226
1
BEFORE THE ILLINOIS POLLUTION CONTROL BOARD
2
VOLUME II
3 IN THE MATTER OF:
)
)
4 EMISSIONS REDUCTION MARKET
) R97-13
SYSTEM ADOPTION OF 35 ILL.
) (RULEMAKING)
5 ADM. CODE 205 AND AMENDMENTS
)
TO 35 ILL. ADM. CODE 106.
)
6
7
8
The following is the continued transcript of a
9 rulemaking hearing held in the above-entitled matter,
10 taken stenographically by LORI ANN ASAUSKAS, CSR,
11 RPR, a notary public within and for the County of
12 Cook and State of Illinois, before Chuck
Feinen,
13 Hearing Officer, at 100 West Randolph Street, Room
14 9-040, Chicago, Illinois, on the 22nd day of January,
15 1997, A.D., commencing at the hour of 9:00 o'clock
16 a.m.
17
18
** ** ** ** **
19
20
21
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227
1 A P P E A R A N C E S :
2
HEARING TAKEN BEFORE:
3
ILLINOIS POLLUTION CONTROL BOARD,
100 West Randolph Street
4
Suite 11-500
Chicago, Illinois 60601
5
(312) 814-4925
BY: MR. CHUCK FEINEN,
6
HEARING OFFICER.
7 ILLINOIS POLLUTION CONTROL BOARD MEMBERS PRESENT:
8 Ms. Elizabeth Ann
Mr. Kevin Desharnais
9 Ms. Kathleen Hennessey
Mr. Richard McGill
10 Ms. Marili McFawn
Mr. Anad Rao
11 Mr. Hiten Soni
Mr. Joseph Yi
12
ILLINOIS ENVIRONMENTAL PROTECTION AGENCY MEMBER
S
13 PRESENT:
14 Ms. Bonnie Sawyer
Mr. Richard Forbes
15 Mr. Bharat Mathur
16 OTHER AUDIENCE MEMBERS WERE PRESENT AT THE HEARING,
BUT NOT LISTED ON THIS APPEARANCE PAGE.
228
1
I N D E X
2
PAGES
3 GREETING BY HEARING OFFICER................229 - 233
4 TESTIMONY OF JOSEPH GOFFMAN................233 - 348
5 TESTIMONY OF ROGER KANERVA.................348 - 417
6 CLOSING COMMENTS BY HEARING OFFICER........417 - 420
7
* * * * * * * * 8
9
E X H I B I T S
10
Marked for
Identification
11
Hearing Exhibit No. 24.......................234
12 Hearing Exhibit No. 25.......................234
Hearing Exhibit No. 26.......................234
13 Hearing Exhibit No. 27.......................234
Hearing Exhibit No. 28.......................234
14 Hearing Exhibit No. 29.......................234
Hearing Exhibit No. 30.......................234
15
L.A. REPORTING - (312) 419-9292
229
1
THE HEARING OFFICER:
Good morning. My
2 name is Chuck
Feinen. I'm the assigned hearing
3 officer to this matter, R97-13, Emissions Reduction
4 Market System.
5
With me, today from the board is Board
6 Member Marili McFawn. To my left is Joseph
Yi, to
7 my right is Kathleen
Hennessy, to my right is
8 Elizabeth Ann.
9
We will continue the hearing from
10 yesterday on the record to start at 9:00 o'clock
11 this morning. It's about 9:15 now when we are
12 going to start the proceedings.
13
Please speak up so the court reporter
14 can hear you. Please state your name before you ask
15 your question, and ask your question loudly enough
16 so everyone can hear it.
17
With that, I think we will turn it over
18 to the agency.
19
MS. SAWYER: Good morning. I am Bonnie
20 Sawyer, assistant counsel with the Illinois
21 Environmental Protection Agency.
22
I just want to give a little overview
23 of what we are planning to do today. We are going
24 to begin testimony with Joe
Goffman from the
L.A. REPORTING - (312) 419-9292
230
1 Environmental Defense Fund.
2
That will be followed by Roger
Kanerva
3 from the Illinois EPA. Mr.
Kanerva will be providing
4 an overview of the proposed rule. Mr.
Kanerva will
5 be testifying again at a later point to provide more
6 detailed testimony on a certain component of the
7 rule. Additionally, Mr.
Kanerva's testimony will be
8 followed by more detailed testimony on the various
9 components of the rule. So some of the questions
10 that may be asked of Mr.
Kanerva should be postponed
11 to the more detailed testimony.
12
After that, we will begin the more
13 detailed testimony with Christopher Romaine
14 testifying and we will see how far we get.
15
Hopefully, we can also present testimony
16 from Donald Sutton and David
Kolaz from the Illinois
17 EPA.
18
With that short introduction, we are
19 ready to begin our testimony. I would like to call
20 our first witness Joseph
Goffman.
21
THE HEARING OFFICER: Before we start --
22
MS. SAWYER: Oh, I'm sorry.
23
THE HEARING OFFICER: Let's go off the record
24 for a second.
L.A. REPORTING - (312) 419-9292
231
1
(Whereupon, a discussion
2
was had off the record.)
3
THE HEARING OFFICER:
Let's go back on the
4 record again for Bonnie to explain what's going to
5 happen pursuant to the outline that they have passed
6 out.
7
MS. SAWYER:
Can I see that? Thank you.
8
THE HEARING OFFICER:
Sure. I need it bac
k,
9 though.
10
MS. SAWYER:
I'll just start with going
11 through what we have covered and what we intend to
12 cover.
13
If you go to Roman numeral one of the
14 outline, we presented that and we presented testimony
15 on Roman numeral two also.
16
MR. TREPANIER:
Excuse me. Could you mention
17 the witness list?
18
MS. SAWYER:
Okay. Sure. For Roman numeral
19 one, it was David
Kee from U.S. EPA.
20
For Roman numeral two, it was
Bharat
21 Mathur and Richard
Forbes from the Illinois EPA.
22
If you go to Roman numeral three, we
23 presented testimony on Roman numeral 3(b) and that
24 was Philip O'Connor.
L.A. REPORTING - (312) 419-9292
232
1
Today, we are going to begin with
2 testimony in the outline as 3(a) and that will be
3 Joseph Goffman.
4
Roman numeral 3(c) is Commonwealth
5 Edison's SO2 experience. We are not able to present
6 that testimony because their acid rain expert was at
7 a conference in Phoenix for the 21st and 22nd. So
8 we will probably present that testimony on the 3rd
9 or 4th.
10
Then, if you go down to Roman numeral
11 four, we are going to present that entire section.
12 That will be Roger
Kanerva.
13
Then, we are going to begin on Roman
14 numeral 6(a), (b), (c) and (d) if we get there.
15 We are just going to proceed down that line. That
16 is Christopher Romaine, as indicated in the outline.
17
MR. TREPANIER:
I understand you are
18 presenting testimony in the entirety of what is Roman
19 numeral three?
20
MS. SAWYER:
Yes. Three? No. Roman
21 numeral three, we are presenting -- we have already
22 presented (b) and we are presenting (a). Now, (c),
23 we can't present at this time because Commonwealth
24 Edison's SO2 expert is at a conference in Arizona.
L.A. REPORTING - (312) 419-9292
233
1
MR. TREPANIER:
The witness on 3(b) is the
2 witness that will be available for questioning?
3
MS. SAWYER:
Yes. If there are additional
4 questions, the one we were going to call up, Philip
5 O'Connor. He was the last person to testify
6 yesterday.
7
MR. TREPANIER:
Thank you.
8
THE HEARING OFFICER: Okay.
9
MS. SAWYER:
If there is nothing further, I
10 would like to call Joe
Goffman as the agency's next
11 witness.
12
THE HEARING OFFICER:
Would the witness be
13 sworn?
14
(Witness sworn.)
15 WHEREUPON:
16
J O S E P H
G O F F M A N ,
17 called as a witness herein, having been first duly sworn,
18 deposeth and saith as follows:
19
MS. SAWYER:
I have just one quick matter.
20
Mr. Goffman has some overheads, most of
21 which are essentially bullet points of what he is
22 going to discuss. There are some charts. We wanted
23 to mark these as exhibits. We can now go through
24 them. It's probably helpful to mark those exhibits
L.A. REPORTING - (312) 419-9292
234
1 now.
2
THE HEARING OFFICER:
There are -- I guess
3 there's going to be four charts along with --
4
MS. SAWYER:
More than four.
5
THE HEARING OFFICER:
More than four?
6
MS. SAWYER:
Yes. There are seven.
7
THE HEARING OFFICER:
There are going to be
8 seven.
9
MS. SAWYER: This is going to be followed by
10 this one.
11
THE HEARING OFFICER:
There are seven
12 overheads that the agency wants me to mark as
13 exhibits. I will mark them as exhibits.
14
After the presentation of the testimony,
15 the agency can move to have those exhibits entered
16 into the record and we'll handle the objections at
17 that point.
18
(Documents marked as
19
Hearing Exhibit Nos. 24-30
20
for identification,
21
1/22/97.)
22
THE HEARING OFFICER: I believe we left off
23 with Exhibit No. 24 from yesterday. I'm marking as
24 Exhibit No. 24 a chart called "SO2 Emissions from
L.A. REPORTING - (312) 419-9292
235
1 the Largest Sources." I am marking as Exhibit No. 25
2 a document called "Regional Emissions Trades." I'm
3 marking as Exhibit 26 "Macro Economic Impacts." I'm
4 marking as Exhibit No. 27 "Cost Changes if Trading is
5 Restricted." I'm marking as Exhibit No. 28, "Savings
6 through Trading."
7
MR. TREPANIER:
Which page number is that?
8
THE HEARING OFFICER:
That would be Page 18
9 on the handouts that the agency passed out prior to
10 today's hearing.
11
MR. TREPANIER:
Thank you.
12
THE HEARING OFFICER:
I'm marking as Exhibit
13 No. 29, which is Page 26 of their handout, a 1994
14 option results. I'm marking as Exhibit No. 30 the
15 SO2 allowance values, which is Page 27.
16
MR. TREPANIER:
Could those be referred to by
17 page number when they are brought up?
18
MR. GOFFMAN:
Thank you very much.
19
My name is Joseph
Goffman. I'm a senior
20 attorney with the Environmental Defense Fund. My
21 background for this presentation includes experience
22 working with the staff of the environmental --
23 Illinois Environmental Protection Agency and thinking
24 through when designing the essential elements of the
L.A. REPORTING - (312) 419-9292
236
1 program that's being presented here today.
2
However, what I think
would be helpful
3 would be to review some of the fundamental background
4 of the approach that's embodied in the VOM trading
5 program without necessarily going into the specific
6 details.
7
I, or a colleague of mine who is also
8 on the design team, will be available to testify on
9 February 3rd or February 4th about some of the
10 specific issues.
11
But if it's okay, I would like to focus
12 today on discussion of the fundamentals, if you will,
13 of the kind of policy reform that this program
14 represents.
15
In many ways, what the agency is
16 proposing represents a sort of state of the art
17 example or an expert of sort of state of the art
18 thinking in reforming and ultimately improving
19 the environmental performance of air pollution
20 control programs.
21
As I'm sure you know, the U.S. has made
22 a major commitment to regulating and reducing a wide
23 range of air pollutants since the enactment of the
24 1970 Clean Air Act, which was amended in 1977, and
L.A. REPORTING - (312) 419-9292
237
1 amended again in 1990.
2
So as a society, we have more than a
3 generation's worth of experience in using different
4 kinds of policy tools to control and manage and
5 reduce a wide range of pollutants that are hazardous
6 either to human health or the natural environment.
7
Starting in 1970, and in many ways
8 persisting through the present, the major paradigm
9 that has been used to manage air pollution through
10 the public policy tools can be described or labeled
11 command and control.
12
Command and control regulation is
13 characterized by programs that impose emission rate
14 standards or technology standards and often in their
15 implementation require public bureaucracies to make
16 a lot of detailed decisions about the compliance
17 requirements of individual sources.
18
Sources given to typical matters have
19 relatively little choice as to how they are going
20 to meet their compliance requirements. Ultimately,
21 it's left to the public bureaucratic decision-making
22 process to figure out on sort of a sector-wide or
23 class-wide basis what the most effective technologies
24 are, what the most effective innovations are, and
L.A. REPORTING - (312) 419-9292
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1 the best way to distribute cost.
2
From an environmental perspective, one
3 of the major flaws of that approach is that most of
4 those kind of programs are unable to guarantee to
5 the public a specific environmental or emissions
6 control outcome.
7
Individual sources are held accountable
8 for putting on certain technologies, but nobody is
9 held accountable for achieving the actual emissions
10 reductions target.
11
In many respects we have seen programs
12 of great promise ultimately failed to deliver
13 environmental results because you have a whole class
14 of sources in compliance with your technology
15 requirements, but for various reasons, the technology
16 requirements fail to deliver the results that are
17 required or promised to the public or expected by the
18 public.
19
At the same time, typical command and
20 control programs have a very mixed record in terms of
21 delivering innovation, delivering new ideas, and
22 allowing those new ideas to penetrate society or
23 penetrate the marketplace to enhance environmental
24 performance.
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239
1
As a society, we have discovered that
2 the challenges of environmental protection involve
3 ever increasing difficulty and ever increasing levels
4 of effort to really deliver things that the public
5 wants such as healthful air and protection of natural
6 resources.
7
In order to make those goals
8 reachable, it requires almost continuous innovation
9 technologically and through reform of practices
10 involving air pollution control.
