, U, and W of 35 Ill. Adm. Code 217, respectively. Subpart W, the NO

Trading Program for

EGUs, was implemented in the 2004 ozone season. Illinois EPA will continue to operate the

SIP Call trading program until implementation of the CAIR begins in 2009. U.S. EPA and

Illinois EPA will no longer operate the NO

SIP Call trading program after the 2008 ozone

season, as the CAIR NO

ozone season trading program will replace the NO

SIP Call trading

program for EGUs. Emissions of NO

and SO

from non-EGUs will be addressed in future

proposed rulemakings.

Illinois Statewide NO

and SO

Control Strategy

Illinois EPA is currently working on a statewide NO

and SO

control strategy that will require

that controls be operated year-round on those categories of sources where controls are highly

cost effective. The non-EGU emission source categories under consideration include

reciprocating internal combustion engines and turbines; industrial, commercial, and institutional

boilers; process heaters; cement and lime kilns; glass melting furnaces; iron and steel furnaces;

and aluminum melting furnaces. The NO

and SO

emission reductions from this control

strategy will further assist Illinois EPA’s efforts in the attainment of the 8-hour ozone and PM

2.5

NAAQS and satisfy the State’s requirements under the NO

SIP Call.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

Clean Air Visibility Rule (CAVR)

Section 169A of the Clean Air Act sets a national goal for visibility, i.e., “the prevention of any

future, and the remedying of any existing, impairment of visibility in Class I areas which

impairment results from manmade air pollution”. Class I areas include national parks and

wilderness areas across the country.

In July 1997, U.S. EPA proposed amendments to the existing 1980 regulations to establish a

program to address regional haze visibility impairment. On July 1, 1999, U.S. EPA finalized

regional haze regulations to improve visibility in 156 federal Class I areas.

One of the requirements of the final regional haze regulation, which is now referred to as the

Clean Air Visibility Rule(CAVR), is the application of best available retrofit technology

(BART) to sources contributing to regional haze. BART requirements apply to facilities built

between 1962 and 1977 that have the potential to emit more than 250 tons a year of visibility-

impairing pollutants. The pollutants that cause visibility impairment include PM

2.5

, and

compounds that contribute to PM

2.5

formation, such as NO

, SO

and, under certain conditions,

volatile organic compounds and ammonia. Affected facilities are those that fall into 26

categories, including power plants and industrial boilers, and large industrial plants such as pulp

mills, refineries, and smelters. Many of such facilities have previously not been subject to

federal pollution control requirements for visibility impairing pollutants.

As noted in Mr. Rob Kaleel’s testimony, U.S. EPA’s modeling has demonstrated that existing

control programs, including CAIR and CAVR, will improve visibility, but will not be enough to

meet regional haze goals in the northern Class I areas. Based on this modeling, the Illinois EPA

has decided not to assume that CAIR is equivalent to BART.

This concludes my written testimony. I will be available for questions regarding my testimony

during the panel discussions.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

BEFORE THE ILLINOIS POLLUTION CONTROL BOARD

TRADING PROGRAMS, 35 ILL. ADM.

)

(Rulemaking- Air)

CODE 225, CONTROL OF EMISSIONS

)

FROM LARGE COMBUSTION SOURCES,

)

SUBPARTS A, C, D and E

)

TESTIMONY OF DAVID E. BLOOMBERG

Good afternoon. My name is David E. Bloomberg. I am employed by the Illinois Environmental

Protection Agency as the Compliance Unit Manager in the Compliance and Enforcement Section

within the Division of Air Pollution Control. I have been at the Agency in this capacity for over

two years and four months, and was previously an Environmental Protection Engineer in the Air

Quality Planning Section for twelve and a half years. My academic credentials include a

Bachelor of Science degree in ceramic engineering from the University of Illinois at Champaign-

Urbana.

Among my other duties, I supervise Illinois’ portion of the current NOx trading program run

under the NOx SIP Call. This has involved determining or approving the determination of which

sources are eligible to receive certain types of allowances, such as early reduction credits and

new source set-asides; determining or approving the determination of apportionment of

allowances given to such sources or to other sources eligible to receive allowances; collecting or

overseeing the collection of monies for sales of certain NOx allowances; informing U.S. EPA

how to distribute NOx allowances to Illinois sources; answering questions concerning the Illinois

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

NOx rules; and related tasks.

In addition, as manager of the Compliance Unit, I approve Agency reviews of emissions and

monitor testing conducted for sources subject to NOx regulations, participate in decisions

regarding enforcement of the Board’s air pollution regulations, and oversee the process of

sending out Violation Notices and related activities.

I am here today to provide testimony and to answer questions that might arise regarding the

compliance, monitoring, recordkeeping, and reporting aspects of the NOx portion of this

rulemaking.

The proposed Sections 225.410 and 225.510 contain the compliance requirements for the CAIR

NOx annual and ozone season trading program, respectively. Among these requirements is that

each designated representative must hold CAIR NOx allowances for each of their subject units in

an amount of at least one allowance per ton of NOx emitted from that unit during the control

period, rounded to the nearest whole ton. This requirement is the same as in the existing seasonal

NOx trading program.

Other requirements include that the source conduct the proper emissions monitoring,

recordkeeping, and reporting. The monitoring, recordkeeping, and reporting requirements

incorporate those of the federal CAIR program in 40 CFR 96, subpart HH. That subpart includes

requirements for CAIR NOx sources to install and certify continuous emissions monitors;

directions on how sources should handle monitoring systems that fail to meet quality-assurance,

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

quality-control, or data validation requirements; and provisions on recordkeeping and reporting

of emissions and other related data. Other recordkeeping and reporting requirements also

incorporate those of the federal CAIR program.

One type of monitoring in addition to the federal CAIR program is the monitoring of gross

electrical output and useful thermal energy, found in Sections 225.450 and 225.550 of the

proposed Illinois rule. Under the proposed rule, which uses gross electrical output and useful

thermal energy as the means by which allowances are calculated and allocated – which are being

discussed in more detail by Rory Davis and Jackie Sims – sources must measure and record the

gross electrical output in megawatt-hours on a continuous basis. Cogeneration units must also

monitor and record indicators of useful thermal energy that is produced on a continuous basis.

Under the proposed regulation, this information must be submitted to the Agency on a quarterly

basis. As noted in the TSD, electric generating units are currently required to report gross

electrical output data to U.S. EPA.

There may be additional monitoring, recordkeeping, or reporting required for any project sponsor

of a Clean Air Set-Aside request. However, those requirements will be specific to the project in

question and thus are not described in detail within the proposed regulations. Examples of such

possible additional requirements could include monitoring of air pollution control equipment

upgrades as described in Sections 225.460(c) and 225.560(c), or documentation of new

residential construction projects that qualify for Energy Efficient Tax Incentives as described in

Sections 225.460(a)(2) and 225.560(a)(2). Information necessary to support requests under the

Clean Air Set-Aside can be found in proposed Sections 225.470 and 225.570 of the proposed

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

rule. Clean Air Set-Asides are being discussed in more detail by Ross Cooper.

In summary, the monitoring, recordkeeping, and reporting requirements of this proposed

rulemaking incorporate the requirements of the federal CAIR program. In addition, there are

several further requirements that reflect the Illinois-specific aspects of this regulation, such as

Clean Air Set-Asides and allocations based on gross electrical output.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

BEFORE THE ILLINOIS POLLUTION CONTROL BOARD

TRADING PROGRAMS, 35 ILL. ADM.

)

(Rulemaking- Air)

CODE 225, CONTROL OF EMISSIONS

)

FROM LARGE COMBUSTION SOURCES,

)

SUBPARTS A, C, D and E

)

TESTIMONY OF ROSTON COOPER

Qualifications

My name is Roston (Ross) Cooper. I am here today for the Illinois Environmental Protection

Agency (Illinois EPA or Agency). I have a Bachelor of Science degree in electrical engineering

from Northern Illinois University, and a Masters of Business Administration degree from the

University of Illinois at Springfield. I have also completed the required training course and

examination, successfully passed, toward being a Certified Energy Manager registered with the

Association of Energy Engineers.

I joined the Agency in August 2001, as an Environmental Protection Engineer I in the

State/FESOP Permit Section for the Bureau of Air. I am currently an Environmental Protection

Engineer III in the Title 5 unit of the Permit Section. In addition to my duties related to

permitting, I have assisted in developing a number of regulatory programs for stationary sources,

including the proposed Illinois CAIR rule.

The purpose of my testimony of is to provide additional explanation of the Clean Air Set-Asides

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

(CASA) provisions of the proposed rule.

Clean Air Set-Asides Overview

The Illinois EPA CAIR proposal uses the flexibility of the CAIR NO

trading program to include

the use of set-asides to further the priorities of the State. Consistent with the goals of the State’s

sustainable energy plan as well as a cleaner environment, the Illinois EPA crafted the CASA to

be used as incentives for various energy efficiency and renewable energy projects, pollution

control upgrades at existing power plants, the construction of new highly efficient or clean coal

technology power plants, and those projects that commence before a certain date. The set-aside

of CAIR NO

allowances is not a reduction of the overall NO

budget as it is not a retirement of

allowances. Instead the CASA are intended to be allocated to eligible applicants who in turn are

expected to trade those allowances to the utilities for their compliance needs.

CAIR NO

allowances will be allocated to sponsors of approved projects in proportion to the

quantity of electrical generation that is produced by the project, the amount of electrical

generation that can be displaced by the project, or the demonstrable amount of NO

SO2

particular matter emissions that can be abated by the project. Projects that reduce SO

and

particulate matter emissions are also eligible for CASA credit under the NOx annual program

because these pollutants also contribute to nonattainment in Illinois. Importantly, almost one

half of the set-aside is intended for allocation exclusively to projects sponsored by the existing

power plants and the power sector.