11
So what is absolutely key to the
12 environmental outcomes we want is that a stream --
13 a steady stream of innovation can be marshaled
14 by the private sector and command and control
15 regulations have typically not succeeded in doing
16 that very well.
17
On the business side, whenever you
18 have -- or I should say when you tend to have basic
19 decisions of the allocation of costs and performance
20 of technology not made by the businesses themselves,
21 but by more bureaucratic processes, those decisions
22 tend to fail to reflect the economic information and
23 the economic needs of the individual companies.
24
It's just harder for businesses to
L.A. REPORTING - (312) 419-9292
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1 respond both to their compliance requirements and to
2 the general economic needs they have to face in doing
3 business.
4
If fundamental questions such as
5 technology of choice and cost allocation are not left
6 up to them, but are left up to a more collectivized
7 or bureaucratic cost allocation for technology
8 selection process, that means from an environmental
9 perspective, the extra cost, the extra rigidity of
10 these programs tends to make these programs less
11 durable, less able to produce the outcomes that we as
12 environmentalist want over time.
13
Hence, almost from the beginning of
14 the history of the modern Clean Air Act, public
15 policymakers have looked for ways to at least
16 introduce some forms of flexibility in the way these
17 programs operate.
18
So as early as the mid-70s, around the
19 time that the Clean Air Act was being amended for
20 the time, concepts such as emissions bubbling and
21 emissions emitting were introduced as sort of
22 forerunners in emissions trading to try to give
23 businesses some flexibility in choosing technology
24 and allocating costs.
L.A. REPORTING - (312) 419-9292
241
1
As you will see from this slide, which
2 gives you a more detailed summary of what I just
3 said, unfortunately, one of the favorite ways of
4 seeking flexibility or obtaining flexibility that
5 business is sought and one of the most used ways
6 of granting flexibility that public regulators use
7 was to allow individual businesses to negotiate
8 delays in variances in their compliance requirements.
9
Delays in variances, which while they
10 may have satisfied the individual firm's need for
11 flexibility or cost savings, inevitably resulted in
12 more emissions or delayed emission reductions.
13
Hence, the search for policy tools
14 that took the form of full-blown economic instruments
15 that in some fundamental way reallocated the
16 decision-making authority as between public
17 bureaucracies and businesses as to what choices
18 of technology and what allocation of cost should
19 be made and what the ultimate accountability of
20 businesses are and were.
21
One of the economic instruments that
22 has had a lot of development in the academic
23 literature and starting in 1990 was adopted for
24 the public policy sphere was the use of marketable
L.A. REPORTING - (312) 419-9292
242
1 permits. A marketable permit program is probably
2 the academic model that the Illinois proposed VOC
3 program most represents.
4
Just as a way of background, this slide
5 indicates a wide range of programs that have been
6 developed in the last 25 years to introduce some of
7 these concepts of flexibility and without going into
8 each and every one of them, let me just suggest that
9 this range of programs represents various stages of
10 development on the scale of the use of flexibility
11 instruments or marketable program models and
12 designs.
13
In my view, the SO2 allowance program
14 represents the most complete shift in the underlying
15 paradigm in regulating air pollution and if you will,
16 the most radical reallocation of authority as between
17 business decision-making and public decision-making
18 and at the same time, it can be argued to be -- and I
19 believe is one of the most successful, if not the
20 most successful air pollution programs in the history
21 of the modern Clean Air Act. Again, in a few minutes
22 I will go into more detail on this.
23
The acid rain program -- I'm sorry this
24 slide isn't as legible as it should be. One of the
L.A. REPORTING - (312) 419-9292
243
1 key elements of the acid rain program and one of the
2 key elements of the program that the agency is
3 proposing now is to redefine the way in which
4 compliance is articulated.
5
As I suggested before, command and
6 control programs typically define compliance in terms
7 of emission rate standards or technology standards.
8 Individual sources are held to account for achieving
9 certain rates of emission for unit activity or held
10 to account for installing certain technologies or
11 adopting certain processes.
12
They have never, at least before 1990,
13 been held to account for meeting a specific emissions
14 total. Therefore, before 1990, few, if any, air
15 pollution programs could guarantee to the public that
16 specific levels of actual emissions reductions were
17 being achieved.
18
It was almost as if desi
gners of earlier
19 air pollution programs were trading tons of reduction
20 for increasing increments of public control and
21 command and control setting.
22
In 1990, with the introduction of the
23 acid rain program, congress pioneered a specific
24 paradigm shift. What Congress basically said in
L.A. REPORTING - (312) 419-9292
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1 effect was we are going to guarantee to the public
2 that sulfur dioxide reduction on a nationwide basis
3 will be reduced by a specific amount. In this case,
4 ten million tons annually.
5
As a result, remaining allowable sulfur
6 dixoide emissions will never exceed nine million
7 tons. We are going to guarantee this to the public
8 by making individual sources not accountable for
9 particular methods or particular technologies or
10 particular practices. We are simply going to make
11 them accountable for the actual emissions that they
12 produce.
13
From an environmental perspective, this
14 change in paradigm, if you will, represents one of
15 the most significant advances, if not the most
16 significant advance, in the history of air pollution
17 control because for the first time, the public knows
18 that what the law says it will get in terms of
19 emission reduction performance, it, the public, will
20 get. It's this paradigm that the agency used in
21 designing this particular program.
22
THE HEARING OFFICER: Before we go on, I can't 23 find that
particular overhead in the
prefiled --
24
MS. SAWYER: Yes. I shou
ld have explained
L.A. REPORTING - (312) 419-9292
245
1 this. Initially, we had intended for Daniel
Dudik
2 from the Environmental Defense Fund to present
3 testimony -- this portion of the testimony. That's
4 what I submitted. Dan was not able to attend. So we
5 have slightly different sides from Joe, it's the same
6 theme but, slightly different slides.
7
THE HEARING OFFICER: For the record's
8 purposes, I'm going to read in what the slide says.
9 "Advantages of Emissions Budget," is the title.
10 Point one is clear environmental goals. Point two
11 is easy to measure performance. Point three is
12 establishes firm expectations. Point four is reduces 13 investment
uncertainty. Point five is facilitate
14 flexibility and cost. I believe point six is
15 reductions.
16
MR. GOFFMAN: Actually, point five is
17 facilitates flexibility and cost reductions.
18
THE HEARING OFFICER:
Oh, I'm sorry. Okay.
19 Thank you.
20
MR. GOFFMAN:
In any event, the --
21
THE HEARING OFFICER:
Mr. Goffman, could you
22 hold on a second?
23
MR. TREPANIER: Is that going to be held aside
24 until it's been distributed?
L.A. REPORTING - (312) 419-9292
246
1
THE HEARING OFFICER:
I don't know if the
2 agency planned on distributing that or not.
3
MS. McFAWN: It will now be in the
4 transcript.
5
THE HEARING OFFICER:
It's in the transcript
6 now. I don't think it says much more than what I
7 read. So I don't think it needs to be passed out
8 unless the agency wants to pass these out as a
9 courtesy, I don't know. But I just read it into the
10 record and I don't think you're going to get anymore
11 out of it than what's in the record.
12
MS. SAWYER:
We are going to make several
13 more copies of it just in case somebody wants a
14 copy. I think you are right. He has read everything
15 off of here into the record. We really don't have
16 the copying facilities to make a ton of copies here
17 in the agency's office. I think we can proceed.
18
MR. TR EPANIER: This is part of an expedited
19 rulemaking. It would be of assistance if I --
20
THE HEARING OFFICER: Excuse me?
21
MR. TREPANIER: In this expedited rulemaking,
22 it would be of assistance for my, you know,
23 understanding of what the testimony the agency
24 is presenting to have the copy of the overheads.
L.A. REPORTING - (312) 419-9292
247
1
THE HEARING OFFICER:
I think the agency is
2 going to make a few copies. Maybe they can give you
3 one. Otherwise, I'm not going to order them to make
4 copies and do it. I think it's clear from the record
5 what the overhead says and you can get everything you
6 can from reading the record.
7
MS. SAWYER:
He is going to make copies right
8 now and we will get you a copy as soon as he comes
9 back.
10
MR. TREPANIER: It seems fair. I mean,
11 yesterday, I was ordered to -- I had to serve the
12 service list with
prefiled questions. When the
13 agency makes their presentation, they should be
14 doing likewise.
15
THE HEARING OFFICER: The
prefiled questions,
16 however, are not going to be in the record until you
17 ask them. The reason you have to
prefile your
18 questions to everyone on the service list is to give
19 the opportunity to those to respond and prepare to
20 response to those questions.
21
The overhead, as you see it, is part
22 of the testimony only as an aid to help in his
23 testimony, which you can ask questions about and he
24 will answer them.
L.A. REPORTING - (312) 419-9292
248
1
This is for preparation of his
2 testimony, and unfortunately since Dan
Dudik couldn't
3 make it, so we're going to have just deal with what
4 we have to deal with. I believe the agency is going
5 to give you a copy of that. Mr.
Goffman is available
6 to come back so you can ask those questions at that
7 time based on having the record in front of you. I
8 think that's more than adequate.
9
MR. TREPANIER:
Thank you.
10
MR. GOFFMAN:
Thank you.
11
I know I'm probably risking belabo
ring
12 the point, but I don't think from an environmental
13 perspective I can emphasize enough the importance of
14 this idea of defining program level accountability
15 and the firm level accountability in terms of total
16 actual emissions because the Clean Air Act and the
17 efforts of environmental advocates such as myself
18 have been plagued by years by the
underperformance,
19 and in some cases, of the non-performance of the
20 traditional way of doing business.
21
By introducing this ne
w concept or this
22 new approach to accountability, we have seen with
23 increasing experience, most notably in the acid rain
24 program and as well as other programs that are being
L.A. REPORTING - (312) 419-9292
249
1 developed in various regions in the country, much
2 better, indeed superior, environmental performance
3 just by making this shift.
4
This shift, in terms of defining
5 accountability for firms and for programs to focus on
6 actual emissions, does not, however, come at a net
7 cost to the economy or to the economics of the
8 individual industries. Indeed, what I would like to
9 focus on in a sort of dialogue between the economic
10 and environmental policy objectives here is that by
11 redefining compliance in this way, regulators are at
12 the same time given the ability to turn over to firms
13 much more choice, much more discretion in
14 implementing their requirements, and in the ability
15 to make choices based on their own interests and
16 their own information, firms are able to achieve
17 these superior environmental results at lower cost
18 than they would if the program were designed in a
19 traditional way.
20
In the case of the acid rain program,
21 which is the existing program with the most extensive
22 track record, and in the case of the program for the
23 board today, this accountability for total emissions
24 is implemented through an instrument called
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1 marketable permit.
2
In effect programs as amplified by
3 the acid rain program and by the VOM program are
4 implemented by an allotment or a permit to emit
5 a specific unit of pollutants.
6
The acid rain programs say almost in
7 as many words that compliance is defined in this way,
8 that a firm is in compliance so long as it holds a
9 number of emissions allowances equal to the number
10 of tons of sulfur dioxide measured coming out of its
11 smokestacks.
12
Since under the program, under the acid
13 rain program, a fixed number of emissions allowances
14 are allocated to the firms that are regulated. The
15 public is guaranteed that total emissions will never
16 exceed the target level. At the same time, the firms
17 themselves can freely exchange or even save for
18 future use these emissions allowances.
19
In the exchange of emissions allowances,
20 the emissions exchange market becomes the instrument
21 for allocating costs between and among the firms so
22 that the firms that can make the greatest number of
23 reductions at the lowest costs are given not only the
24 incentive, but the simple ability to make those
L.A. REPORTING - (312) 419-9292
251
1 reductions, whereas firms that can make fewer
2 reductions or can only make reductions at high
3 costs do not have to make those high cost reductions
4 while at the same time again, the program delivers
5 as a guaranteed matter the environmental result
6 that's promised to the public.
7
By creating value in terms of cash
for
8 additional emissions reductions, an emissions trading
9 market that works in the way that I just described
10 creates an identifiable incentive for private sector
11 firms to invest in
environmentalization.
12
As I suggested in the beginning, one of
13 the keys, I believe, to meeting our society's demand
14 for the highest level of public health and natural
15 resource protection is ensuring that there was a
16 continuous stream of innovation in terms of
17 environmental technologies and environmental
18 practices.
19
This economic value for cleaning up air
20 pollution is one of the most effective instruments
21 for incentivizing those kinds of innovations.
22
The reason these incentives work is for
23 the simple reason that not all sources have the same
24 technical possibilities.
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1
Even in the utility industry, which
2 would appear at first to be a fairly a homogenized
3 unified industry, which is industry regulated under
4 the sulfur dioxide program, there are a variety of
5 technical commands that different facilities have
6 and a variety of fuels that they use.
7
What the initial trading market allows
8 those utilities to do is to take advantage of and
9 accommodate the range of technical possibilities.
10
Again, as I have already mentioned,
11 in taking advantage of those ranges of technical
12 differences, different operators and other
13 entrepreneurs have the ability to develop innovations
14 and be awarded for them to the extent that those
15 innovations result in additional pollution clean up
16 that can be exchanged in the emission trading
17 market.
18
As I hinted before, this allows the
19 allocation of responsibility as between government
20 and the private sector to be rationalized so that
21 government focuses on setting the standard and
22 enforcing its compliance while industry, which tends
23 to have the best access to information about
24 technological possibilities, not to mention having
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1 the best information about what its own underlying
2 economic needs are, can make its own choices as to
3 how to meet those enforceable standards.
4
That means that the business of
5 doing business and the business of cleaning up
6 air pollution becomes identical.