While NO

allowances from the CASA may be later sold by sponsors of energy efficiency and

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

renewable energy (EE/RE) projects, the environmental benefit of such a set-aside in a trading

program is two-fold. First, the monetary value of CAIR NO

allowances is an economic

incentive to businesses and individuals who may be interested in participating in energy

efficiency projects, or investing in renewable energy projects in Illinois. Second, initially

allocating allowances to EE/RE projects that conserve energy or cleanly produce electricity

makes each NO

allowance from the set-aside effectively represent a greater amount of available

electricity being produced from the same quantity of NO

being emitted to the atmosphere.

CASA Category Descriptions

The CASA is divided up into three major categories: Energy Efficiency and Conservation

Projects/Renewable Energy Projects, Clean Coal Technology Projects, and Air Pollution

Control Equipment Upgrades at existing power plants. A small portion of the CASA is also

dedicated to projects that are undertaken before a certain date and are considered to be Early

Adopters.

Energy Efficiency and Conservation Projects include demand-side management projects, energy

efficient new construction, supply-side energy efficiency projects, and highly efficient electrical

generation. Renewable Energy Projects include zero emission generation units, (wind, hydro,

and solar power) and landfill gas and biomass electrical generation units. The Clean Coal

Technology category includes Integrated Gasification Combined Cycle (IGCC) generation,

electric generation from Circulating Fluidized Bed (CFB) boilers, and other future technologies

for electric generation from coal combustion that can achieve emissions comparable to those

associated with IGCC or CFB boilers. The Air Pollution Control Equipment Upgrade category

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

includes specific pollution control equipment, i.e. SCR, SNCR, FGD, or fabric filters, installed at

existing affected units that reduces PM, NO

, or SO

emissions.

A sponsor of an Energy Efficiency and Conservation project may reapply for allowances from

the CASA for an approved project each year for eight control periods. A sponsor of an Air

Pollution Control Equipment Upgrade project may reapply for allowances from the CASA for an

approved project each year for 15 control periods. A sponsor of a project that qualifies as an

Early Adopter may receive allowances from that portion of the CASA for ten control periods.

Sponsors of projects that involve the generation of electricity may apply for allowances from the

CASA based upon gross electrical output for as long as the units are in operation.

The Illinois EPA proposal also details the time frames in which project construction must

commence in order to be eligible for CAIR NO

allowances from the CASA. Demand side

management, energy efficient new construction, and supply side energy efficiency and

conservation projects must have commenced construction on or after January 1, 2003, to be

eligible for CASA allowances. Fluidized bed coal combustion projects, efficient generation

projects, or renewable energy emission units must have commenced construction on or after

January 1, 2001, to be eligible for CASA allowances. All other projects must have commenced

construction on or after July 1, 2006, to be eligible for CASA allowances.

CASA Project Specifications

The Energy Conservation Projects and Renewable Energy Generation portion of the CASA is

equal to 12% of the total CAIR NO

budget, and when compared with the United States EPA

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

trading budget for

energy efficiency and renewable energy set-aside.

The number of allowances allocated to highly efficient generation projects will be determined by

the quantity of electricity generated and the emission rates of those generators. Consideration is

given towards the useful thermal energy associated with combined heat and power (CHP)

projects.

Renewable Energy Generation is electricity generated using energy from the sun water, and

wind or from another renewable source. Eligible hydroelectric plants are restricted to new

generators, that are not replacements of existing generators, that commence operation on or after

January 1, 2006, and do not involve the significant expansion of an existing dam or the

construction of a new dam. The conversion factor used to calculate the number of allowances

allocated for generation of electricity by zero emission generating units is greater than the factor

used in calculations for allowances in the other categories of CASA, and is intended to

encourage further development and investment in zero emission electrical generation in Illinois.

Other sources of renewable energy are also available in Illinois for electric generation, these

could include generation from the combustion of ethanol, biodiesel, landfill gas, or biomass.

Eligible renewable energy units are restricted to those units that generate electricity using more

than 50 percent of the heat input on an annual basis from the renewable fuel. Renewable energy

projects specifically do not include those projects who derive their energy from incineration by

burning or heating of waste wood, tires, garbage, general household, institutional lunchroom or

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

office waste, landscape waste, or construction or demolition debris. Qualified sponsors of

projects using renewable energy sources for electrical generation will receive CAIR NO

allowances proportional to the unit’s electrical generation for the life of the project. The

conversion factor used to calculate the number of allowances allocated for generation of

electricity by a renewable energy unit that produces some emissions will use a conversion factor

that is significantly less than the factor used to calculate allocations for the other categories of

CASA. This reflects a desire to promote electricity generated from renewable energy sourcesand

the consideration that these renewable energy sources may produce appreciable amounts of NO

when compared to zero emission generating units.

The Air Pollution Control Equipment Upgrade category of the CASA is intended for allocation

to existing coal-fired units that voluntarily (i.e., not required by a court order, consent decree or a

Supplemental Environmental Project (SEP)) have new pollution control devices installed

beginning July 1, 2006. This category is equal to 5% of the total CAIR NO

budget. Projects

that qualify for allowances from this portion of the CASA will receive allowances proportionate

to the difference in the average emission rate of a unit before the installation of pollution control

equipment and the average emission rate after installation of specific pollution control equipment

for a period of up to 15 years. For air pollution control equipment upgrades that are not NO

specific, such as baghouses or FGD, the CAIR NO

allowances are available only for the annual

trading program. In the seasonal trading program, allocations made for air pollution control

equipment upgrades will be allocated for NO

specific controls only.

Allowances allocated from this portion of the CASA are intended to encourage utilities to install

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

pollution control equipment, and more specifically to install the equipment earlier than may have

been required by CAIR.

The structure of the CASA is such that an undersubscribed category will be allowed to

accumulate up to double its value, with the excess then used to supplement other categories as

necessary. The proposed rule’s intention is to make the installation of pollution control

equipment in Illinois more cost effective.

The air pollution control equipment upgrade projects that qualify for this category of the CASA

include selective non-catalytic reduction (SNCR), selective catalytic reductions (SCR),

baghouses (or fabric filters), and flue gas desulfurization (FGD). Both SCR and SNCR have

been shown to be cost-effective in reducing NO

emissions from utility boilers. This proposal

includes baghouses and FGD in the Air Pollution Control Equipment Upgrade category of the

CASA for the NO

annual trading program because they are effective methods for the reduction

of PM

2.5

and SO

emissions from power plants.

The Clean Coal Technology category allowances will be allocated to Integrated Gasified

Combined Cycle (IGCC) generators and Circulating Fluidized Bed (CFB) combustion boilers,

and any other future technologies that achieve comparable emission rates while generating

electricity from coal combustion. This category of the CASA is equal to 6% of the total CAIR

budget. Projects that qualify for allowances from this category receive allowances based

upon the difference in the emission rate of the clean coal technology and an emission rate of 1.0

lb. of NO

per MWh of electricity generated for the life of the project. Illinois currently has one

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

operational CFB boiler that is generating electricity, and is currently reviewing permit

applications for the construction of a number of IGCC projects.

The timing-based Early Adopters portion of the CASA is equal to 2% of the total CAIR NO

budget. Projects that qualify for allowances from this portion of the CASA must have

commenced construction before December 31, 2012, and will receive allowances up to one plus

one tenth of the number of allowances received from other categories of the CASA for a period

of up to ten years.

Economic Impacts

In addition to the CASA provisions of the proposed Illinois rule encouraging and promoting

energy efficiency, renewable energy, conservation, and clean coal technology, use of these set-

asides should also create a number of secondary economic benefits. In 1999, U.S. EPA

estimated the economic benefits that can accrue from a 5% energy efficiency and renewable

energy set-aside in the NO

Budget Trading Program across the SIP Call region, including an

estimated reduction in electric demand of over 90 billion kWh in 2003 in the NO

SIP Call

region, approximately $5 billion in energy bill savings to consumers in 2003, about $150 million

in compliance cost savings for 2003, and about 20,000 new jobs throughout the region.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

BEFORE THE ILLINOIS POLLUTION CONTROL BOARD

TRADING PROGRAMS, 35 ILL. ADM.

)

(Rulemaking- Air)

CODE 225, CONTROL OF EMISSIONS

)

FROM LARGE COMBUSTION SOURCES,

)

SUBPARTS A, C, D and E

)

TESTIMONY OF RORY DAVIS

My name is Rory Davis. I am an Environmental Protection Engineer in the Air Quality

Planning Unit, Air Pollution Control Section of the Illinois EPA’s Bureau of Air. I have been

employed by the Agency in the Air Quality Planning Unit for one year. Prior to that, I worked at

the Illinois Department of Transportation for four years as an Engineering Technician. I have a

Bachelor of Science degree in Computational Physics as well as a Bachelor of Science degree in

Mathematics from Illinois State University. I also have a Masters degree in Engineering from

the University of Illinois at Chicago. My graduate studies consisted of an interdisciplinary

program involving coursework from the Chemical Engineering and Mechanical Engineering

fields with a concentration on Environmental Engineering.

In my current position with the Agency my duties include providing technical support for

regulatory proposals. I will be providing testimony regarding the output-based allocation

methodology that the Agency has included in its CAIR proposal.