7
Instead of having business people and
8 firms whose primary mission in life is to conduct
9 whatever their underlying business is, encounter
10 air pollution control requirements as a rigid, even
11 abrasive, aspect of doing business, businesses are
12 given the ability to integrate their business
13 decision-making and their compliance decision-making
14 to rationalize it, to produce both the environmental
15 result and the economic result they seek.
16
In addition, businesses have more
17 control over how they achieve flexibility. If you
18 will recall, one of the points that I made a few
19 minutes ago is that under traditional programs, the
20 most or the only way business individual firms can
21 achieve flexibility is by going back to the regulator
22 and negotiating the variance or negotiating the
23 delay.
24
Under a market trading system,
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1 individual firms can simply use the emissions trading
2 market to achieve that flexibility and do not have to
3 rely on legal or equitable conflict or pleading with
4 public regulators to achieve that flexibility.
5
From an environmental perspective, to
6 jump back to that side of the dialogue, that way of
7 achieving flexibility is far superior because in an
8 emission trading market, an individual firm achieves
9 flexibility, but without costing the environment the
10 loss of emissions reductions.
11
Under the traditional way of achieving
12 flexibility, permit variances and delays, as I said,
13 inevitably result in more emissions and fewer delay
14 in emissions reductions.
15
I believe I have already described the
16 economic mechanism that delivers the incentives for
17 innovation and for continuous environmental
18 improvement that the emissions trading market
19 generates.
20
Let me go back and focus on this a bit.
21 Under traditional programs, it is often very
22 difficult from an enforcement point of view to
23 separate bad actors from good actors.
24
Often firms have trouble achieving
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1 compliance for technical reasons that are sometimes
2 beyond their control. The outcome for those firms
3 in terms of compliance or failure to meet the
4 compliance is no different from the outcome produced
5 by genuine bad actors who refuse or simply don't
6 have the confidence to meet their pollution
7 requirements.
8
However, in an emission trading market
9 we turn over to businesses the tools of flexibility
10 again for the use of ideas such as emissions trading
11 or emissions banking.
12
There is almost literally no excuse for
13 a firm to be out of compliance. Thus, when in an
14 emission trading market, a firm is out of compliance,
15 that almost creates a kind of prima facie evidence
16 that that is exactly the kind of firm that
17 enforcement authorities should focus their resources
18 on.
19
So again, from an environmental
20 perspective, that more efficient use of enforcement
21 resources, that is enabled by the use of -- by the
22 available use of this flexibility and enhances the
23 performance of this program and from the perspective
24 that businesses themselves, they are given a higher
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1 level of certainty that enforcement will be directed
2 at the true bad actors since the non-bad actors, if
3 you will, can safely be presumed to take advantage of
4 flexibility tools of the emissions trading market.
5
One of the things we are seeing in the
6 implementation of the acid rain program is that in
7 the first two years of the program's life, 1995 and
8 1996, utilities affected by these SO2 requirements
9 are producing 40 percent more emissions reductions
10 than are required.
11
This is in part because the ability
12 to bank for future use and/or trade for future
13 exchange in the emission trading market of early
14 reductions produces a tangible economic benefit.
15
So sources have literally had an
16 affirmative economic reason to have more pollution
17 control than is required and to deliver the
18 environmental benefits of the program earlier than
19 Congress was able to require in the 1990 Clean Air
20 Act.
21
Again, the key is the ability of an
22 emission trading market to infer upon early
23 reductions or extra reduction activities a positive
24 economic value. At the same time investments in
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1 these early reductions can ultimately be used in
2 the emission trading and backup market to enhance a
3 firm's ability to save costs and the ability to
4 manage both of their compliance and business needs
5 with more flexibility.
6
This slide, which I think is in the
7 revised package, simply provides a summary of the --
8 of this economic and almost mechanical dynamic
9 emission trading market, market and gender.
10
In sum --
11
THE HEARING OFFICER: Just for the record,
12 that was Page 10.
13
MR. GOFFMAN: In sum, to kind of perform air
14 pollution management practices exemplified by the
15 acid rain program and in many, many key respects
16 mirrored in the proposal before the board, can
17 deliver to the public not only superior environmental
18 performance, but superior environmental performance
19 at overall cost affording society the ability not
20 only to reach for more ambitious environmental
21 protection goals, but actually to achieve those
22 higher ambitious goals.
23
Thank you.
24
THE HEARING OFFICER: Can we go off the record
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1 for a second?
2
(Whereupon, a discussion
3
was had off the record.)
4
THE HEARING OFFICER: Let's go
back on the
5 record, please.
6
MS. SAWYER:
We have some copies of the
7 presentation. Mr.
Goffman did not use all of the
8 slides in here, though. So you are welcome to
9 them.
10
Since we only have several copies,
11 if any group could just take one copy, I would 12 appreciate it.
13
Okay. Are there any questions?
14
THE HEARING OFFICER: I guess we could proceed
15 with any questions of Mr.
Goffman at this time.
16
MR. TREPANIER: This is Mr.
Trepanier.
17
Could you explain something
about how
18 this proposal is developed? Specifically, what I'm
19 looking at is
EDF's involvement.
20
MR. GOFFMAN: Back in 1992, EDF had developed
21 a proposal for using a form of emissions trading to
22 create incentives to retire old high emitting
23 vehicles. We distributed our proposal in written
24 form to a number of state governments including the
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1 Illinois EPA.
2
I believe at the time Director
Gade
3 and Roger Kanerva showed a lot of interest in that
4 approach and asked us to come in and brief them,
5 which we did.
6
In the course of the briefing, we were
7 given the opportunity to explain to them sort of on
8 the general level that I have described here why
9 we thought economic instruments produced superior
10 environmental results.
11
In the course of those discussions, we
12 learned that the Illinois EPA was wrestling with a
13 new round of
NOx emission control requirements and
14 a new round of VOC emission control requirements.
15
We thought or we told the agency at
16 the time that we thought that new programs could
17 be designed using these ideas.
18
Director Gade and Mr. Kanerva expressed
19 a lot of interest in that idea. We discussed how
20 to go about the process of sort of putting one
21 intellectual foot in front of the other or one
22 political foot in front of the other and then heard
23 back shortly thereafter that the Illinois EPA was
24 putting together a design team of individuals who
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1 either had specific expertise in this area or
2 represented critical interests that would be affected
3 by these programs.
4
We were invited to be part of the design
5 team as an outgrowth of our initial presentation or
6 briefing, if you will, of the Illinois EPA.
7
MR. TREPANIER: What expertise did the EDF
8 bring?
9
MR. GOFFMAN: The bodies, if you will, of the
10 design team were myself who would have spent at this
11 point ten or 12 years working with the Clean Air Act
12 and Dr. Daniel
Dudik, who is an economist.
13
By the way, I'm a lawyer. Dr.
Dudik
14 is an economist. He has spent, I would say, the
15 last 20 years of his professional career designing
16 economic instruments to be used to manage air and
17 water pollution.
18
In addition, Dr.
Dudik and I were
19 supported, if you will, by Dr. Michael
Oppenheimer,
20 who is an atmospheric physicist, who is in charge
21 of the EDF's air quality program. This wasn't
22 the first time that Dr.
Dudik and I had worked
23 together to design these kinds of programs.
24
The EDF, in 1989, put together a
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1 blueprint for using emissions trading to reduce
2 sulfur dioxide emissions and that blueprint evolved
3 into -- essentially evolved into the program that
4 Congress passed.
5
Along the way --
6
MR. TREPANIER: If I could just ask another
7 question, when you are referring to Congress passing
8 that, and I understand that you have a lot of
9 experience in this, was that the 1990 Clean Air Act
10 that you are referring to?
11
MR. GOFFMAN: Yes.
12
MR. TREPANIER: Now, did that 1990 Clean Air
13 Act provide the statutory means to bring about this
14 program today?
15
MR. GOFFMAN: Yes, it did.
16
MR. TREPANIER: So when IEPA told you that
17 they were working on a trading program to meet
18 their -- the fact that Chicago is in severe
19 nonattainment, this didn't surprise you?
20
MR. GOFFMAN: I didn't --
I'm not sure I
21 understand your question.
22
MR. TREPANIER: I mean, when you came to the
23 idea with your proposal for a market system, was the
24 retiring vehicles part of the market system?
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1
MR. GOFFMAN: Yes, it was.
2
MR. TREPANIER: And you came to the IEPA with
3 your proposal for a market system?
4
You knew they were open to such a
5 proposal?
6
MR. GOFFMAN: When we proposed the vehicle
7 trading program, we had sent it to a number of
8 states. We didn't have any prior knowledge as to
9 which of those states would be more or less amenable
10 to considering the idea.
11
One thing I didn't mention, which I
12 should mention now, is that the IEPA actually ran
13 a pilot project using the ideas that were in our
14 proposal and that pilot project seemed to be
15 successful and it was in the course of digesting the
16 results of that pilot project that we had the most
17 extensive discussions with the agency.
18
At that poin t, obviously, given
19 the success of the pilot project and given the, how
20 should I say, intellectual rapport that we thought
21 we had established with the management of the agency,
22 it wasn't surprising that they wanted to use this
23 idea to go after the
VOCs and NOx.
24
MR. TREPANIER: When the EDF was participating
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1 on the design team, what areas was the expertise that
2 EDF brought to bare?
3
Did you have a certain area? I know
4 experts were brought in and they were brought for a
5 certain area and did EDF have a certain charge on the
6 team?
7
MR. GOFFMAN: Well, we certainly -- I don't
8 think it was -- roles were not formally defined
9 within the design team.
10
Dr. Dudik and I, because of our
11 experience with the acid rain program, were able to
12 really focus on the sort of, what I will call, the
13 structural elements of designing the program, the
14 legal elements, and the economic elements.
15
Ultimately, we contributed a lot to the
16 mechanics of the program. At the same time we were
17 in regular consultation with Dr.
Oppenheimer to make
18 sure that the mechanics of the program matched the
19 best understanding of the atmospheric behavior of the
20 pollutants we were trying to regulate.
21
MR. TREPANIER: Are you working also with the
22 Michigan and California programs?
23
MR. GOFFMAN: We worked a little bit with
24 Michigan and a little bit with California. We
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1 affirmatively dropped out of the Michigan program
2 because we felt the approach that they were taking
3 with emissions trading was illegitimate. We worked
4 a little bit on the California programs on a more
5 informal basis.
6
MR. TREPANIER: Could you elaborate on that
7 a little bit? What are you seeing in Michigan that
8 was illegitimate?
9
MR. GOFFMAN: The Michigan program falls under
10 the category of emissions trading, but it doesn't use
11 the fundamental paradigm shift of redefining
12 compliance in terms of actual emissions and capping
13 compliance.
14
It purports to allow sources to trade
15 emissions, which are not certifiably or by definition
16 surplus emissions reductions. So you get a fair
17 amount of or in theory, you get a fair amount of
18 flexibility in terms of firms being able to trade
19 increments of compliance, but what the public doesn't
20 get is a guarantee that emissions reductions will be
21 achieved fully and total emissions will remain at the
22 target level.
23
MR. TREPANIER: So you're saying in Michigan,
24 there is no cap?
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1
MR. GOFFMAN: That's right. I also in my
2 view, the kind of model they used is likely to have
3 significantly more transactions costs with businesses
4 trying to trade and therefore, to the extent that a
5 well designed emissions trading tool can really make
6 the economic energies of business act as an ally for
7 environmental performance, I don't see the Michigan
8 program delivering that.
9
That again, as I wanted to point out,
10 that's almost a secondary consideration, the simple
11 fact that they don't cap emissions. They don't
12 redefine compliance to make anyone accountable.
13
MS. SAWYER: Mr.
Goffman, I have just a quick
14 question.
15
Is the Michigan program something that's
16 commonly referred to as an open market trading
17 program?
18
MR. GOFFMAN: Yes. It is an open market
19 trading program.
20
MR. TRE PANIER: In a comparison of the
21 Michigan program with the Illinois program, you say
22 that the Illinois program is legitimate because it
23 has a cap on emission?
24
MR. GOFFMAN: Yes.
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1
MR. TREPANIER: And then in the Michigan
2 program, that's not distributed throughout all of
3 the existing polluters?
4
MR. GOFFMAN: Basically, in the Michigan
5 motion, polluters have their underlying requirements,
6 which I think in most cases are emission rates or
7 technology standards and --
8
MR. TREPANIER: But there's no baseline?
9
No baseline determinations have been
10 made?
11
MR. GOFFMAN: Yes. Also, I think they commit
12 what are called discreet emissions reductions. You
13 can make an emission reduction -- you can show an
14 emission reduction in one year, bank it, and then
15 even if your emissions go up in subsequent years and
16 the whole sector's emissions go up in subsequent
17 years, that banked reduction is still savable and
18 tradeable, as I understand the program.
19
MR. TREPANIER: From your testimony, and I
20 point to the fifth overhead, the fifth exhibit, "Why
21 Use Incentives," it was your testimony that the SO2
22 program had allowed for a faster emissions
23 reduction.
24
Now, is that because those who could
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1 obtain emissions reductions easily, that it also
2 happened to be fast for them to do that, and so
3 that's why it was fast?
4
MR. GOFFMA N: Well, I think it's a little bit
5 more complex than that. What the -- my understanding
6 of what action went on in the industry is that the
7 sources that are covered in the first years of the
8 program didn't have a number of source choices as to
9 how they were going to make their reductions.