Output-based Allocation Methodology

In an emissions trading program such as CAIR, an allocation methodology is a system for

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

determining the number of emission allowances that each emission unit will receive. In

regulating electrical generating units an output-based allocation methodology is one based upon

the electrical output attributed to a given unit. Illinois EPA has proposed an output-based

allocation methodology for CAIR because it encourages greater efficiency from sources by

allocating based on output rather than use of fuel, adds a degree of flexibility in compliance

strategies for sources, as is true for most trading programs, and is consistent with the allocation

methodology used for the Clean Air Set-Aside. The proposed output-based allocation is based

on fuel type, and then the number of CAIR NOx allowances is adjusted proportional to a unit’s

fraction of the total calculated gross electrical output of all Illinois CAIR units for that period to

determine a unit’s final allocation.

Many of the categories of the CASA eligible for allowances for environmentally

beneficial practices do not include a measure of heat input, and measuring heat input for other

eligible categories would be inconsistent with the goals of the CASA . These include zero

emission electrical generation, energy efficiency projects, clean coal technology projects, and

pollution control technology upgrades. Further, it would not promote the goals of the CASA to

allocate a greater number of CASA allowances for a greater measure of heat input. In addition,

employing an output-based allocation methodology creates a level playing field where the

production or conservation of electricity by the specified means in the CASA is encouraged in

the same manner that allowances are allocated to affected CAIR sources.

Gross Electrical Generation

Illinois EPA has proposed to determine allocations based on gross electrical output rather

than net output. Net output or net generation is a measure of electrical generation from a source

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

that is produced and available for sale or use. This excludes power used by the plant itself and

other various losses in transformers before the electricity “leaves the plant.” Gross electrical

output is a measure of the electricity produced by a generator before any of these losses occur.

The proposal is based on gross electrical output because gross output is simpler to measure. In a

net generation measurement it is often unclear what a source is allowed to measure as net

generation due to various configurations and interpretations of net generation. A gross output

methodology makes use of measurements of how much electricity is produced by a generator.

Second, gross output is measured before losses in the plant take place. This encourages

efficiency in the generation process. Finally, gross electrical output is a measure that is currently

reported by sources to the USEPA Clean Air Markets Division (CAMD), and is readily available

for the calculation of allocations.

Gross Electrical Output Metering

As mentioned above, because CAIR sources are already reporting gross electrical output

data to CAMD via the U.S. Department of Energy’s Energy Information Administration (EIA),

the equipment required for metering gross electrical output should already be in use at all

affected CAIR sources. Illinois EPA has been in contact with the USEPA and the EIA regarding

the quality control of gross output data. Illinois EPA is aware that other states subject to CAIR

have also be in contact with USEPA.

The model CAIR does provide the states flexibility in allocation methodology, using an

output-based allocation methodology is was one of the suggested options. A number of states

currently use output-based regulations in regulating electric generating units including

California, Connecticut, Massachusetts, New Hampshire, New Jersey, New York, and Ohio.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

Other states are considering or expecting to use output-based regulations in their CAIR and

CAMR implementation plans.

Flexibility in Illinois Proposal

Illinois EPA’s proposal has included a transition to an output-based regulation for electric

generating units in Illinois by allowing an owner/operator of an electric generating unit to report

heat input rather than gross electrical output for the first round of CAIR NOx allocations. This is

further discussed in Jacquelyn Sims’ testimony.

Fuel Weighting in Allocation Methodology

Illinois EPA is proposing that a system of fuel weighting be used, as proposed in the

model CAIR. In calculating the gross electrical output for a unit the type of fuel that is used for

electrical production is also factored in. To calculate a unit’s converted gross output, the total

gross electrical output of a unit must be multiplied by 1.0 for units burning coal, by 0.6 for units

burning oil, and by 0.4 for units burning natural gas. This accounts for the different emission

rates of the various fuels for comparable heat values.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

BEFORE THE ILLINOIS POLLUTION CONTROL BOARD

TRADING PROGRAMS, 35 ILL. ADM.

)

(Rulemaking- Air)

CODE 225, CONTROL OF EMISSIONS

)

FROM LARGE COMBUSTION SOURCES,

)

SUBPARTS A, C, D and E

)

TESTIMONY OF ROBERT KALEEL

My name is Robert Kaleel. I am the Manager of the Air Quality Planning Section, Division of

Air Pollution Control, Bureau of Air at the Illinois Environmental Protection Agency (“Illinois

EPA”), Springfield, Illinois. I have a Bachelor of Science degree in meteorology from Northern

Illinois University. I have worked at the Illinois EPA for more than twenty-five years, and have

been in my present position since March 2004. Prior to that, I was the Manager of the Air

Quality Modeling Unit in the Air Quality Planning Section, a position that I held for more than

fifteen years. I have also worked as a private consultant as a specialist in air quality modeling.

As Manager of the Air Quality Planning Section, my responsibilities include oversight of staff

that provides technical support for regulatory initiatives needed to address air quality issues in

Illinois, including the regulatory proposal before the Board at this hearing. I have also been

closely involved with the development of Illinois’ State Implementation Plans to address the

2.5

and ozone nonattainment areas in Illinois.

The purpose of my testimony is to summarize the air quality benefits expected from

implementation of this proposal, as well as the corresponding health and welfare benefits

resulting from improved air quality. My testimony is based on the information provided to the

Board by the Illinois EPA in the “Technical Support Document” (“TSD”) which accompanied

the regulatory proposal.

In Illinois, electric generating units (“EGUs”) are the largest sources of sulfur dioxide (“SO

”)

emissions to the atmosphere, and one of the largest sources of nitrogen oxides (“NO

”). These

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

pollutants are precursors to fine particulate matter, or PM

2.5

, and NO

is also a precursor to

ozone. According to the United States Environmental Protection Agency (“U.S. EPA”), the

power sector accounted for 67% of total nationwide SO

emissions and 22% of total nationwide

emissions in 2003. Control of the emissions of these air pollutants from electric generating

units is necessary for the State of Illinois to comply with the July 1997 revised National Ambient

Air Quality Standards (“NAAQS”) for 8-hour ozone and for PM

2.5

Section 110 of the Clean Air Act (“CAA”), as amended in 1990, mandates that the State of

Illinois adopt a State Implementation Plan (“SIP”) with adequate provisions to assure attainment

of the primary and secondary NAAQS not only within its state boundaries. Section 110 also

prohibits any stationary sources in one state from emitting air pollutants that prevent any other

state from attaining the NAAQS. The U.S. EPA published a Notice of Proposed Rulemaking on

January 30, 2004, a Supplemental Proposal on June 10, 2004, and a final CAIR Rulemaking on

May 12, 2005. In these proposed and final rulemakings, U.S. EPA published findings based on

air quality modeling and ambient air quality data analyses that 28 states and the District of

Columbia “contribute significantly” to nonattainment of either or both of the PM

2.5

or 8-hour

ozone NAAQS in downwind areas. Based on these findings, the final CAIR rule requires these

upwind states to revise their SIPs to either include control measures or to opt into the regional

emission trading program, which establishes emissions cap-and-trade program for participating

sources to reduce emissions of SO

and/or NO

to facilitate downwind states in attaining the

2.5

and/or 8-hour ozone NAAQS. Illinois is one of the 28 states that must revise its SIP as a

result of CAIR and U.S. EPA’s findings.

Two metropolitan areas in Illinois have been designated by U.S. EPA as nonattainment areas for

2.5

: the Chicago area, which includes Cook, DuPage, Kane, Lake, McHenry, Will counties

and portions of Kendall and Grundy counties; and the Metro-East St. Louis area, which consists

of Madison, Monroe, and St. Clair counties and a portion of Randolph County. I have attached

to my testimony Figure 2-1 from the TSD showing the PM

2.5

nonattainment areas for the all the

states in U.S. EPA Region 5. These areas were designated nonattainment by U.S. EPA on

January 5, 2005.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

For 8-hour ozone, the geographic areas designated as nonattainment by U.S. EPA are

approximately the same areas that were designated as nonattainment for PM

2.5.

The only

difference in the geographic extent of the nonattainment areas for the two pollutants is in the

Metro-East St. Louis area, where the 8-hour ozone nonattainment area includes Jersey County

and does not include Randolph Township in Randolph County. Figure 2-2 in the TSD shows the

8-hour ozone nonattainment areas for the states in Region 5. This figure is attached to my

testimony. These areas were designated nonattainment by U.S. EPA on April 30, 2004.

Fine particles and ozone are associated with thousands of premature deaths and illnesses each

year in the United States. In revising the NAAQS for particulate matter to establish the ambient

standards for PM

2.5

in July 1997, U.S. EPA found that fine particles aggravate respiratory, lung,

and cardiovascular diseases, decrease lung function, and increase asthma attacks, heart attacks,

and cardiac arrhythmia. As a consequence of over-exposure in breathing fine particles, hospital

admissions and emergency room visits increase as does absenteeism from school and work.

Older adults, people with heart and lung disease, and children are the segments of society that are

particularly sensitive to fine particle exposure. Attainment of the PM

2.5

standard will prolong

thousands of lives in the State of Illinois and in downwind states. Additional information on the

health effects of fine particles can be found on U.S. EPA’s website at:

(http://www.epa.gov/ttn/naaqs/standards/pm/s_pm_index.html).

U.S. EPA also revised the NAAQS for ozone in July 1997, stating that “the new primary

standard will provide increased protection to the public, especially children and other at-risk

populations, against a wide range of ozone-induced health effects.” In setting the new 8-hour

ozone standard, U.S. EPA found that exposures to ozone of one to three hours in length has been

found to irritate the respiratory system, causing coughing, throat irritation, and chest pain.

Ozone exposure can limit lung function and breathing capacity resulting in rapid and shallow

breathing thereby lowering or curtailing a person’s normal activity level. As with PM

2.5

exposure, ozone exposure increases asthma attacks for people with respiratory disorders.

Longer-term ozone exposure may result in damage to the lung tissue and lining from

inflammation, which can produce permanent and irreversible changes in lung function. Children

and adults who are active outdoors are particularly susceptible to ozone, as well as people with

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

asthma and respiratory diseases. Ozone also affects sensitive ecosystems and vegetation,

resulting in reduced crop yields, reduced growth and lowered pest resistance, and a lowered

ability for plants and trees to survive. Information on the health effects to humans and

vegetation from exposure to ozone can be found on U.S. EPA’s website at:

(http://www.epa.gov/ttn/naaqs/standards/ozone/s_o3 _index.html).

To the extent that this proposal will help to attain the NAAQS in Illinois and downwind states,

the reduction of NO

and SO

emissions will provide significant monetary and non-monetary

health and welfare benefits. U.S. EPA estimates that nationwide, CAIR will yield health benefits

in 2015 of between $86 and $101 billion. These estimates include the value of avoiding

approximately 17,000 premature deaths, 22,000 non-fatal heart attacks, 12,300 hospitalizations

for respiratory and cardiovascular diseases, 1.7 million lost work days, 500,000 school absences,

and 10.6 million days when adults restrict normal activities because of respiratory symptoms

exacerbated by PM

2.5

and ozone pollution. U.S. EPA also estimates substantial additional health

improvements for children from reductions in upper and lower respiratory illnesses, acute

bronchitis, and asthma attacks. Estimated annual reductions in incidences of health effects are

shown in Table 3-1 of the TSD, which I have attached to my testimony. Estimated annual

monetary value of reductions in incidences of health and welfare effects are presented in Table

3-2 of the TSD, which is also attached to my testimony.

In assisting the downwind nonattainment areas in achieving the PM

2.5

and 8-hour ozone

NAAQS, CAIR will also provide the welfare benefits, including both environmental and other

societal benefits, of reducing pollution. Welfare benefits include reductions in damage to

ecosystems, improved visibility and improvements in recreational and commercial fishing,

agricultural yields, and forest productivity. U.S. EPA estimated that CAIR will yield welfare

benefits of $1.8 billion in 2015 for visibility improvements in Class I areas and reduced regional

haze in scenic areas, which are the goals of the federal Regional Haze Rule promulgated in 1999.

In estimating the net benefits of the regulation, the appropriate cost measure is social costs,

which represent the costs (e.g., increases in the price of electricity to consumers) of the rule to

society. The social costs of CAIR across all affected states are estimated to be between $1.9 and

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

$2.1 billion in 2010, and between $2.6 and $3.1 billion in 2015. The net effect is that CAIR

would be highly beneficial to society, with annual net benefits (benefits less costs) of

approximately $60 to $71 billion in 2010, and $83 to $98 billion in 2015.

U.S. EPA was unable to monetize important benefits beyond the human health and welfare

benefits that are expected to occur from CAIR. These other benefits occur both directly from

and SO

emissions reductions, and from reductions in co-pollutants such as mercury.

Additionally, reductions in NO

and SO

emissions required by CAIR will reduce acid

deposition, in the case of NO

, eutrophication of water bodies. Reduced nitrate contamination of

drinking water is another possible benefit of the rule.

According to U.S. EPA, the proposed regulations to implement the CAIR program will provide

substantial NOx and SO

emission reductions in Illinois, yielding significant air quality benefits.

Table 9.1 in the TSD summarized the expected emission reductions in Illinois based on U.S.

EPA’s estimates. I have attached Table 9.1 to my testimony. Beginning in 2009,

implementation of CAIR will reduce NOx emissions by 70,018 tons annually, relative to the

projected 2009 base scenario. By 2015, CAIR will reduce NOx emissions by 97,776 tons

annually, relative to the projected 2015 base scenario. CAIR will also reduce SO

emissions

significantly in Illinois, by 192,670 tons per year, relative to Illinois’ annual Title IV (Acid Rain)

allocation, and by 250,472 tons annually by 2015.

To evaluate the air quality benefits of CAIR emission reductions, U.S. EPA performed extensive

air quality modeling, as documented in its “Technical Support Document for the Final Clean Air

Interstate Rule – Air Quality Modeling” (March 2005). The base year (2001) emissions

inventory for electric generating units was based on 2001 Continuous Emissions Monitoring

(CEM) data, while output from the Integrated Planning Model was used to develop future year

emissions for 2010 and 2015 from electric generating units for the CAIR cap-and-trade

programs. The Integrated Planning Model (“IPM”) is an electricity capacity planning and

dispatch model that simulates the operation of the electrical power system based on engineering

and economic factors.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

U.S. EPA’s model results for ozone demonstrate that CAIR NO

emission controls provide few

air quality benefits in 2010 beyond those provided by the NO

SIP Call. The Chicago area and

other nonattainment areas around Lake Michigan will continue to exceed the 8-hour ozone

standard in 2010. In fact, U.S. EPA’s modeling shows that the Chicago area will not attain the 8-

hour ozone standard even with full implementation of CAIR in 2015, and significant additional

emission reductions will be necessary. States shown by U.S. EPA to contribute significantly to

nonattainment in Chicago are Illinois, Indiana, Missouri, and Iowa. U.S. EPA’s modeling also

shows that Illinois has a significant impact on other nonattainment counties in states downwind:

Geauga County, Ohio; Macomb County, Michigan; and Ozaukee and Sheboygan Counties,

Wisconsin.

For PM

2.5

, U.S. EPA’s modeling shows that CAIR SO

and NO

emission reductions provide

some air quality benefits in 2010. For Illinois, however, the modeling shows that

implementation of CAIR will not provide sufficient emission reductions for the St. Louis and

Chicago areas to attain the PM

2.5

annual standard, even by 2015. Clearly, Illinois and other

states will need to pursue additional emission reductions beyond CAIR to achieve compliance

with the NAAQS. Significant contributors to the Metro-East St. Louis and the Chicago

nonattainment counties (based on the 2010 simulation) are given in Table 3-3, which is attached

to my testimony. Illinois has also been shown to contribute significantly to PM

2.5

nonattainment

in 2010 in a number of counties downwind of Illinois. These counties and associated

contributions from Illinois are listed in Table 3-4, which is also attached.

The Lake Michigan Air Directors Consortium (“LADCO”) has confirmed U.S. EPA’s modeling

analysis of the air quality benefits of CAIR. LADCO used the CAMx model, the same model

used by U.S. EPA, and an updated emissions inventory for their analysis of CAIR. The LADCO

base emissions for electric generating units are derived from U.S. EPA’s Consolidated Emissions

Reporting Rule (“CERR”) inventory for 2002. Output from the IPM was used to develop

projected 2009 emissions for electric generating units. A cap-and-trade program for all states

subject to CAIR is assumed, with no restrictions on trading.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

including CAIR… will not be enough to provide for attainment.” (Attainment Strategy Options,

DRAFT, 10/28/05). Nonattainment is shown in the Chicago area for 8-hour ozone and PM

2.5

and in the Metro-East St. Louis area for PM

2.5

, even with full implementation of CAIR by 2015.

In regard to regional haze, “the modeling also shows that existing control programs, including

CAIR and BART, will improve visibility, but will not be enough to meet regional haze goals in

the northern Class I areas.”

LADCO performed additional modeling to estimate the amounts of additional emission

reductions beyond CAIR that are necessary to show attainment for PM

2.5

and ozone in Illinois

and other nonattainment areas in the Midwest. LADCO evaluated the effectiveness of varying

levels of precursor emission reductions assumed locally (i.e., within the nonattainment areas) and

regionally (within the five-state LADCO region, which includes Illinois, Indiana, Ohio,

Michigan, and Wisconsin). The full results are contained in Table 3-5 of the TSD. A copy of

that table is attached to my testimony.

LADCO’s results indicate that for ozone, VOC emission reductions in excess of 75% within the

Chicago NAA may be needed to achieve the ozone NAAQS, assuming no additional, regional

reductions of NO

are implemented. Similarly, regional NO

reductions of about 40% beyond

CAIR are needed, unless local VOC reductions are assumed. Reduction targets of 35% local

VOC, and 35% regional NO

(beyond CAIR) have also been shown to achieve the 8-hour ozone

standard in LADCO’s analysis.

For PM

2.5

, local emission reductions of organic carbon of at least 40% are needed to attain the

NAAQS, if no regional emission reductions beyond CAIR are assumed. The local VOC organic

carbon reduction target is 25% - 30%, if regional NO

and SO

reductions of 25% - 30% beyond

CAIR are assumed. Without local emission reductions, regional reductions of SO

and NO

of at

least 50% beyond CAIR must be assumed to demonstrate attainment. Thus, LADCO’s modeling

shows that, for ozone and PM

2.5

, regional SO

and NO

emission reductions greater than those

provided by CAIR, in combination with further emission reductions within the nonattainment

areas, must be achieved before nonattainment areas in Illinois can attain the NAAQS.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

As noted in the testimony of Jim Ross, the Illinois EPA’s proposal uses the flexibility provided

by CAIR. Notable areas where Illinois has utilized this flexibility includes allowance allocations

based on an electrical output basis, rather than a heat input basis, retirement of the NOx

compliance supplement pool, a set-aside of 5% of the allowances for new units in both phases of

CAIR, a set-aside of 25% of the allowance budget, both seasonally and annually, to encourage

and promote energy efficiency, renewable energy, conservation, and clean coal technology. The

Illinois EPA retained ICF Consulting to evaluate the expected change in NOx emissions in

Illinois resulting from this proposal. As described in the TSD, ICF used the IPM model to

compute projected changes in emissions, as well as electric generation, and costs. ICF

conservatively assumed that 30% of Illinois’ CAIR allowances would be retired. In fact, Illinois

EPA’s proposal retires only the compliance supplement pool, which represents only about 15%

of the annual allocation for one control period. ICF’s modeling shows that NOx emissions from

electric generating units in Illinois will not change significantly, relative to CAIR, even if a full

30% of the allowance allocation is retired. Since NOx emissions are not expected to change

relative to CAIR, Illinois EPA does not expect that the air quality impacts from existing electric

generating units will be significantly different under this proposal versus CAIR. Thus, the air

quality modeling of the federal CAIR rule performed by U.S. EPA and LADCO, as described

above, are representative of the air quality benefits of this proposal.