10
A number of those choices did, in fact,
11 allow them, you know, whether it was putting on
12 stacked emission scrubbers or buying low sulfur coal
13 from western sources, that they had not previously
14 gotten coal supplied --
15
MR. TREPANIER: Yes, we've heard some
16 testimony on specifics, but what I'm looking from
17 you is -- regarding your testimony is that the
18 marketing in emissions -- what I'm saying is your
19 testimony is marketing and emissions makes emissions
20 reductions faster.
21
MR. GOFFMAN: I mean, my testimony --
22
MR. TREPANIER: I'm asking you to tell me what
23 it is about the marketing, how is that?
24
MR. GOFFMAN: Basically, if you -- the way a
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1 system like the SO2 program works is that if you
2 create an extra reduction or a reduction sooner than
3 you need to, that reduction, if saved for future use
4 or traded, can actually bring cash value to the party
5 making the reduction.
6
Unlike other programs, a business
7 decision-maker is given an affirmative reason
8 in economic terms for making those emissions
9 reductions.
10
MR. TREPANIER: Okay. Is that --
11
MR. GOFFMAN: Now, I can't tell yo
u whether in
12 the event firms that made that decision in '95 and
13 '96 would have done it anyway.
14
What I can tell you is that they did do
15 it and they did it in a regulatory and economic
16 environment in which the decision to do it correlated
17 to a potential economic reward.
18
It's the alignment of that economic
19 award and that activity which creates, I think,
20 non-trivial evidence that that correlation probably
21 has some causative connection because in other air
22 pollution control programs where that correlation
23 has not existed, we have not seen this degree of
24 early reduction activity.
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1
MR. TREPANIER: Was that value that you
2 believe that the polluters could see, that they would
3 gain a value by reducing their emissions, was that
4 value realized, this forecast?
5
MR. GOFFMAN: My understanding is that that
6 value will be realized when those extra reductions
7 are used or sold.
8
So far, a lot of the
firms are simply
9 holding onto those reductions and not transacting
10 them, but I think from an operational point of view,
11 the existence of those reductions, that could help
12 accommodate future economic activity is sort of a --
13 it's a value in and of itself.
14
It gives firms that bank of extra
15 reductions as a concrete tool that firms can use over
16 time to increase their flexibility.
17
MR. TREPANIER: Are you saying they are ahead
18 of the regulators?
19
Are you suggesting th
at there was a bank
20 of these pollutions being built up?
21
MR. GOFFMAN: Uh-huh, that's right.
22
MR. TREPANIER: And you see that as a positive
23 result of the program?
24
MR. GOFFMAN: Yes, because that bank
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1 represents emissions that are removed from or taken
2 or prevented from going into the atmosphere today
3 and in the context of acid rain, sulfur deposits is
4 primarily a cumulative problem.
5
So the sooner the sulfur gets remove
d
6 or curved and therefore, the sooner the greater
7 amount of sulfur deposition is prevented, the more
8 quickly natural ecosystems can begin to recover from
9 the effects of acid deposition. I think --
10
MR. TREPANIER: Here is specific knowledge.
11 I have just stopped, because I am not looking for
12 anything that very specific, but appreciate you're
13 addressing my question on this bank of pollution
14 being built up. I haven't had a lot of opportunity
15 to review this proposal, but I want to ask about this
16 pollution bank.
17
Now, isn't it possible that the bank
18 could be broken? What if everybody shows up and
19 wants to withdraw their pollution allotment?
20
MR. GOFFMAN: It's possible, but given the
21 value of maintaining the bank, most people who
22 have looked at the acid rain program, and I agree
23 with this analysis, anticipate that the bank will
24 always be a non-zero bank.
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1
There will always be allowances
in case
2 the acid rain program held in the bank -- because the
3 firms that generate these allowances and maintain the
4 bank are perpetually looking for to future activity
5 for which they will need some margin of flexibility.
6
So having a bank whose value is greater
7 than zero is not only operationally valuable to the
8 firms, but is environmentally valuable because the
9 bank represents additional reductions.
10
MR. TREPANIER: Okay.
11
MR. GOFFMAN:
Yes. In theory, the bank
12 can be broken, if you will, but the more years that
13 pass in the acid rain context when the bank isn't
14 broken, the greater the environmental benefit.
15
Ultimately, that is sort of a
16 theoretical risk against which we are today seeing
17 actual benefits. It's inevitably the case that in
18 designing programs like this, you have to make that
19 kind of trade-off and the trade-off between actual
20 present benefits and theoretical risks in that
21 context makes sense.
22
In addition, in the case of
the program
23 before the board, the unlimited ability to bank that
24 exists in the acid rain program is limited at least
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1 somewhat by the fact that in this program's case,
2 firms can only build their bank up to a certain
3 extent because the usable lifetime of banked credits
4 is very limited.
5
So in effect, the Illinois program
6 goes back to look at the benefits of early reductions
7 against the risk of the bank being broken and
8 introduces another design feature that further
9 hedges or limits or constrains that risk.
10
MR. TREPANIER: When you reviewed the
11 proposal, and I would assume that you have reviewed
12 that closely, and analyzed that to see if it met the
13 requirements of the Clean Air Act?
14
MR. GOFFMAN: Yes.
15
MR. TREPANIER: And do you have an opinion on
16 that?
17
MR. GOFFMAN: Well, you know, as a process
18 matter, I think it's ultimately up to the U.S. EPA
19 to approve the program as a SIP revision. The U.S.
20 EPA obviously is going to go and look back to see if
21 it meets the requirements of the Clean Air Act.
22
In my view, it does. In my view,
23 this is an imminently
approvable program under the
24 requirements for SIP revisions under the Clean Air
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1 Act.
2
MR. TREPANIER: Do you feel that that was
3 one of the expertise you brought to the design
4 committee?
5
MR. GOFFMAN: To a certain extent, yes.
6
MR. TREPANIER: And then woul
d you
7 characterize that the meeting of the requirements
8 of the Clean Air Act specifically -- I'm sorry that
9 you weren't here to see yesterday's testimony.
10
There was -- but maybe you can recall
11 from your experience in the program that there
12 was a projection in 1999 that shows what was the
13 anticipated emissions level under this program and
14 also on that chart was a number that shows what was
15 required under the ROP Clean Air Act requirements.
16
Are you familiar with that 199
9
17 determination?
18
MR. GOFFMAN: I remember seeing it detailed
19 as early as March 1995. I haven't looked at it
20 since.
21
MR. TREPANIER: I do want to establish that
22 you have knowledge of what the program that you
23 participated in designing, what that target is. I
24 use the word target loosely because I'm not certain
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1 how it -- what it means to you. Did this program
2 meet the target?
3
MR. GOFFMAN: Well, my understanding is
that
4 the way this program works, it will, by definition,
5 meet the target because it's being implemented by the
6 allocation of authorization to emit a fixed amount
7 of VOCs or VOMs and that amount will be equal to the
8 numerical target chosen.
9
My understanding of the agency's
10 strategy is that that target will be revised in
11 all likelihood downward, that is, the direction of
12 fewer allowable emissions over time as the agency
13 develops more analysis as to what the total number
14 of VOC emissions reductions in the sector has to
15 be in order to continue with ROP and ultimately
16 to reach attainment in 2007.
17
The beauty, if you will, of this program
18 is that the target, the numerical target, is built in
19 with a full degree of
automaticity, if you will, by
20 operation of the use of this fixed allotment of VOM
21 emissions units.
22
So assuming that this program --
23 assuming that sources are in compliance and the
24 agency is going to bring to bear the compliance and
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1 enforcement resources that it traditionally brings
2 to bear for air pollution programs and as you know,
3 I think it will require somewhat fewer resources
4 than traditional programs do, and then almost by
5 definition, this
automaticity element will deliver
6 the target.
7
MR. TREPANIER: Are you familiar with the
8 proposal's provisions for baseline determinations?
9
MR. GOFFMAN: I'm familiar with what the
10 proposal says. I don't --
11
MR. TREPANIER: Do you have a familiarity to
12 any extent to understand --
13
MS. SAWYER: This is really specific testimony
14 on the rule. Joe's testimony was more on ---
15 essentially on market systems in general.
16
MR. TREPANIER: I'm specifically asking here
17 regarding Joe's testimony that the market system
18 requires less -- basically, it was -- I recall the
19 testimony that it was -- it is focusing on the
20 resources.
21
I believe that's the testimony that --
22 Joe's testimony has been that the agency's resources
23 are going to be used more efficiently. So I'm trying
24 to determine if Joe has within his basis and
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1 knowledge what it's going to require the agency to
2 make baseline determinations.
3
MS. SAWYER: And that isn't something within
4 Joe's expertise, really, what the agency's resources
5 are.
6
MR. GOFFMAN: I did say as a general matter,
7 in terms of enforcement, the agency will be able to
8 use its enforcement resources more efficiently and
9 I also suggested that as between the private sector
10 and the agency, the agency will be able to use its
11 information gathering resources about the means of
12 compliance that are available to firms more
13 efficiently.
14
MR. TREPANIER: Would you apply that, then,
15 to that situation you referred to as a bad actor?
16 You know, let me know how the agency is. Let us
17 all -- let the board know how the agency's
18 enforcement tools are going to be used more
19 efficiently when the bad actor or makes their
20 participation --
21
MS. SAWYER: Joe is more presenting that
22 in a theoretical fashion to market programs and
23 not specifically as to how the agency is going
24 to use its enforcement.
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1
MR. TREPANIER: Okay. Well, this question
2 is going to what enforcement -- how is enforcement
3 made about in the market system.
4
MS. SAWYER: A theoretical question on that
5 area, Joe could answer, but the specific --
6
THE HEARING OFFICER: I think I will let
7 Mr. Trepanier ask his questions as to Joe's opinion
8 as to any agency, not just the EPA, because I don't
9 think Joe can answer questions specifically to the
10 EPA of Illinois.
11
He can answer questions about how he
12 feels that the markets system can help agencies
13 in general focus their attention on enforcement
14 versus whatever else.
15
I think if you maintain your questions
16 in that vein, Joe can answer.
17
MR. TREPANIER: Thank you.
18
THE HEARING OFFICER: If you ask about a
19 specific agency, how the agency is going to do it,
20 this agency, that is, the Illinois EPA, I don't
21 think Joe is in the position to answer those
22 questions.
23
MR. TREPANIER: Thank you.
24
THE HEARING OFFICER: So if you want to ask
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1 the general question, go right ahead.
2
MR. GOFFMAN: Well, assuming everything that
3 the board has just expressed qualifies my answer.
4 My view is that when you give firms the range of
5 flexibility of meeting compliance, which you have
6 under a market program, that there was a much higher
7 tendency to have the firms that end up in
8 non-compliance be, first of all, smaller in number.
9 Second of all, that would be the kind of firms that
10 really merit agency attention.
11
The experience with more traditional
12 programs is often that -- particularly programs
13 that rely on describing technologies or implicitly
14 describing technologies -- the experience with those
15 programs is that there is sort of a category or range
16 of firms that for technical reasons that have nothing
17 to do with the level of effort the firm has put into
18 try to comply still failed to comply.
19
So the agency has to worry about those
20 firms in addition to the smaller group of firms that
21 for whatever reason refused to comply or refused to
22 amass the resources they need to comply.
23
Now, in the case of a program
like
24 this in that category of what I will call accidental
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1 non- compliers ought to be reduced to zero because
2 if a firm is finding that it is for technical reasons
3 otherwise beyond its control and otherwise nothing to
4 do with its level of effort is not going to be able
5 to comply on site, that firm has the ability to go
6 into the emissions reductions market and purchase the
7 necessary emissions reductions from other firms that
8 can exceed compliance to offset their emissions.
9
That transaction allows the firm in
10 question to be in compliance. It gets the total
11 emissions reductions that you want and the agency
12 doesn't have to go in and figure out why that firm
13 chose to buy emissions reductions as opposed to the
14 technology.
15
The firms that are then left over who
16 haven't done that and haven't been in compliance
17 really can't point to some technical reason in most
18 cases that they weren't in compliance and therefore,
19 that second group of firms, presumably a smaller
20 group, will be the ones the agency really needs to
21 focus on.
22
MR. TREPANIER: Okay. In this program --
23 now, in looking at this program applying some of
24 that information, you referred to an accidental
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1 non- complier. Under this proposal, accidents are --
2 allotments aren't required to be held for accidents,
3 isn't that correct?
4
MR. GOFFMAN: No. When I said an
accidental
5 non- complier, I meant a firm that is trying to comply
6 doing everything within its ability to comply and
7 because of some event beyond its control, because the
8 technology that was -- that they decided to put on
9 doesn't work as well as they thought it would or as
10 the vendor promised, it doesn't produce the full
11 emissions reductions, that firm still has another
12 legal recourse, and indeed an obligation, to make up
13 for the under-performance of its technology by going
14 out and buying emissions reductions.
15
If the firm does it, then, the agency
16 doesn't have to worry about policing or supervising
17 or investigating that firm.
18
The agency can use those same resources
19 to look at the firm that even though a market for
20 emissions reductions is available, it decided not to
21 got into the market.
22
MR. TREPANIER: Under that -- with your
23 explanation -- your explanation, to my understanding
24 is, that the agency accepts at face value submissions
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1 from the polluters.
2
MS. SAWYER: I don't think that Joe -- by
3 the agency, you mean in the general fashion?
4
MR. TREPANIER:
Yes, the agency meaning --
5 the question in the form that the board had asked
6 that I ask these questions.
7
MR. GOFFMAN: Theoretically -- well, not
8 theoretically, my expectation is that most of --
9 the history of most of these programs is that the
10 information that is provided to the firms is
11 essentially a quantification or a measurement of
12 the firm's actual emissions.