It should be noted that LADCO’s modeling results are not final, and that the Illinois EPA in

cooperation with the States of Wisconsin, Michigan, Indiana, and Ohio, are continuing to

develop and refine the modeling system. Thus, the results cited above may change as further

refinements of the modeling are developed. Even though the emission reduction targets listed in

Table 3-5 may be revised in the final attainment demonstration, it is unlikely that the region will

attain the 8-hour ozone and PM

2.5

NAAQS without greater emission reductions from electric

generating units than are provided by CAIR.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

Figure 2-1: PM

2.5

Nonattainment Areas

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

Figure 2-2: 8-Hour Ozone Designations

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

Table 3-1

Estimated Annual Reductions in Incidence of Health Effects in U.S.

Health Effects

2010 Annual

Incidence

Reduction

2015 Annual

Incidence

Reduction

PM – Related Endpoints

Premature Mortality

Adult, age 30 and over

13,000

17,000

Infant, age < 1 year

Chronic Bronchitis (adult, age 26 and over)

6,900

8,700

Non-fatal myocardial infarction (adult, age

18 and over)

17,000

22,000

Hospital Admissions – Respiratory (All

ages)

4,300

5,500

Hospital Admissions – Cardiovascular

(adults, age > 18)

3,800

5,000

Emergency Room Visits for Asthma (age

18 years and younger)

10,000

13,000

Acute Bronchitis, (children, age 8-12)

16,000

19,000

Lower Respiratory Symptoms (children,

age 7-14)

190,000

230,000

Upper Respiratory Symptoms (Asthmatic

Children, age 9-18)

150,000

180,000

Asthma Exacerbation (asthmatic children,

Minor Restricted Activity Days (adults age

18-65)

8,100,000

9,900,000

Ozone – Related Endpoints

Hospital Admissions – Respiratory Causes

(adult, 65 and older)

610

1,700

Hospital Admissions – Respiratory Causes

(children, under 2)

380

1,100

Emergency Room Visit for Asthma (all

ages)

100

280

Minor Restricted Activity Days (adults, age

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

Table 3-2

Estimated Annual Monetary Values of Reductions

in Incidence of Health and Welfare Effects in the U.S.

(Millions of 1999$)

Health Effect

Pollutant

2010 Estimated

Value of

Reductions

2015 Estimated

Value of

Reductions

Chronic Bronchitis (adults 26 and

Non-fatal Acute Myocardial

Hospital Admissions for

Hospital Admissions for

Cardiovascular Causes

2.5

80.7

105

Emergency Room Visits for

Acute Bronchitis (Children, age 8-

Lower Respiratory Symptoms

Upper Respiratory Symptoms

Minor Restricted Activity Days

Worker Productivity (outdoor

workers, age 18-65)

7.66

19.9

Recreational Visibility, 81 class I,

B represents the monetary value of health and welfare benefits not monetized.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

Table 3-3

Upwind States’ Contribution to PM

2.5

Nonattainment Counties in Illinois in 2010 Based on

U.S. EPA’s Modeling in Support of the CAIR Rulemaking

Nonattainment Area

Upwind State

Contribution (ug/m

Note: U.S. EPA’s significance criteria is 0.2 ug/m

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

Table 3-4

Illinois Contribution to Downwind PM

2.5

Nonattainment Counties in 2010 Based on U.S.

EPA’s Modeling in Support of the CAIR Rulemaking

Downwind State

County

Contribution (ug/m

Note: U.S. EPA’s significance criteria is 0.2 ug/m

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

Table 3-5

Level of Control Needed to Achieve Attainment in Specific Nonattainment Areas

Local VOC

(or CO)

Regional NO

Regional SO

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

Table 9-1

Illinois Emissions Reductions Due to CAIR Budget Caps

Actual

Base Title IV Allowances

2002

2004

2010

2015

2020

Baseline Emissions (tons/yr)

353,700 362,900 385,341 385,341 385,341

CAIR Budget Caps (tons/yr)

192,671 134,869 134,869

Trading Allowances/Emissions

Reductions Needed (tons/yr)

192,670 250,472 250,472

Actual

IPM Base Case

Annual

2002

2004

2009/2010

2015

2020

Baseline Emissions (tons/yr)

174,247 141,315 146,248 159,452 161,301

CAIR Budget Caps (tons/yr)

76,230

63,525 63,525

Trading Allowances/Emissions

Reductions Needed (tons/yr

IPM Base Case

2002

2004

2009/2010

2015

2020

Baseline Emissions (tons/season)

CAIR Budget Caps (tons/season)

30,701

28,981 28,981

Trading Allowances/Emissions

Reductions Needed (tons/yr

3,622

7,076

8,903

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

BEFORE THE ILLINOIS POLLUTION CONTROL BOARD

TRADING PROGRAMS, 35 ILL. ADM.

)

(Rulemaking- Air)

CODE 225, CONTROL OF EMISSIONS

)

FROM LARGE COMBUSTION SOURCES,

)

SUBPARTS A, C, D and E

)

TESTIMONY OF YOGINDER MAHAJAN

Good Morning. My name is Yoginder Mahajan. I am employed as an Environmental

Protection Engineer in the Air Quality Planning Section in the Bureau of Air of the Illinois

Environmental Protection Agency (Illinois EPA). I have been employed in this capacity since

March 1992. Prior to my employment with Illinois EPA I worked for various metal fabrication

industries for nine (9) years. My educational background includes a Bachelor of Engineering

Degree in Mechanical Engineering from Bhopal University at Bhopal, India.

As part of my regular duties in the Air Quality Planning Section, I have been involved with

preparing emission estimates for various source categories used in the development of the 1990

ozone season weekday emissions inventories; evaluating control technologies applicable to

volatile organic material (VOM) emissions sources utilized in the preparation of the Rate-of-

Progress plans for the Chicago and St. Louis ozone nonattainment areas; and assisting in the

development of regulations for the control of VOM emissions from source categories included in

the Rate-of-Progress plans. Regarding the proposal before you today, I have been involved in

the development of the regulations to control nitrogen oxides (NOx) and sulfur dioxide (SO

)

emissions from electric generating units (EGUs), and I provided the list of affected sources for

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

the proposal and technical feasibility of NOx and SO

controls for the Technical Support

Document (TSD) for the proposal.

In the electric power plant sector, turbines are used to produce rotary motion for electric

generators that produce electric power. Gas turbines burn fuel, typically natural gas or distillate

oils, whereas steam from a boiler is used to run steam turbines. Emissions of NOx and SO

are

the result of combustion of coal, fuel oils, or natural gas in the boilers and combustion of natural

gas or distillate oils in the gas turbines.

Today’s proposal is to control NOx and SO

emissions from fossil-fuel-fired electric generating

units that have nameplate capacities greater than 25 megawatt of electricity (MWe). As part of

evaluation of the control of NOx and SO

from EGUs, Illinois EPA identified several sources of

guidance. The United States Environmental Protection Agency (U.S. EPA) published two

Alternative Control Techniques (ACT) documents - NOx Emissions from Utility Boilers, and

NOx Emissions from Stationary Gas Turbines. Also, U.S. EPA published Control Techniques

for Sulfur Dioxide Emissions from Stationary Sources. These documents contain detailed

information on description of sources of NOx and SO

emissions, various techniques of

controlling NOx and SO

and the costs of various controls. Illinois EPA used information

contained in these documents for general background, but relied on the information contained in

U.S. EPA’s, Regulatory Impact Analysis for the Final Clean Air Interstate Rule for the costs and

economics impacts of today’s proposal.

Illinois EPA reviewed the 2004 Acid Rain emission database and identified that there are 229

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

existing Illinois electric generating units that may be affected by these proposed regulations. Of

these 229 units, 59 are coal-fired boilers and the remaining 170 units are oil/gas-fired boilers or

turbines. Out of the 59 coal-fired boilers, 34 are tangentially-fired, five are wall-fired, 19 are

cyclone-fired boilers, and one is a fluidized-bed combustion boiler. In Illinois, in 2004, coal-

fired electric generating units accounted for approximately 99 percent of NOx and SO

emissions

from Illinois electric generating units.

One method of reducing NOx emissions is through the use of combustion controls such as low

NOx burners and over-fired air. Combustion controls reduce NOx, by ensuring that the

combustion of coal occurs under conditions which produce less NOx. Post-combustion controls

reduce NOx by removing the NOx after it has been formed. The most common post-combustion

control is selective catalyst reduction (SCR). SCR systems inject ammonia (NH

) which

combines with the NOx in the flue gas to form nitrogen and water and uses a catalyst to enhance

the reaction. These systems can reduce NOx emissions by 90 percent. Selective non-catalytic

reduction also removes NOx by injecting ammonia without the use of a catalyst. These systems

can reduce NOx emissions by 40 percent.

There are two primary options for reducing SO

emissions from coal-fired electric generating

units. They may switch from higher to lower sulfur coal, or they may use flue gas

desulfurization, commonly referred to as scrubbers. The most commonly used scrubber types

include wet scrubbers and spray dryers. Wet scrubber can use a variety of sorbents to capture

including limestone and magnesium enhanced lime. New wet scrubbers typically achieve at

least 95 percent SO

removal. Spray dryers can achieve over 90 percent SO

removal.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

To allow for the use of the most cost effective emission reduction alternatives, Illinois EPA

relied on the CAIR NOx and SO

Budget Trading Programs administered by the U.S. EPA. Each

of the States subject to the CAIR is encouraged to participate in these trading programs and

thereby provide a mechanism for sources to achieve cost effective NOx and SO

reductions. For

NOx, the trading unit is a CAIR NOx Allowance, equal to one ton of emitted NOx. The CAIR

program provides that an SO

allowance allocated for a control period in a year before 2010

would be equivalent to one ton of sulfur dioxide emissions. An SO

CAIR allowance allocated

during a control period 2010 through 2014 would be equivalent to .50 tons of sulfur dioxide.

Finally, an SO

CAIR allowance allocated for a control period in 2015 and thereafter will be

equivalent to .35 tons of sulfur dioxide emissions.

Under the CAIR trading programs, each source would be given a certain quantity of NOx and

allowances. If a source’s actual emissions exceed its allocated allowances, the source may

purchase additional allowances. Conversely, if a source’s actual emissions are below its

allocated allowances, then it may sell the additional allowances. Banking would allow sources

that do not use their allowances for a given year to save them for later use.

Illinois EPA has relied on the cost estimates analysis performed by U.S. EPA. For cost

effectiveness of CAIR NOx and SO

reductions, U.S. EPA provided two types of costs in 1999

dollars per ton of NOx and SO

reductions. For NOx, the estimated average cost per ton of

annual NOx reductions will be $500 in 2009, and $700 in 2015. The estimated marginal cost per

ton of annual NOx will be $1,300 in 2009, and $1,600 in 2015. For SO

, the estimated average

cost per ton of SO

reductions will be $500 in 2010 and $700 in 2015. The estimated marginal

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

cost per ton of SO

will be $700 in 2009, and $1,000 in 2015. Illinois EPA believes that these

costs estimates are also representative of costs incurred by the affected electric generating units

of this proposal. However, since Illinois is already controlling electric generating units in the

ozone season to comply with NOx SIP Call, Illinois electric generating units are not expected to

incur any additional costs in the 2009 ozone season. However, in the non-ozone season months,

it will cost $500 per ton to run these controls to comply with the CAIR NOx trading program.

Based on the IPM-projected NOx emissions in 2009/2010 and 2015, respectively, the proposed

regulations to control NOx and SO

emission from electric generating units will provide NOx

emission reductions of 70,018 tons in 2009 and 97,776 tons in 2015. It will also provide SO

emissions reductions of 192,670 tons in 2010 and 250,472 tons in 2015 from the base Title IV

allowances available for Illinois electric generating units.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

BEFORE THE ILLINOIS POLLUTION CONTROL BOARD

TRADING PROGRAMS, 35 ILL. ADM.

)

(Rulemaking- Air)

CODE 225, CONTROL OF EMISSIONS

)

FROM LARGE COMBUSTION SOURCES,

)

SUBPARTS A, C, D and E

)

TESTIMONY OF JAMES R ROSS

Qualifications

My name is Jim Ross and I am here today representing the Illinois Environmental Protection

Agency (Illinois EPA) where I am the Manager of the Division of Air Pollution Control in the

Bureau of Air.

I have a Bachelors of Science Degree in Mechanical Engineering from Southern Illinois

University at Carbondale. I have completed numerous environmental courses over the years

including the study of emissions and controls of each of the criteria air pollutants, many

hazardous air pollutants, as well as several courses on the background and implementation of

environmental regulations. I have also provided training on air pollution permitting and

regulations to Illinois EPA and United States Environmental Protection Agency (U.S. EPA)

staff, industry, environmental consulting firms, environmental organizations, and the general

public.

I joined Illinois EPA in May of 1988 as a permit engineer in the Permit Section of the Division

of Air Pollution Control. I became manager of the Clean Air Act Permit Program (CAAPP) Unit

in May of 1997, after about a year and a half as acting CAAPP Unit manager. The CAAPP is

Illinois’ version of the federally mandated Title V program of the Clean Air Act that requires

permits for all major sources of air pollution. In January of 2003, I became acting manager of

the Permit Section and remained so until March of 2004. A short time later I transferred over to

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

Illinois EPA’s Office of Emergency Response, where I was Manager of the Emergency

Operations Unit. I remained in this position until October of 2005, when I returned to the

Bureau of Air in my current position.

In addition to currently being the Division of Air Pollution Control Manager, I am also an

Illinois EPA Duty Officer which requires me to be on call 24 hours a day, seven days a week

during several periods throughout the year. In this capacity, I am responsible for ensuring

Illinois EPA’s response to emergencies incidents anywhere in the State, especially those

involving hazardous materials, oil and fuel spills, disasters, and issues of homeland security.

In my 18 years with Illinois EPA I have been involved with the detailed review of Illinois’

industrial processes and their emissions of air pollutants and the measures and controls used to

mitigate these emissions. This review has included on-site visits to a wide-variety of processes,

including steel mills, large chemical plants, refineries, and several coal-fired power plants. I

have helped develop and implement several major programs and rules since their inception

including the CAAPP and Illinois’ volatile organic material trading program for the greater

Chicago area, i.e., the Emissions Reduction Market System. As Permit Section Manager, I

oversaw the permitting of over 6,000 facilities in the State. Of note is that I was deeply involved

in the CAAPP permitting of Illinois’ 22 coal-fired power plants, including representing Illinois

EPA at several of the public hearings on the proposed permits for these plants.

In my current position as Division Manager, I supervise a staff of over 150 engineers, specialists,

and administrative support personnel in developing, monitoring, and enforcing the State and

Federal air pollution control requirements. In particular, and more recently, I have been

overseeing Illinois EPA’s efforts in the development of several rulemaking efforts, including the

proposed CAIR and the proposed Illinois Mercury rule.

Introduction

My testimony is intended to provide a broad overview of the proposed CAIR. Additional

testimony is being provided to more specifically address different components of the proposed

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

rule. I would like to note that Illinois EPA performed substantial outreach to stakeholders on the

proposed rule, including holding five weekly stakeholder outreach meetings where we presented

information on our proposed approach, updated stakeholders on the rule, provided draft rule

language, requested feedback on issues, and held question and answer sessions. We also

provided regular mail and e-mail addresses to allow interested parties to submit comments and

questions that were subsequently answered at the stakeholder meetings. In addition, we

repeatedly offered to meet with any stakeholders in smaller groups to discuss the rule and related

issues.

Overview of Proposed Rule and Potential Impacts

The proposed rule is designed to control the emissions of sulfur dioxide (SO

) and nitrogen

oxides (NO

) from electric generating units (EGUs) in Illinois. In the electric power sector, both

gas turbines and steam turbines are used to produce rotary motion for electric generators. Gas

turbines typically burn natural gas or distillate oils, whereas steam turbines utilize steam

generated from boilers firing coal, fuel oils, or natural gas. Emissions of NO

and SO

are the

result of fuel combustion in the boilers and gas turbines. The requirements of the proposed rule

will affect 59 coal-fired boilers and 170 oil/gas-fired boilers and turbines. Affected EGUs are

those having a generating capacity of 25 megawatts (MWe) and above. Certain cogeneration

units are exempted from these proposed requirements if they supply, in a calendar year, less than

one-third of the unit’s potential electric output capacity or 219,000 megawatt hours (MWh),

whichever is greater, to any utility power distribution system for sale.

In Illinois, EGUs are the largest sources of SO

emissions to the atmosphere, and one of the

largest sources of NO

. Both SO

and NO

are precursors to the formation of fine particles or

2.5

and NO

is also a precursor to ozone formation. Control of these air pollutants is

necessary for Illinois to comply with the federal CAIR promulgated on May 12, 2005. Air

pollution originating from Illinois was found by U.S. EPA to contribute significantly to pollution

problems in downwind states through the phenomenon of interstate air pollution transport.

Specifically, pollution from Illinois was determined to have a significant contribution to

nonattainment with the National Ambient Air Quality Standards (NAAQS) for 8-hour ozone and

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

2.5

in downwind states. In addition, U.S. EPA concluded that transported Illinois pollution

interfered with the maintenance of areas that are in attainment with the NAAQS for 8-hour ozone

and PM

2.5

. Furthermore, modeling on both a regional scale and at the state level indicates that

substantial reductions of NO

and SO

are necessary to attain the 8-hour ozone and PM

2.5

NAAQS in Illinois.

The CAIR is intended to address transport of NO

and SO

by capping the emissions of these

pollutants from large EGUs in the eastern United States through three separate emissions trading

programs: (1) annual SO

trading program; (2) annual NO

trading program; and (3) ozone

season NO

trading program. Alternatively, States can adopt rules that cap and achieve

equivalent emissions reductions. CAIR allows, but does not require, affected states to opt-in to a

two-phased cap and trade program administered by U.S. EPA. In order to comply with the

federal CAIR, Illinois EPA is proposing to opt-in to U.S. EPA’s cap-and-trade programs. For

states electing to meet the CAIR requirements by opting-in to the trading programs, U.S. EPA

established certain mandatory requirements, but allowed states flexibility in some areas, such as

in determining the allocation methodology for allowances issued under the NO

annual and

ozone season trading programs. States have almost no flexibility in implementing the SO

trading program as it builds on the structure and requirements in the federal Acid Rain Program.