13
In most cases, and I believe in the case
14 of this program, those submissions, the measurement
15 or quantification of the actual emissions that the
16 firm is producing, has to be certified to the
17 agency.
18
For example, in the case of the acid
19 rain program, that information has to be legally
20 certified and if the firm submits false information
21 or information that doesn't otherwise meet
22 certification requirements, the firm is in violation
23 of the law.
24
MS. SAWYER: And we are going to present some
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1 further testimony on that type of information from
2 the agency witnesses.
3
THE HEARING OFFICER: I think there are some
4 other questions from the audience.
5
MR. WAKEMAN:
I'm Jim Wakeman of Tenneco.
6
Can you comment on the failure or the
7 struggling of the reclaim system in California?
8
MR. GOFFMAN: Yes, I can comment. As far as
9 I can tell, there are two reclaim programs that
10 people are referring to. Are you referring to the
11 reclaim program for SO2 and
NOx or VOCs?
12
MR. WAKEMAN: For the
VOCs.
13
MR. GOFFMAN: Okay. My understanding -- and
14 it's based on conversations with some of the air
15 managers in the South Coast Air Quality Management
16 District, and one of the representatives of industry
17 coalition -- is that that program chose to regulate
18 or attempt to regulate a very narrow group of
19 industries under a VOC program and that the group
20 of industries involved tended to have cyclical
21 emissions increases or decreases that match economic
22 cycles.
23
So that in effect when anyone firm's
24 emissions were high, most of the other firms in the
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1 industry and in the program were going to be high.
2
Therefore, firms that might need to
3 buy reductions from the emission reduction market
4 couldn't identify other firms whose emissions would
5 be low at the same time theirs were high.
6
As a result, those firms asked the
7 agency to, in effect, inflate the emissions baseline
8 so that they could be sure that there would be enough
9 allowable emissions within the program, within the
10 VOC program, so that they could operate through the
11 various economic and activity cycles that they
12 anticipate.
13
The level of inflation of the emissions
14 baseline that the industry was asking for was so high
15 that if adopted, it would have defeated the basic VOC
16 reduction purposes of the program.
17
To me, that means -- and I think the
18 people that I have talked to from the South Coast
19 agreed -- that the inability to come up with a
20 program was an artifact of the initial decision
21 to have the reclaimed VOC program cover such a small
22 number of industry sectors.
23
In contrast, my understanding is that
24 this program includes a variety of sectors and kinds
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1 of sources and effect in industries so that the
2 economic cycles that produce different activity
3 levels in one group or sources won't correspond to
4 the same economic cycles of other groups and
5 sources.
6
In other words, there would be enough
7 difference in the economic experiences of different
8 sources of this program that it's reasonable to
9 expect that a robust emissions trading market could
10 take place.
11
The short answer was reclaim for
12 whatever reason in the VOC area didn't make the
13 market bureau.
14
MS. SAWYER: Mr.
Goffman, I just have a point
15 of clarification on that.
16
Wasn't the reclaim program for VOC
17 emissions that they were designing a year-round
18 program?
19
MR. GOFFMAN: Yes, yes, that's also true
20 because they have a year-round ozone system.
21
THE HEARING OFFICER: Are there any other
22 questions?
23
Ms. Mihelic?
24
MS. SAWYER: Can we take a couple moments,
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1 like, a five-minute break or so?
2
THE HEARING OFFICER: All right. I was
3 planning on taking a break at 11:00. We can take a
4 five minute break now. Let's make it ten.
5
(Whereupon, a discussion
6
was had off the record.)
7
THE HEARING OFFICER:
Let's go back on the
8 record.
9
MS. MIHELIC: Mr.
Goffman, I'm Tracey Mihelic
10 with Gardner, Carton & Douglas.
11
On the slides that you have shown today,
12 there were certain statements made and I'm talking
13 about not the ones you entered earlier in the
14 exhibits, but on the actual ones which were
15 summarizing your testimony.
16
For example, on Page 25 -- the slide
17 marked Page 25, it states establishes firm
18 expectations. Could you explain to me what you
19 mean by this?
20
MR. GOFFMAN: That means several things.
21 First of all, from the perspective of the public, it
22 establishes that the public can't expect a particular
23 environmental or at least total pollution loading
24 outcome.
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1
THE HEARING OFFICER: Mr.
Goffman, since that
2 was the one that wasn't part of the handouts, could
3 you just throw it up on the overhead while you are
4 talking about it?
5
MR. GOFFMAN: Sure.
6
THE HEARING OFFICER: Thanks.
7
MR. GOFFMAN: You bet.
8
THE HEARING OFFICER: I'm sorry to interrupt
9 your train of thought.
10
MR. GOFFMAN: That's okay. It's a pretty slow 11 train.
12
The statement that it's a double edged
13 sword is in the positive sense, as I was starting
14 to say, can have a legitimate basis, in fact, for
15 expecting a specific environmental or pollution
16 loading outcome, which is not something that other
17 approaches to pollution control that rely on
18 technology or implicit technology description
19 standards setting does.
20
At the same time, in some ways it gives
21 complying sources or complying firms a more certain
22 or definitive expectation as to what their
23 obligations are going to be because the compliance
24 target is put in front of each firm and the range
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1 of tools again in the form of emissions banking
2 and trading is put in the control of the firm.
3
That statement contrasts with more
4 traditional ways of doing business where an
5 individual firm may recognize a situation in which
6 it cannot technically or at least cannot affordably
7 meet its compliance requirements fully or meet
8 them on time and feels that it will have to go
9 back to some sort of administrative process to
10 get a variance.
11
Well, that introduces a lot of
12 uncertainty on the part of the firm in terms of
13 what's expected of them. That's basically the
14 point I was trying to make.
15
MS. MIHELIC: And on the same page, it talks
16 about reducing investment uncertainty. Does that
17 relate back to what you were just saying?
18
MR. GOFFMAN: Yes, same thing. I mean, it's
19 just practical experience with air pollution control
20 programs that firms in some cases have been required
21 to put on specific technologies per regulatory or
22 legislative mandate even though the firm had a
23 reasonable expectation that the technology wouldn't
24 work and that eventually, it would be in some kind
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1 of administrative proceeding or negotiation with
2 the agency in which case it would either be given a
3 variance or be told to do something else.
4
For example, in Title 4 of the Clean Air
5 Act, the same title that produced the SO2 trading
6 program, there is a
NOx reduction program, which is
7 a classic technology-based program.
8
Congress, in effect, said or almost
9 in as many statutory words said that if a firm --
10 if a particular utility boiler were subject to a
11 particular technology standard, even if it could
12 predict that particular technology won't work to
13 meet the full measure of compliance specified in
14 the statue, the firm still has to, in effect, put
15 the technology on and try it and demonstrate that
16 it has tried it and it doesn't work.
17
Now, the symbolism of that from a
18 public control point of view may be very gratifying,
19 but from the point of view of the emissions control
20 outcome, it doesn't do very much, and from the point
21 of view of the firm, it forces them into investment
22 strategy. You know, it's almost absurd.
23
MS. MIHELIC: I think along the same things
24 on what is marked as Page 6 of what you handed out,
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1 you also talk with less fear and more certainty in
2 compliance and that is related because companies
3 who know what they are going to have to do, i.e.,
4 what their emissions are going to be in the future?
5
MR. GOFFMAN: Right. It also refers to
6 something very specific. If the firm wants to do
7 something different, quote, unquote, from the norm
8 under a technology standard, the firm has to go
9 through -- maybe I should just put this up. I
10 guess everybody has a copy of this.
11
The firm has to mediate its preference
12 for doing something different through some kind of
13 administrative or bureaucratic or legal proceeding
14 where the events therein are not within its control.
15
In an emission trading market, the firm,
16 in effect, knows that it will either do what it takes
17 on-site to reduce emissions or it can go into the
18 emissions trading market about which it has a lot of
19 information already because markets are very good at
20 producing information and disseminating it and it
21 will know which of those choices it's going to
22 exercise and will have a reasonable degree of
23 certainty as to what will happen whenever it
24 pursues whichever choice it exercises.
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1
So this sort of mediating of the
2 preference is not some uncertain administrative
3 or legal process. The mediating of the preference
4 is, say, going into market or going to the technology
5 vendor about which the firm is going to have a lot
6 of information and have almost complete certainty.
7
MS. MIHELIC: Then, on Page 10 of the
8 handouts, you state that reduction of uncertainty is
9 through banking.
10
Are you talking about the same kind of
11 uncertainty?
12
MR. GOFFMAN: Yes, absolutely.
13
MS. MIHELIC: And this is because sources
14 can bank their emissions and use them in the future?
15
MR. GOFFMAN: Yes, yes, absolutely.
16
MS. MIHELIC: And under the SO2 program,
17 when sources bank, their emissions are banked
18 forever? There is no -- they do not expire?
19
MR. GOFFMAN: Under the SO2 program, that's
20 right. That is a design artifact of the nature of
21 the environmental providence that's sought to be
22 solved.
23
MS. MIHELIC: And you also state on that same
24 slide that reward is inducement to R and D.
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1
Is this reward you are talking about as
2 inducement to R and D sources who reduce early are
3 rewarded by being able to bank those emissions?
4
MR. GOFFMAN: Yes, and/or being able to sell
5 those emissions. Again, even if they are, quote,
6 unquote, just sitting in the bank, they show up as
7 having asset value for the firm.
8
MS. MIHELIC: So on their asset sheets, on
9 assets liabilities, it's shown as an asset?
10
MR. GOFFMAN: Right, which eventually can be
11 realized either in cash or in kind.
12
MS. MIHELIC: And under the Title 4 banking
13 system, a source has been told by basically the U.S.
14 EPA and Congress this is the amount of emissions you
15 must start with, you must reduce in increments over
16 time so that each year, you will have a different,
17 in a sense, amount of emissions or every few years, a
18 reduced amount of emissions?
19
MR. GOFFMAN: Yes. You're starting point
20 will change, the initial allotment that you are
21 given changes. Again, bearing in mind that you
22 can go into the market and change that amount,
23 you can either shrink it or increase it as you
24 see fit.
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1
MS. MIHELIC: By buying or selling?
2
But each year, can a source bank
3 emissions that it doesn't emit so if it's reduced
4 early, does it get additional emissions to bank?
5
MR. GOFFMAN: Well, it works on a, I guess
6 what I would describe, as a very simple mechanical
7 level like a checking account. Let's say a source
8 is given 100 emissions allowances in the year 1995.
9 It emits 90 tons. It keeps the ten 1995 emissions
10 allowances.
11
In 1996, it is given an additional
12 100 and the number of those that it keeps or consumes
13 just depends on how much emissions it has in 1996.
14 There is no further need for any kind of regulatory
15 intervention.
16
So it's just like cash in a checking
17 account. You know the asset or the emissions
18 allowance is either spent or not spent and it
19 stays until it is spent or disappears when a
20 check is written.
21
MS. MIHELIC: When we refer to a bank, it's
22 really an individual sources bank?
23
MR. GOFFMAN: That's right.
24
MS. MIHELIC: It's not a bank held by the U.S.
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1 EPA or Congress, it's a sources bank?
2
MR. GOFFMAN: That's correct. It's therefore
3 completely within the source's control.
4
MS. MIHELIC: And the Title 4 program has
5 established emissions reductions that are going to be
6 required through 2010 so sources know through 2010
7 what they are going to be required to reduce?
8
MR. GOFFMAN: That's correct
.
9
MS. MIHELIC: And sources basically had to
10 come up with their first reductions in 1995?
11
MR. GOFFMAN: That's correct.
12
MS. MIHELIC: So there is a 15-year period
13 of time when sources now know what is going to be
14 required of them in the future at least for the
15 next 15 years?
16
MR. GOFFMAN: Yes, that's correct.
17
MS. MIHELIC: Okay.
18
MR. GOFFMAN: Now, let me just -- can I
19 elaborate on that?
20
MS. MIHELIC: Sure.
21
MR. GOFFMAN: Title 4 specifically said that
22 the allotment, the specific number -- the allotment
23 of the specified level of allowances in the statute
24 did not in any way, shape, or form curtail any states
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1 or the U.S. EPA's ability as changing information
2 emerged about additional environmental requirements.
3
It didn't curtail or compromise
4 the ability of any regulatory authority or Congress
5 itself to at some point between now and 2010 change
6 that number and reduce it. So --
7
MS. MIHELIC: But the initial program set up
8 at least a 15-year time frame, probably even longer,
9 so sources were aware of what reductions were going
10 to be required?
11
MR. GOFFMAN: They were aware of what
12 reductions were going to be required subject at
13 any time even within the 15-year period you're
14 talking about to the U.S. EPA or Congress acting
15 further to reduce emissions if some additional
16 environmental need occurred.
17
So the expectation of the sources
18 in that program is that they are going to get
19 this 15-year assignment, but that 15-year assignment
20 is still -- they are also aware that it's subject
21 to further possible regulatory act.
22
MS. MIHELIC: When the program was implemented
23 at that time, did U.S. EPA or Congress, based upon
24 your involvement in this program, believe at the time
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1 that they implemented these reductions that further
2 were actually going to be required and know that
3 further reductions are actually going to be required
4 than what they set forth in the program.
5
MR. GOFFMAN: This was the information that
6 was available to all participants at the time. The
7 U.S. EPA has a continuous obligation every five
8 years to re-examine the standards or something
9 called the National Ambient Air Quality Standards,
10 one is for particulate matter, which is closely
11 associated with, if not identical to SO2.
12
So even at the time that the program
13 was set up, everybody knew under Clean Air Act that
14 the EPA was going to continually look at the
the
15 particulate matter standard, which would directly
16 effect SO2 emissions and the regulation of those
17 SO2 emissions.
18
Indeed, around the time that the program
19 was enacted, current generation of epidemiological
20 studies concerning particulate matter is beginning
21 to emerge.
22
So there was a clear indication of a
23 real possibility that firms' SO2 allocations could
24 be subject to change virtually at any time in that
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1 15-year period if and when the EPA acted on this
2 emerging epidemiological evidence and tightened
3 the SO2 standards as a health impact pollutant.
4
MS. MIHELIC: But U.S. EPA did not know at
5 the time they implemented Title 4 -- did not know
6 for certain based on information that they had had
7 to date that further reductions were going to be
8 required in 1995 other than that set forth in the
9 program?
10
MR. GOFFMAN: No.
11
MS. SAWYER: I think you are going a little
12 bit beyond Joe's specific knowledge of what the
13 U.S. EPA knew at that time. If you are saying what
14 was set out specifically in the act, that's a factual 15 matter.
16
MR. GOFFMAN:
What I am saying is I don't
17 know what EPA knew at the time, but the act said
18 what it did and the information generally available
19 to effected parties included this incipient revision
20 or incipient process, which has begun -- which began
21 to culminate last November to revise the act's
22 standard for
particulates.
23
MS. MIHELIC: I'm going to back to the years
24 when this actually came into play.
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1
MR. GOFFMAN:
Yes, yes. Well, like I said,
2 nobody knew what was actually going to happen.
3 People knew what the possibilities were.
4
MS. MIHELIC: But they did know at the time --
5 they weren't for certain at the time that there were
6 actually going it be further reductions needed three
7 years down the road regarding these emissions?
8
MS. SAWYER: I think he actually already
9 answered that.
10
MR. GOFFMAN: No, no, they didn't. In some
11 ways, it reduces a level of uncertainty in the acid
12 rain program, as I understand it, that doesn't exist
13 under the long-term strategy of this program.
14
MS. MIHELIC: Can you elaborate a little bit
15 on what you mean by that?
16
MR. GOFFMAN: Well, if I understand it, the
17 agency has already articulated a plan to continue as
18 stepping down of emissions on
VOCs for this source
19 category. I think they have already said when
20 they are planning to do it.
21
In the context of SO2, all people knew
22 was that at some point, the agency was going to be
23 looking at a particulate matter standard and, you
24 know, with some degree of likelihood at some point
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1 going to be doing something about it, that could
2 directly effect the ability of Title 4 sources to
3 emit SO2 at the levels articulated in Level 4.
4
MS. MIHELIC: I think you stated earlier in
5 your testimony when we were talking about the slides
6 that really the incentive to reduce early is the
7 banking, is that correct?
8
MR. GOFFMAN: Yes.
9
MS. MIHELIC: If the source could not bank
10 emissions as it can under the Title 4 program, do
11 you think you would have seen significant reductions
12 that early if sources were not able to bank those
13 reductions and use them later?
14
MR. GOFFMAN: I think banking plays a
15 significant role in creating that incentive, but
16 even the ability to sell allowances contemporaneously
17 creates an identifiable separate sample, if you will,
18 to make the kinds of investments that firms make that
19 produce additional reductions early.
20
MS. MIHELIC: Did you state earlier that the
21 reductions that have been achieved under this Phase 1
22 by the current reductions, the banking that has
23 occurred -- that people have actually reduced
24 emissions at the facilities and they haven't
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1 really relied upon the selling of emissions?
2
MR. GOFFMAN: There has been -- no. There
3 has been a fair amount of selling of emissions.
4
MS. MIHELIC: And when you say selling of
5 emissions, between companies themselves or between
6 separate companies? When I look at corporations --
7
MR. GOFFMAN: Both, both. There have been
8 a lot of transactions between completely separate
9 companies and there are two or three active
10 businesses that provide forms of transactions in
11 different ways.
12
Some arrange bilateral transactions.
13 There is even one firm that has sort of a bulletin
14 board or a continuous electronic spot auction for
15 selling allowances at an arm's length.
16
MS. MIHELIC: And do you know if these trades
17 were occurring in order for sources to demonstrate
18 compliance with reductions that were required or
19 if they were simply buying them for future use?
20
MR. GOFFMAN: I think both. I'm reasonably
21 sure that some transferred allowances were turned
22 in in the same year by the buyer to meet its
23 compliance.
24
MS. MIHELIC: But some transactions also
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1 may have occurred basically to bank for future use?
2
MR. GOFFMAN: Yes.
3
MS. MIHELIC: I have no further questions for
4 you at this time.
5
THE HEARING OFFICER: Are there any other
6 questions from the public?
7
MR. TREPA NIER: The question I asked -- maybe
8 you could have this to refer to. It's Figure 5 that
9 the agency presented in their exhibit for the air
10 quality strategy presentation. I would like to refer 11 a question
to that.
12
MS. SAWYER:
What is the question?
13
Could you state the question because he
14 didn't testify about Figure 5? I'm not really sure
15 that Joe should be answering that question.
16
MR. TREPANIER: Okay. What I'm proposing to
17 do is use Figure 5, if the witness is familiar with
18 what the information that it represents, that by
19 using this figure --
20
MS. SAWYER:
He is not familiar with Figure
21 5. He has never seen it.
22
MR. TREPANIER: I need to describe to you what
23 is on here.
24
MS. McFAWN: Before you describe it, could you
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1 pose the question so we could determine whether we
2 should follow this line and have him testify?
3
MR. TREPANIER: When as a member of the
4 design team you came up with this proposal, did you
5 come forward with the proposal that was part of an
6 overall package to meet the requirements of the Clean
7 Air Act?
8
MS. SAWYER: I'm not sure I understand that.
9
MR. GOFFMAN: I'm not sure. Are you --
10
MS. SAWYER: That's really, I believe, an air
11 quality issue that the state of Illinois deals with
12 in terms of our plan to meet the requirements of
13 the Clean Air Act.
14
MR. GOFFMAN: What we were trying to
15 accomplish --
16
MS. SAWYER: His role was fro
m a policy
17 perspective essentially giving input in that area
18 rather than the air quality planning aspect of it,
19 per se, besides, you know -- go ahead.
20
MR. GOFFMAN: I mean, what we were trying
21 to come up with was something that was a robust
22 durable mechanism for delivering whatever level
23 of emissions reductions on an ongoing air quality
24 analysis as indicated were needed.
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1
If the issue here is the agency
2 going to ask for enough VOC reductions, I don't
3 know. What I can tell you is that if you care
4 about getting emissions reductions, then, this
5 is the best mechanism for getting them.
6
If the issue is whether they are
7 asking for enough emissions reductions, that's
8 a separate question. That goes to the basic
9 decisions about, you know, what goes into the
10 baseline, what the percentage reduction is, how
11 carefully the agency collects actual information
12 based on the experience in the early years of
13 the program, and what the next incremental
14 reduction numerical value is.
15
If they get that right in terms of
16 setting the numerical value, what I'm saying is
17 the best way to get there to actually see that
18 that numerical value happens in the atmosphere,
19 is use a program like this one.
20
MR. TREPANIER: Is that the -- what in
21 addition, then -- I hear you're describing the
22 ability of a system that you have designed to
23 meet a reduction level that's demanded of the
24 system.
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1
MR. GOFFMAN: Right.
2
MR. TREPANIER: It's kind of a black box
3 operation. That's what I'm hearing you saying.
4 In your earlier testimony, you said that you
5 thought through the critical elements.
6
MR. GOFFMAN: Right.
7
MR. TREPANIER: Now, does -- the critical
8 elements, are those parts of the black box or
9 something in addition to the black box?
10
MR. GOFFMAN: Well, I'm not -- I'm not
11 comfortable with the term black box. Metaphorically, 12 I don't --
13
MR. TREPANIER: Okay. What I'm meaning
14 then --
15
MR. GOFFMAN: But I can speak to you in a
16 non-metaphorical way. The Illinois EPA, as I
17 understood it, is going to engage in a separate
18 process, which was not within the purview of the
19 design team for this set of issues in determining
20 how many VOC reductions were going to be needed
21 from this sector at what point in time.
22
We were given a very general idea
23 periodically through briefings by the agency staff
24 as to what they had learned as they were going
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1 through this process and generally what the
2 dimensions of the reductions would be.
3
However, we did not directly address
4 whether or not the dimensions of the reductions
5 they were asking for were appropriate.
6
We simply used the state of knowledge
7 that was shared with us at the time to refine the
8 delivery mechanism of those reductions.
9
We were com fortable, and I guess what
10 I'm testifying to today, is that this delivery
11 mechanism will be successful in producing the
12 quantity of emissions reductions determined to
13 be needed by the air quality analysis.
14
MR. TREPANIER: Was one of the critical
15 elements about being able to forecast reasonably
16 well what a growth would be of emissions under
17 the program that you are designing?
18
MS. SAWYER: I think that's an air quality
19 issue that we did address yesterday in terms of
20 forecasting growth. That's an issue to come up
21 with the target, in essence.
22
MR. GOFFMAN:
Exactly. But it's not --
23
MR. TREPANIER:
My question is
is that a 24 critical
element?
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1
MR. GOFFMAN:
It is and it isn't a critical
2 element. It's an element that is assumed by using
3 a CAAPP approach basically.
4
I mean, what this system says is
5 that during each regulatory period, the agency
6 will determine how many total VOC emissions from
7 this sector the atmosphere can tolerate and still
8 meet the ozone standard and that that number of
9 emissions will be reduced to a fixed set of
10 allotments, which will then be handed out to
11 sources.
12
From an environmental view, that
13 accommodates or that addresses the issue of growth.
14 From an economic point of view, flexibility
15 instruments captured by banking and trading will
16 allow sources to meet that CAAPP through banking
17 and trading basically and to accommodate economic
18 change like growth.
19
MR. TREPANIER: Is there currently a cap?
20
Has the cap been numbered? Do you know
21 what it is?
22
MS. SAWYER: I'm not sure I follow that
23 question. That seems to be --
24
MR. TREPANIER: Have the amount of allotments
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1 of VOC emissions been capped in Illinois?
2
Do you know what the cap has been set
3 at?
4
MR. GOFFMAN: I don't know the numbers, but
5 there is an algebraic formula that will produce
6 that number.
7
MS. SAWYER: This is a fundamental of how
8 the rule operates to establish the cap. That's a
9 question that should be directed to another agency
10 witness.
11
THE HEARING OFFICER: This is going beyond the 12 the
scope. I think there's a question in the back.
13
MR. NEWCOMB: I'm Chris
Newcomb.
14
I was wondering do you see any negative
15 impacts on a source's incentive to create emissions
16 reductions and gain an allotment when that allotment
17 will expire in only two years?
18
MR. GOFFMAN: No, because my understanding
19 of the way the program works is that sources can
20 continue -- if you can continue to manage their
21 banked allotment inventory in such a manner, but
22 notwithstanding the expiration of two years of the
23 given allotment, that allotment can be replaced
24 and added to if the source continues to make surplus
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1 emissions reductions.
2
What the two-year limit does is
3 ultimately put an upward limit on the size of the
4 total bank a source can be carrying. The balance
5 between ensuring that the bank doesn't get too big
6 and therefore, threaten future air quality against
7 the size of the incentive to produce earlier
8 reductions, my sense is that what the design team
9 came up with is the right balance of those two
10 considerations.
11
MR. NEWCOMB: Furthermore, do you see any --
12 do you foresee any problems with shifting a
13 successful program for SO2 where the sources were
14 not so strictly regulated prior to the allotment
15 program being imposed, shifting that over to sources, 16 which emit
VOCs, where they have already had some
17 significant technological developments, putting on
18 all the technology, how they are going to operate
19 under the trading program?
20
MR. GOFFMAN: Not really. I want to be clear
21 about something. The design team, including the EDF
22 members, did not initially come up with this program
23 and say, well, let's just try to use the SO2 template 24 and kind
of jam facts on ground in this issue into
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1 that template. We did sort of start from scratch
2 in terms of analyzing all of the relevant issues
3 including the ones that you just referred to and
4 came to a very similar kind of design.
5
The reason I refer repeatedly to the
6 SO2 program is that it provides a very close analogy
7 to what the design team ended up with, if you will,
8 and has also generated actual real world experience,
9 but considerations like the one you raised were dealt
10 with directly and evaluated directly and not
11 withstanding differences, the design team and the
12 agency concluded that even previously unregulated
13 sources could benefit or could function well and
14 benefit in a system like that.
15
THE HEARING OFFICER: Any further questions?
16
MS. MIHELIC: Is there any program out there
17 similar to the one that's being proposed in Illinois
18 that has been basically instituted against a group
19 of sources within a small area, not nationwide,
20 that has been highly regulated for use for VOM
21 emissions?
22
MR. GOFFMAN: The one that I'm familiar with
23 is the reclaim program for
NOx.
24
MS. MIHELIC: But that is no longer a system?
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1 It has been --
2
MR. GOFFMAN:
No, NOx and SO2 are regulated
3 by an existing reclaim program. I think that
4 generally the
NOx and SO2 sources -- and I emphasize
5 the word generally -- match up with the profile with
6 some of the sources covered here with
VOCs.
7
They are not primarily utility sources.