States retain responsibility for permitting Acid Rain sources. The U.S. EPA administers most

other aspects of this SO

program, including allocating SO

allowances. Under CAIR, affected

states are required to meet statewide NO

and SO

emissions budgets. The first phase of NO

reductions starts in 2009 (covering 2009-2014) and the first phase of SO

reductions starts in

2010 (covering 2010-2014); the second phase of reductions for both NO

and SO

starts in 2015

(covering 2015 and thereafter).

For SO

the CAIR is derived from the Acid Rain Program administered by U. S. EPA. States do

not have flexibility in terms of SO

allowance allocations or treatment of new units. The

proposed Illinois rule incorporates by reference CAIR as it pertains to SO

. The CAIR SO

program provides that an SO

allowance allocated for a control period in a year before 2010

would be equivalent to one ton of sulfur dioxide emissions. An SO

CAIR allowance allocated

during a control period 2010 through 2014 would be equivalent to .50 tons of sulfur dioxide.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

Finally, an SO

CAIR allowance allocated for a control period in 2015 and thereafter will be

equivalent to .35 tons of sulfur dioxide emissions.

For NO

, each affected state is given a separate emission budget of allowances for the seasonal

and annual trading programs. The CAIR ozone season trading program retains the current NO

SIP Call budget for the ozone seasons of 2009 through 2014 and reduces the ozone season

budget in 2015 and beyond. The current NO

trading program was established to meet the

requirements of the NO

SIP Call and was adopted by the Illinois Pollution Control Board in

2000. The NO

SIP Call is a term commonly used to refer to U.S. EPA’s call for revisions to

state implementation plans (SIPs) to reduce NO

emissions in nonattainment areas. The CAIR

annual trading program extends the current NO

SIP Call trading program. The CAIR NO

annual trading program will require that EGUs control emissions year round or obtain NO

allowances equal to their annual NO

emissions.

The U.S. EPA allowed states flexibility in CAIR, in particular in determining the allocation

methodology for allowances issued under the NO

annual and seasonal programs. Illinois EPA

is taking advantage of this flexibility. The proposed rule would distribute NO

allowances for

free, although the U.S. EPA allows states the flexibility to sell, auction, or charge a fee for such

allowances.

Other notable areas where Illinois has utilized allowance allocation flexibility are:

1. Allocation of allowances on an electrical output basis, rather than a heat input basis;

2. Allocations occur three years in advance of the date they could be used;

3. Update allocations annually;

4. Set-aside 5% of the allowances for new units in both phases, instead of 5% in phase 1 and

3% in phase 2 as proposed by the model CAIR; and

5. Set-aside 25% of the allowance budget in a Clean Air Set-Asides ( CASA) to be eligible

for allocation seasonally and annually.

The proposed rule allocates allowances on an electrical output basis, rather than a heat input

basis, to encourage energy efficiency. The proposed rule would make allocations only three

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

years in advance of the date they could be used, and would update allocations annually.

Frequent allocation updates ensure that new units are rolled-in quickly and units that are retired

or that reduce output are not given allowances greater than their proportiate share based on their

current operation. Frequently updating the basis on which allocatons are made will distribute

allowances more fairly to current power generators.

In addition, the proposed rule would set aside 5% of the allowances in order to ensure that new,

cleaner and more efficient EGUs will have access to a fair share of the allowances. Since new

units are subject to more stringent environmental regulations, they are generally more efficient,

and employ newer technologies for generation and pollution control. The proposed regulation is

intended to encourage investment in newer cleaner units to be built in Illinois for continued

improvement in air quality.

U.S. EPA also allowed states the flexibility to provide a set-aside of allowances for energy

efficiency (EE) and renewable energy (RE) projects, and suggests a set aside of at least 15%.

Illinois EPA has proposed that 25% of the NO

budget be allocated seasonally and annually to a

CASA. The primary goal of the CASA is to encourage and promote energy efficiency,

renewable energy, conservation, and clean coal technology. The proposal establishes an EE/RE

set-aside of 12% for demand-side energy efficiency projects. An additional 11% of the CASA is

for clean technology projects. The remaining two percent of the allowances are given to either

EE/RE or clean technology projects that commence operation early - before 2012. The CASA

positions Illinois as a leader in providing incentives for investments in zero emission electrical

generation, generation from renewable energy, and generation from clean coal technologies and

is consistent with the Governor’s Energy policy. In addition, we will be proposing an

amendment to the CASA provisions that would allow sources subject to consent decrees that

overcomply to apply for these allowances.

Illinois EPA also intends to retire the NO

compliance supplement pool. Retirement of these

allowances is beneficial to public health and the environment to the extent that it results in

further NO

emission reductions.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

A number of control technologies are available to allow sources to meet the required emissions

caps. For NO

, it is anticipated that the most likely control will be the use of selective catalytic

reduction (SCR) or selective non-catalytic reduction (SNCR) or a combination of these. For

, flue gas desulfurization (FGD) is the most likely control technology to be employed.

Participation in the trading programs will allow sources flexibility in controlling their emissions

in a cost-effective manner. Sources that over control and/or comply early may be eligible to

choose to bank or sell their emissions to help with costs, or to limit control and purchase needed

allowances from the market.

To the extent that this proposal will help to attain the NAAQS in Illinois and downwind states,

the reduction of NO

and SO

emissions should provide significant monetary and non-monetary

health and welfare benefits. U.S. EPA estimates that the CAIR would provide health benefits of

$101 billion in 2015, by avoiding approximately 17,000 premature deaths, 22,000 non-fatal heart

attacks, 12,000 hospitalizations for respiratory and cardiovascular diseases, 1.7 million lost work

days, 500,000 school absences, and 10.6 million days when adults restrict normal activities

because of respiratory symptoms exacerbated by air pollution. Welfare benefits may include

both environmental and other societal benefits of reducing pollution, such as reductions in

damage to ecosystems, structures, and monuments from acid rain, as well as improved visibility,

and improvements in recreational and commercial fishing, agricultural yields, and forest

productivity.

Positive economic impacts could occur as a result of the incentives for energy efficiency and

renewable energy projects in Illinois, as well as clean-coal projects such as IGCC and circulating

fluidized bed boilers. Illinois EPA utilized the services of ICF Resources Incorporated (ICF) to

evaluate the economic impact of the proposed Illinois CAIR rule using the Integrated Planning

Model (IPM

). This evaluation focused on the incremental impacts of the proposed rule over the

impacts of the CAIR in terms of costs to the power sector and costs to electricity consumers.

Overall, the implementation of the proposed rule has minimal effects, both in Illinois and across

the nation. Average production costs are slightly higher in 2009 and then fall in 2015 and 2018.

The retail electricity prices and costs across all sectors (residential, industrial, and commercial)

remain unchanged as a result of the proposed rule.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

Implications of the Proposed Illinois Mercury Control Rule

Illinois EPA currently has another, related rule pending before the Illinois Pollution Control

Board, namely the proposed Illinois mercury rule, 35 Ill. Adm. Code 225, Control of Emissions

from Large Combustion Sources (Mercury). Although this rule focuses on the control of

mercury emissions, it contains an optional multi-pollutant standard (MPS) that companies can

elect to comply with to satisfy the requirements of the rule. If a company chooses to comply

with the proposed mercury rule via the MPS, then system-wide emissions limits on both SO

and

are applicable, with restrictions on trading of these emissions. Overall, the proposed Illinois

Mercury rule and CAIR complement each other in their goal to reduce SO

and NO

A multi-pollutant approach for controlling the emissions of mercury, SO

, and NO

from EGUs

can have numerous advantages over the traditional, single pollutant schemes. A multi-pollutant

approach to controlling emissions can increase the benefits to public health and the environment,

reduce pollution more cost-effectively, and offer greater certainty to both industry and regulators.

Since mercury emission reductions can be obtained as a “co-benefit” from the control devices

used to reduce SO

and NO

, it makes sense to allow companies the option to synchronize the

control of these pollutants provided that public health and the environment are likewise

positively impacted.

Under the MPS, companies can commit to voluntarily meet emission standards on both NO

and

and in exchange receive additional flexibility in complying with the mercury emission

standards. The MPS also restricts the trading of allowances on reductions achieved that are the

result of measures taken to comply with the NO

and SO

emission standards. Companies

cannot sell or trade outside of Illinois or with other companies in Illinois, the allowances needed

to meet the emission limits for NO

and SO

required by the MPS. Such allowances that are

needed to meet the emission limits are required to be retired or surrendered to Illinois EPA. Any

allowances remaining with the company as a result of overcompliance can be freely traded.

Allowances from overcompliance occur when a company's actual emission rate is below that

required by the MPS. The restrictions on trading are meant to ensure that the emissions

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

reductions required by the MPS will occur in Illinois and therefore provide substantial benefit to

the public health and environment in Illinois. The emission reductions will assist Illinois in

efforts to bring the Chicago and Metro East St. Louis nonattainment areas into attainment with

the NAAQS for 8 hour ozone and PM

2.5

and/or help attainment areas maintain acceptable air

quality, as well as meet our obligations under CAIR.