8 They are industrial sources from a variety of
9 industrial sectors and a variety of sizes. They
10 are in a small, small area. They are a relatively
11 small number of sources at least as contrasted with
12 the size of the acid rain program, and in some ways,
13 the trading regime is more restrictive than this
14 regime.
15
For example, there is no banking
16 whatsoever. Yet, my understanding is that that
17 program is functioning quite well both
18 environmentally and from the point of view of
19 the source's ability to continue to operate.
20
MS. MIHELIC: And they were highly regulated
21 prior?
22
MR. GOFFMAN: Some were and some weren't. It
23 was a mixed batch.
24
MR. WAKEMAN: I'm Jim
Wakeman from Tenneco.
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1
I'm a little confused on the comment 2 or one of the
slides where you said it reduces
3 compliance costs and the fact that it makes
4 enforcement easier because none of the other
5 layers of control that we have go away so the
6 agency still has to deal with all of these other 7 issues.
8
MR. GOFFMAN: I wasn't suggesting that --
9 when I suggested that it reduced compliance costs, 10 I was
referring to costs under a trading program
11 relative to a different kind of program that
12 purported to get the same increment of new or
13 additional reductions.
14
So if you take it
as a given, as I
15 understand the air quality analysis suggests,
16 that even sources in this program that have already 17 made some
VOC reductions still have to make more
18 reductions, and therefore, the choice is do they
19 make this new generation of reductions under a
20 program like this or under a traditional command
21 and control program?
22
This program will give those sources 23 the
opportunity to make that new generation of
24 reductions at a less cost precisely because -- than
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1 they would otherwise incur if they were making
2 those reductions under a command and control program
3 precisely because the sources can use emissions
4 banking and emissions trading to reallocate
5 the cost burden between and among themselves.
6
So that the more efficient producers
7 will do more of their reductions and less efficient
8 reducers will be required to do fewer reductions.
9 So that's what I mean by reduction, by cost
10 reduction.
11
As far as making compliance more
12 efficient, the agency and the individual sources
13 will not be involved in as an intensive dialogue
14 even on an individual firm basis in writing the
15 permit and assessing what each source is
16 technologically capable of, but rather the sources
17 themselves will be able to make that decision
18 without requiring legal or agency intervention.
19
At the same time, the sources that
20 are faced with a host of uncontrollable events
21 that might in other programs push them into
22 non-compliance will have a method -- an easy to
23 use method to remain in compliance and therefore,
24 will not have to be subject to compliance
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1 intervention.
2
MR. WAKEMAN: But none of the other layers
3 go away?
4
I mean, I think what you're saying
5 is that compliance is easier with ERMS and other
6 programs are not affected, but when I change an
7 operation, I still have to go through the same
8 permitting process and all of the other compliance
9 issues that it entails?
10
MR. GOFFMAN: As far as I know, that's 11 correct.
12
MS. SAWYER: That's kind of a broad
13 Illinois regulatory question.
14
MR. WAKEMAN: Okay. Thank you.
15
THE HEARING OFFICER: Let's go to the back.
16
MR. CHARI: I am
Desi Chari with
17 Safety- Kleen.
18
Did the design team look at the
19 advantages and disadvantages and what other
20 ways they can give the state to minimize the
21 impact of the program?
22
MR. GOFFMAN : I think -- I'm sorry to put 23 it like this.
That's too open-ended a question
24 for me to figure out how to answer that.
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1
MS. SAWYER: Yes. That's kind of a broad
2 question.
3
MR. CHARI: I know I see all of the advantages
4 of the program. What are the problems the design
5 team looked at to see how it could be, you know,
6 minimized?
7
MR. GOFFMAN: Two of the problems we looked
8 at were so-called hot spots and the differential
9 reactivity of different individual pollutants in the
10 class that VOM regulated in terms of forming ozone
11 in the atmosphere, different individual pollutants
12 that are included in the class of VOM that are
13 regulated.
14
If you go back to the report that the
15 design team issued prior to actually drafting
16 of the regulatory language, you will see a lengthy
17 discussion of both of these issues.
18
Generally, we felt that ultimately
19 the dimension of the reductions that would have
20 to be achieved would pretty much preclude a hot
21 spot occurrence particularly when you consider
22 that economically, it's hard to imagine an economic
23 scenario in which a source under a declining cap
24 would generate so much activity as to actually
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1 increase its toxic or VOC emissions.
2
We also took into account the fact
3 that Title 3 of the Clean Air Act regulates toxic
4 VOCs as toxics and they would be subject to MACT,
5 M-A-C-T, standards.
6
In addition, we also thought -- and
7 I'll put this generally -- that the report is more
8 of a nuance that the ultimate dimension of the
9 reductions, the likely activity and variety of
10 sources in the emission trading market, would
11 probably swamp the effects of differential activity,
12 but we suggested that continued auditing and
13 monitoring of those problems be established as
14 part of the program.
15
I guess one other feature in terms
16 of the market function side in terms of whether
17 affordable transactable ATUs or access emissions
18 would be available, there are specific features
19 in the program.
I forget that acronym. It's the
20 alternative compliance market account.
21
We felt that was a device, sort of a
22 public sector device, that would be available for
23 allowing sources to purchase emissions reductions
24 if they needed.
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1
So as a guard begins what I would
2 characterize as fears of the market not functioning
3 like a market, that's a device that's available.
4
THE HEARING OFFICER: In your response,
5 Mr. Goffman, you mentioned a report. I was wondering
6 if that report was going to be part of the record or
7 if it can be made part of the record?
8
MS. SAWYER: It is a part of the record.
9 What he is talking about is the final -- I believe
10 the final design proposal and it was one of the
11 supporting documents that we submitted with the
12 proposal.
13
THE HEARING OFFICER:
Thank you. Are there
14 any further questions?
15
Go head.
16
MR. TREPANIER: I'm Mr.
Trepanier.
17
In looking at the problems of the --
18 that might arise under the proposal, was there --
19 and did the design team consider a socioeconomic
20 forecast of the distribution of the loss of
21 production that might likely occur from -- as a
22 cause of -- as a result of shutdown of those
23 that are operating on a smaller profit margin?
24
MS. SAWYER: This is something that we did
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1 evaluate within our economic analysis. So that
2 question would be better directed to the people
3 who performed that analysis.
4
THE HEARING OFFICER: Who is going to testify
5 to that, by the way?
6
MS. SAWYER: In part, this is going to be,
7 hopefully, Cal
Caze from Palmer and Bellevue and
8 Sara Dunham from the agency also.
9
THE HEARING OFFICER: Okay. Thank you.
10
MR. TREPANIER: And maybe that's the second
11 issue. In looking at problems, did you consider
12 the possibility that under the proposed market
13 system, there would be an increase of new polluters
14 prior to the cap being installed?
15
MS. SAWYER: I don't follow this question.
16 Could you --
17
MR. TREPANIER: There is a listing of what
18 problems were looked at. I'm asking for
19 clarification if there was a problem that was
20 looked at.
21
MS. SAWYER: I guess I don't see how something 22 prior to
the system would be a complicated problem.
23 I mean, that's something that is handled by existing
24 rules and regulations how you handle new sources and
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1 things like that.
2
MR. TREPANIER: Well, the rule -- I see that
3 this rule specifically addresses allowing those
4 facilities who could pollute
VOCs and get their
5 construction permit by 1999 to receive their first
6 allotment by the year 2003.
7
Did the design team consider that as a
8 market -- in designing this market that there was a
9 force there in --
10
MS. SAWYER: That's a detail of the agency's
11 proposal that Mr. Romaine is presenting testimony.
12
MR. GOFFMAN: To answer your question
13 literally, we did consider it. My understanding
14 is the intrinsic specifications of the air quality
15 analysis addressing that issue. We didn't suggest
16 that there was -- I don't think the design team
17 concluded that the allotment to the allocation of
18 these allowances would function as a significant
19 economic force to accelerate the sighting of new
20 sources, by certainly in terms of ensuring the
21 integrity of the cap as a cap and then accounting
22 for the ultimate emissions that have to be achieved,
23 the role of new sources was fairly addressed both
24 again in the definition of baseline and eligibility
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1 for allocation.
2
We were assured by the staff we, too,
3 would be addressed on the ongoing air quality
4 assessment before and after the program was
5 implemented.
6
MR. TREPANIER: Do you know -- when you were
7 told, do you know if they had any information beyond
8 the U.S. EPA model that was referred to yesterday?
9
MS. SAWYER: Mr.
Goffman was not here yet,
10 first of all, and that's really one of these air
11 quality issues that he already explained was part
12 of the state's process. So I'm objecting to that
13 question.
14
MR. TREPANIER: Okay. Well, I just wanted to
15 know -- I'm just going to the integrity, you know, of 16 the design
of the system, if it's including these
17 factors, but I have another question that I would
18 like to ask.
19
Did EDF have a specific responsibility
20 involving the greater environmental community during
21 this program?
22
MR. GOFFMAN: Did we have a responsibility?
23
We were not given that responsibility
24 by anybody, but we did, in fact, communicate on a
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1 fairly regular basis with Ron Burke of the American
2 Lung Association and Rob
Michaels of the Center for
3 Environmental Law and Policy of the Midwest.
4
In all fairness, we did not always come
5 to total agreement with those two groups, but we
6 continued to communicate with them.
7
In addition, we were told of meetings
8 that occurred between local and environmental groups
9 and agency staff and concluded from that that in
10 addition to communications with us, environmental 11 groups also
have direct input to the agency.
12
MR. TREPANIER: Okay. I heard that you
13 heard of these meetings. Do you know who it is 14 that -- was it
someone at the agency who told you 15 that these meetings occurred?
16
MR. GOFFMAN: I was told by someone at the 17 agency and I
was also told by, I think, Ron Burke 18 at some point.
19
MS. McFAWN: And, of course, this proceeding
20 itself is known as an outreach to the public.
21
MR. GOFFMAN: I mean, you know, one of the
22 things that we were conscious of was not representing 23 ourselves
as a representative of other environmental
24 groups because we didn't want to do anything that
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1 would at some point be construed as somehow
2 preempting the ability of other environmental groups
3 to use the public participation process to represent
4 their own views.
5
In other words, we didn't want to create
6 kind of a whipsaw. We didn't want to be used as a
7 whipsaw against other environmental groups that
8 wanted to participate directly.
9
MR. TREPANIER: Did you see that there was
10 a process for other environmental groups to
11 participate directly?
12
MR. GOFFMAN: Well --
13
MS. SAWYER: This is a question that -- I
14 mean, this is a procedural question on how Illinois
15 conducts rulemakings and things like that and --
16
MR. GOFFMAN: Yes, but Bonnie, this is
17 America, you know, and Illinois is, you know,
18 required -- the constitution applies here too.
19 I didn't think it was a -- I didn't think it was a
20 risky assumption even though I wasn't familiar with
21 the specific process.
22
MR. TREPANIER: I mentioned it because up to
23 this point, there has not been an explanation --
24 there has not been an answer to the question of why
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1 the agency had to use their own mailing list in 1996
2 or if they did.
3
Do you have any -- can you shed any
4 light on that?
5
MS. SAWYER: He doesn't know the answer to
6 that.
7
MR. GOFFMAN: I didn't know that and I don't
8 know why they didn't.
9
MS. SAWYER: You
don't know whether they
10 didn't.
11
MR. GOFFMAN: I don't know whether they 12 didn't, yes.
13
MR. TREPANIER: When there is a benefit 14 realized from
trading that's -- these benefits 15 are a result during a -- when do
the benefits
16 result?
17
MR. GOFFAN: When do the benefits result?
18
MR. TREPANIER: Of a pollution trade.
19 What's the benefit of a pollution trade?
20
MR. GOFFMAN: Well, just remember, it's 21 important to see
design elements of this program 22 as integrated design elements.
23
Obviously, the benefit occurs from
24 this program when emissions reductions begin to occur
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1 and they occur as a result essentially of a cap and
2 its legal implementation.
3
The virtue of a program like this or
4 key characteristic of a program like this is that you
5 get at least the environmental result you bargained
6 for even if though trades even take place.
7
You get additional environmental
8 benefits as soon as a firm starts to make the
9 investment in making surplus or early reductions.
10 That's on the environmental side.
11
Of course, on the economic side, firms
12 start to do that when they feel that either they can
13 eventually realize some economic value, even in the
14 forms of optional flexibility, or just in the form
15 of getting revenue from the trading market.
16
MR. TREPANIER: When the reduction occurs,
17 in your understanding of how this market system
18 would work, is the value -- is value on the economic
19 side, too, that drives the overall public benefit
20 of cleaner air, is that benefit accruing when the
21 reduction is occurring?
22
MR. GOFFMAN: Yes, it is. I want to take
23 some time with this answer because there are other
24 theories of trading, which people suggest
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1 that it is somehow trading itself, trading alone
2 that delivers environmental benefits, that you can
3 somehow trade your way to attainment.
4
One example of this is the Michigan
5 rule or more generally the open market trading rule.
6 This program does not depend on trading to produce
7 its core environmental benefit. It's the setting
8 of the cap that produces its core environmental
9 benefit.
10
Trading then enhances the ability of
11 the cap to provide environmental benefits, but the
12 public doesn't have to depend on trading to occur
13 or to occur in a certain way to deliver the core
14 environmental benefit.
15
MR. TREPANIER: Now, when the
-- when the
16 trading enhances the environmental benefit, is that
17 occurring because of the -- in your estimate because
18 of a market force that there was a value to the
19 polluter to reduce the amount of their pollution?
20
MR. GOFFMAN: Yes.
21
MR. TREPANIER: And does that value -- is
22 that value created when -- when is that value
23 created?