The most straightforward way to look at the interaction between the requirements of the MPS

and the proposed CAIR is that companies that elect to utilize the MPS would need to comply

with both rules. Compliance with both rules was contemplated and is accounted for in the MPS

rule language. Pursuant to 225.233(f)(4) of the MPS, the MPS provisions do not prohibit

companies from purchasing or otherwise obtaining allowances from other sources for purposes

of complying with federal or state requirements such as the proposed CAIR. In essence,

companies utilizing the MPS can purchase or obtain allowances from the general interstate

market in order to meet the proposed CAIR requirements.

At the present time two of Illinois largest coal-fired power generating companies have indicated

that they would utilize the MPS, specifically Ameren and Dynegy. These companies comprise

roughly half of the coal-fired generating capacity in Illinois.

Conclusion

The U.S. EPA is requiring Illinois to revise its State Implementation Plan to reduce SO

and NO

emissions, which are important precursors of PM

Illinois is required to implement a program to control NO

and SO

consistent with the federal

CAIR. Illinois EPA has proposed a rule that will satisfy these requirements and provide

incentives for energy efficiency and renewable energy projects in Illinois, as well as clean-coal

projects such as Integrated Gasification Combined Cycle. The proposed rule is both technically

feasible and economically reasonable. The reductions in NO

and SO

should provide significant

benefits to public health and the environment. These reductions will assist Illinois and

downwind states in reaching attainment in nonattainment areas with the NAAQS for PM

2.5

and 8

hour ozone and also maintain acceptable air quality in those areas which are in attainment with

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

the NAAQS.

We urge the Illinois Pollution Control Board to adopt the proposed Illinois CAIR.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

BEFORE THE ILLINOIS POLLUTION CONTROL BOARD

TRADING PROGRAMS, 35 ILL. ADM.

)

(Rulemaking- Air)

CODE 225, CONTROL OF EMISSIONS

)

FROM LARGE COMBUSTION SOURCES,

)

SUBPARTS A, C, D and E

)

TESTIMONY OF JACQUELYN SIMS

My name is Jacquelyn “Jackie” Sims. I am here today for the Illinois Environmental

Protection Agency (Illinois EPA), where I am an environmental engineer in the Compliance unit

of the Compliance and Enforcement Section of the Division of Air Pollution Control in the

Bureau of Air. As part of my duties, I assist with the implementation of the NOx Trading

program, address compliance and enforcement issues, and assist with the development of

regulatory proposals. I also currently am involved with the 1990 Clean Air Act, Section 507

Small Business Environmental Assistance Program (SBEAP). Prior to moving to the

Compliance Unit, I was a permit engineer in the Permit Section in the Division of Air Pollution

Control. I joined the Illinois EPA in June of 1989.

I have a Bachelor of Science degree in Industrial Engineering from the University of

Illinois, Champaign-Urbana and have some graduate studies. I have completed numerous

environmental courses over the years including completion of a comprehensive training program

that resulted in me becoming a Certified Energy Manager through the Association of Energy

Engineers. I have also provided training on air pollution permitting and regulations to persons

from industry, consulting firms, associations and the general public.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

The purpose of my testimony is to provide explanation for how allowances will be

allocated under the proposed Illinois CAIR NOx rule.

Allocation Methodology:

The CAIR model rule allows the States flexibility in the cost, distribution, and frequency

of allocations and the use of set-asides. Illinois EPA’s allocation methodology was chosen to

encourage energy efficiency and development of renewable energy resources. With respect to

whether the Illinois EPA should sell allowances, auction or otherwise charge electric generating

units for NOx allowances, Illinois EPA has opted to allocate 75 percent of its allowance budget

without charge to help reduce the cost of compliance to existing and new electric generating

units, and to ensure that smaller and publicly owned units would not be disadvantaged. Other

allowances will be allocated based on the policy considerations of encouraging energy efficiency

and renewable energy, as well as pollution abatement and early reductions. These considerations

are addressed by other witnesses.

Under the proposed rule Illinois EPA will be allocating NOx allowances on the basis of

gross electric output, as described in Rory Davis’ testimony.

With respect to the frequency of allocations, a state is allowed to choose to distribute

CAIR NOx allowances based on either historical data, or on current data which are updated

frequently. Allocations in the model CAIR rule are made six years in advance and use five

years of historical data to determine a fixed heat input baseline. The model CAIR rule also

provided that once the 5-year historical baseline has been established, a unit would indefinitely

receive the same number of allowances even if the level of power has been reduced or ceases.

Illinois EPA has opted to update a source’s allocations by using more current operational data on

a yearly or seasonal basis after the initial set of control periods. Changes in the gross generation

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

or efficiency of a unit are more accurately reflected under the proposal as new units begin

obtaining allowances from the general pool sooner, and existing units that shutdown or decline in

operation do not receive allowances indefinitely or at levels not reflective of actual operation.

This is consistent with the purpose of an output-based allocation methodology.

Under the proposed rule, allocations for the control periods 2009, 2010 and 2011 shall be

based on the average of the three highest gross electrical outputs from 2001, 2002, 2003, 2004

and 2005 data. The gross electrical output from each affected unit shall be reported to Illinois

EPA initially for the above years, then on a quarterly basis thereafter. Sources have a choice

during this initial period of submitting heat input data or electrical output data. The heat input

data for the years 2001-2005, would be data accepted by USEPA and then converted to gross

electrical output by assuming 33 percent efficiency. The gross electrical output or the heat input

data will then be converted to include the effect of fuel as stated in the proposed rule.

In addition, Illinois EPA decided to promote a faster roll-in of data for existing sources as

well as newer sources by using the average of the previous two years’ gross electrical output for

the control periods 2012 and thereafter. In cases where two years of data are not available, then

the year prior to the allocation year will be used. Updating the allocations more frequently by

using more recent data impacts new units as well as units that are shutdown or partially

shutdown by allowing new electric generating units to receive allowances from the larger pool

sooner and for shutdown units to cease receiving allowances sooner after operations stop,

respectively.

The flexibility with respect to the size of set-asides allows a state to set a portion of

allowances aside for new units and for energy efficiency and renewable energy sources. Illinois

EPA opted to follow the model rule and set aside five percent for new units. The proposal

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

differs from the model rule in that the five percent is consistent throughout the life of the

program and doesn’t reduce as provided for in the model rule. The portion of allowances set-

aside for energy efficiency and renewable energy projects has been proposed at twenty-five

percent. Therefore seventy percent of the State’s annual and seasonal allocations, 53,361 annual

and 30,701 seasonal allowances for control periods 2009-2014 and 44,468 annual and 21,491

seasonal allowances for control periods 2015 and thereafter, will be distributed to existing

electric generating sources each year. If the total eligibility for allowances exceeds these

budgets, then allowances will be distributed on a pro-rata basis.

New Units:

In the CAIR model rule, new units are allowed to receive allowances from the new unit

set-aside (NUSA) for 11 years from a pool representing five percent of the total allowances for

2009-2014 and only three percent for 2015 and after. In the proposed rule, new units are those

that have been built and have commenced commercial operation after January 1, 2006. The rule

proposes five percent of total allocations will be available for new units each year throughout the

life of the program. This is more reflective of the number of new units expected to be

constructed in Illinois. After a new unit has operated in one control period, it becomes an

existing unit and qualifies for allocations for the control period commencing four years into the

future. The new unit will receive allowances from the new unit portion until that time.

In conclusion, more frequent and less historically dependent updating of allocations is consistent

with the purpose of an output-based allocations methodology.

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

STATE OF ILLINOIS

)

COUNTY OF SANGAMON

)

CERTIFICATE OF SERVICE

I, the undersigned, an attorney, state that I have served electronically the attached

TESTIMONY OF GARY E. BECKSTEAD, DAVID E. BLOOMBERG, ROSTON

COOPER, RORY DAVIS, ROBERT KALEEL, YOGINDER MAHAJAN, JAMES R.

ROSS AND JACQUELYN SIMS upon the following person:

Dorothy Gunn

Clerk

Illinois Pollution Control Board

James R. Thompson Center

100 West Randolph St., Suite 11-500

Chicago, IL 60601-3218

and mailing it by first-class mail from Springfield, Illinois, with sufficient postage affixed

to the following persons:

SEE ATTACHED SERVICE LIST

ILLINOIS ENVIRONMENTAL

PROTECTION AGENCY,

__________________________

Rachel L. Doctors

Assistant Counsel

Division of Legal Counsel

Dated: September 22, 2006

1021 North Grand Avenue East

Springfield, Illinois 62794-9276

(217) 782-5544

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006

SERVICE LIST

R06-26

John Knittle, Hearing Officer

Illinois Pollution Control Board

James R. Thompson Center

100 West Randolph St., Suite 11-500

Chicago, IL 60601-3218

Matthew J. Dunn, Division Chief

Office of Attorney General

Virginia Yang, Deputy Legal Counsel

Illinois Dept. of Natural Resources

One Natural Resources Way

Springfield, IL 62702-1271

Keith I. Harley

Chicago Legal Clinic

205 West Monroe Street, 4th Floor

77 West Wacker, Suite 4100

Chicago, IL 60601

William A. Murray

Special Assistant Corporation Counsel

Office of Public Utilities

800 East Monroe

Springfield, IL 62757

S. David Farris

Environmental, Health and Safety

Manager

Office of Public Utilities

201 East Lake Shore Drive

Springfield, IL 62757

Faith E. Bugel

Environmental Law and Policy Center

35 East Wacker Drive, Suite 1300

233 South Wacker Drive

Springfield, IL 62705-5776

ELECTRONIC FILING, RECEIVED, CLERK'S OFFICE, SEPTEMBER 22, 2006