24
MR. GOFFMAN: At least in a latent sort of
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1 way, the value is created as soon as the cap or
2 constraint is set.
3
The fact that it can affect more cleanup
4 than required could be valuable to somebody is when
5 the potential value is perceived by a firm making a
6 decision as to whether or not to invest in that
7 additional clean up.
8
MR. TREPANIER: In your opinion, if, in 1999,
9 the reduction that's being sought is made, will the
10 goal of meeting the Clean Air Act have been
11 accomplished?
12
MS. SAWYER: This is an air quality question
13 again. It's a state planning issue. I'm going to
14 object to it.
15
MR. TREPANIER: The witness was a -- said he
16 was an expert in the Clean Air Act for 12 years.
17 It might have something valid, you know, to look at.
18
THE HEARING OFFICER: Mr.
Goffman, can you
19 answer the question whether or not --
20
MR. GOFFMAN: Yes. If, in 1999, the -- my
21 understanding is the quantity of reductions that
22 are going to be required in 1999 will contribute
23 to ongoing progress towards attainment, but that
24 between 1999 and 2007, additional reductions will
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1 have to be made to get to attainment.
2
And the Clean Air Act says that that,
3 if you will, gradual way of getting to attainment
4 over time is a valid way of getting to attainment.
5 So to answer your question literally, it's in
6 compliance with the Clean Air Act.
7
MR. TREPANIER: Is there an environmental
8 benefit beyond compliance with the Clean Air Act
9 once attainment has been reached, if attainment --
10 hypothetically, if attainment were reached under
11 this system, is there any environmental benefit
12 that results from continued trading?
13
MR. GOFFMAN: I could -- I would surmise that
14 some of the investments in innovation, environmental
15 innovation, would be
incentivized through a trading
16 market or the opportunity to create earlier
17 reductions and bank them could involve process
18 changes and technology changes.
19
It would have ancillary environmental
20 benefits. That's the nice thing about innovation.
21 It tends to, if you will, overachieve relative to
22 the specific bogey.
23
MR. TREPANIER: Is what you are saying is
24 that there is something inherent in what this trading
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1 system being proposed that after attainment is
2 reached, that further reductions in air pollution
3 is going to occur?
4
MR. GOFFMAN: Well, let me just guess that
5 one scenario might be that even after attainment
6 is reached, because there will be ongoing maintenance
7 requirements, prudent sources would continue to
8 maintain, for example, a bank of extra reductions
9 just to give them on-site flexibility to deal with
10 economic change.
11
Those bank reductions would represent
12 reductions in excess of those that are required.
13 So in kind of a literal or mechanical way, that's a
14 scenario with which there would be extra reductions.
15
Let's be careful not to dismiss the
16 primarily environmental value of getting to
17 attainment.
18
The fundamental proposition that I'm
19 arguing for is that this way, this integrated system
20 of capping trading emissions or capping emissions
21 and implementing the cap trading permit system,
22 gives the public a higher degree of assurance
23 that we will get to attainment.
24
MR. TREPANIER: Would you say that the
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1 significant value of the program is reaching 2 attainment?
3
MR. GOFFMAN: Yes.
4
THE HEARING OFFICER: Do
we have any 5 questions?
6
MS. SAWYER: Could I take a moment to ask a 7 question?
8
THE HEARING OFFICER: Sure.
9
MS. SAWYER: Isn't it true that the cap
10 would remain in place even after attainment is
11 achieved?
12
MR. GOFFMAN: That's my understanding.
13
MS. SAWYER: And wouldn't this provide the 14 ability to
maintain the air quality standard?
15
MR. GOFFMAN: I think it would be
16 indispensable to maintain the air quality standard. 17 Assuming
there will be continued economic change
18 within the covered sector under the attainment cap,
19 trading will probably continue to generate a certain
20 kind of incentive to invest in additional clean up
21 required of some firms.
22
MS. SAWYER: So to clarify that a little
23 bit --
24
MR. TREPANIER: I have an objection.
L.A. REPORTING - (312) 419-9292
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1
MS. SAWYER -- trading would --
2
MR. GOFFMAN: Bonnie (indicating).
3
MR. TREPANIER: My objection is that
4 previously, the agency has limited this witness to
5 not having knowledge about what else the agency is
6 doing, but yet she is trying to elicit testimony that
7 continued use of this market would help the state of
8 Illinois continue in attainment. I think that's
9 fundamentally opposed to what her earlier limitation
10 of this witness was.
11
MS. SAWYER: My question is of a different
12 nature. I'm not suggesting any specific air quality
13 aspects of this. I'm just saying that the trading
14 program, in general, since it remains in place, has
15 the ability to maintain a standard.
16
It's not a specific air quality
17 question. It's a general market question based on
18 Joe's understanding on --
19
MR. TREPANIER: Well, there was a second
20 question she asked beyond, was the cap going to
21 remain in place. The answer was yes and then another 22 question
was asked.
23
THE HEARING OFFICER: I think I'm going to
24 allow the question as long as it doesn't get to
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1 whether or not the agency is going to achieve the
2 air quality goals that are presented to it by ROP,
3 I believe, and the Clean Air Act.
4
If you want to ask a general question
5 such as will the trading program after attainment
6 fill the rate of reductions through emissions or
7 retain reductions or achieve, I think that's
8 something you can ask him.
9
MS. SAWYER: Okay. I think he already
10 answered the question.
11
MR. GOFFMAN: I think basically it's a
12 mechanical matter of will the cap remain in place?
13 I understand that to be a provision of the program.
14 If that cap is in place, it's primary affect and
15 continuing limitation on emissions and, if you
16 will, the secondary affect in banking and trading
17 will probably continue to obtain --
18
MR. TREPANIER: Would every limitation that's
19 affected under this program be contained within a
20 Clean Air Act operating permit?
21
MS. SAWYER: I'm sorry?
22
MR. GOFFMAN: Could you --
23
MR. TREPANIER: Are there any limitations
24 on -- as the word was just being used -- these
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1 limitations that are placed via this system, are 2 any of those
limitations not going to be included 3 in a Clean Air Act operating
permit or federally 4 enforceable state operating permit?
5
MS. SAWYER: This is, again, an agency
6 question on how we're going to handle permitting 7 of this program.
8
THE HEARING OFFICER: Who would be best to 9 answer that
question?
10
MS. SAWYER: Don
Sutton probably.
11
THE HEARING OFFICER: Do you want to reserve 12 that
question for Don? He may be a better person 13 to answer that
question.
14
MR. TREPANIER: Okay.
15
MR. BURKE: I'm Ron Burke with the American 16 Lung
Association.
17
Is it your understanding, Mr.
Goffman, 18 that this
program would be one piece of an overall 19 plan to achieve attainment
in compliance with the 20 Clean Air Act?
21
MR. GOFFMAN: That's my understanding, yes.
22
MR. BURKE: Do you think that the proposed 23 progra
m
allows for adequate public scrutiny of
24 compliance?
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1
MR. GOFFMAN: It depends on what you mean. I
2 think in some respects, it provides the public with
3 a better opportunity to scrutinize compliance that
4 exists under traditional programs because compliance
5 is defined in terms of actual emissions and affected
6 firms are required to report the measurement of
7 quantification of those emissions.
8
That's something that is not --
9 typically not available to the public. So I think in
10 that respect, ultimately what you are worried about
11 is emissions, how much pollution is occurring and I
12 think this gives the public additional tools that it
13 doesn't currently have.
14
It's kind of like if you are familiar
15 with the CERCLA Title 3, that's C-E-R-C-L-A,
16 community right to know, mechanically, the public
17 gets information as a result of the -- just the
18 operation of this program, it's similar to that.
19
MR. BURKE: I have a couple of other
20 questions.
21
Given that increases in toxic VOM
22 emissions are basically undesirable and given that
23 it's unlikely, I think you pointed out, that this
24 proposed program would contribute to such increases
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1 and given that MACT is years away for certain
2 sources, do you think it would make sense to place
3 a limitation on the use of
ATUs for increases in
4 toxic emissions?
5
MR. GOFFMAN: That question would b
e easier
6 to answer when we have more information from the
7 agency about what the total cap is going to be over
8 the graduation periods of this program.
9
My sense or my guess is on the
10 information that we were given over the last few
11 years that ultimately this program, as we approach
12 2007, will have to require fairly substantial VOC
13 reductions and then will be faced with the choice
14 of whether or not the scope of VOC reductions there
15 may actually -- it's an ancillary benefit. It's
16 hard to know unless you know how many reductions
17 are designed into the actual numerical cap.
18
MR. BURKE: I have one more question.
19
Given that the direction trades, sales,
20 could potentially impact the ozone reducing potential 21 of VOM
emissions reductions, that is, reductions that 22 occur in the south of
the metropolitan area, for
23 example, might tend to reduce those or more, given
24 the winds are out of the south or southwest on high
L.A. REPORTING - (312) 419-9292
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1 ozone days, does it make sense to monitor the
2 directionality of the trades over time to make sure
3 that this is not having an adverse impact on the
4 overall benefit of the program?
5
MR. GOFFMAN: It might. My assumption is
is
6 that information will be right there up front in the
7 tracking system. It will be required to implement
8 this program. You know, the agency and the public
9 will have ready-made database from which we can
10 fairly easily generate that kind of analysis.
11
Again, once that analysis is done, it
12 will have to be mapped against the size of the
13 reduction that's being called for and the timing
14 of that reduction, but I think that data will be
15 there.
16
MR. BURKE: Thanks.
17
THE HEARING OFFICER:
Tracey?
18
MS. MIHELIC: You stated earlier that with
19 respect to the question on caps that you don't really 20 know yet
because you don't know what the actual
21 emissions from hazardous air pollutants are going to
22 be.
23
When Tit le 4 was promulgated or
24 implemented, was U.S. EPA or were U.S. EPA and
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1 Congress aware of what the emissions -- the actual
2 SO2 emissions -- were from each facility? Had
3 that -- was that not part of the process of
4 promulgating the program?
5
MR. GOFFMAN: Yes. As it happened, there
6 was awareness of what the emissions were in each
7 facility, that's correct.
8
For example, the OTC, the Ozone
9 Transport Commission of the northeast states,
10 designed a program very similar to this program
11 and the acid rain program and the OTC, in effect,
12 had to go out and collect information. This was
13 a NOx program. They had to go out and collect
14 the information that was being generated by the
15 sources.
16
MS. MIHELIC: It was collecting it as it was
17 developing it?
18
MR. GOFFMAN: Yes.
19
THE HEARING OFFICER: I think I have a few
20 questions.
21
My first question is do you believe that 22 in order
for a trading program to work that the --
23 there is a mandatory involvement connected to that
24 or can it still work if it's a voluntary
L.A. REPORTING - (312) 419-9292
335
1 involvement?
2
MR. GOFFMAN: You can have -- I think that
3 would affect the environmental performance of the
4 program.
5
You could try to specify, say, an
6 emission is standard for any individual source and
7 then say if these sources wanted to trade, they
8 could go through an administrative process on a
9 source-by-source, case-by-case basis, and generate
10 something called emission reduction credits and
11 trade them. That kind of trading has been part of
12 the Federal Clean Air Act policy since the late
13 '70s. In many respects, it's been pretty
14 unsuccessful.
15
So I think people who want to expand
16 the use of trading, if regulators want to expand the
17 use of trading, they should try to avoid using that
18 example.
19
The approach this program takes, at
20 least on a literal basis, it doesn't mandate trading. 21 It simply
says that we are not going to express
22 compliance in terms of describing a particular
23 process and technology. We are just going to tell
24 each source what its initial emissions -- total
L.A. REPORTING - (312) 419-9292
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1 emissions target is for the ozone season and then
2 the source can either trade or not.
3
But if you want to get all of the
4 benefits that I have tried to describe, you can't
5 just try to layer trading onto any old compliance
6 program. You have to think holistically about how
7 you define compliance and how you implement and
8 how you trade. This program and the process of
9 designing it answered all of those questions
10 simultaneously.
11
THE HEARING OFFICER: You mentioned earlier
12 this morning about the fact that the trading program
13 lessens or stops the need of the use of -- I'll use
14 the term general variances -- and you think that's --
15
MR. GOFFMAN: I think that's the case, yes.
16
THE HEARING OFFICER: Then, I just kind of
17 want to make a summary statement and see if you can
18 answer it as to whether it's correct or not. I'm
19 trying to pinpoint
ADF's support.
20
I think what I'm saying here is that the 21
Environmental Defense Fund supports the concept of a
22 trading program to achieve pre deductions, but it's
23 not saying that the program necessarily is going to
24 meet air quality standards or what is necessary for
L.A. REPORTING - (312) 419-9292
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1 attainment in Chicago?
2
MR. GOFFMAN: Yes, that's correct. Whether
3 those things occur have to do with how many emissions
4 reductions are assigned to this sector in the SIP and
5 how well the rest of the SIP works. So you can't --
6 that's something that's not intrinsically in control
7 of this design.
8
THE HEARING OFFICER: I have one last
9 question.
10
Earlier, you were talking about toxic
11 VOMs or VOCs when Mr. Burke brought up the topic. I
12 thought you also stated that they would be regulated
13 on different programs?
14
MR. GOFFMAN: Yes.
15
THE HEARING OFFICER: How is it that you -- I
16 mean, does the trading program or this other program
17 mesh or not mesh?
18
MR. GOFFMAN: My understanding is that
19 proposed rule here provides that the -- that
20 notwithstanding a source's holding of
ATUs for VOMs,
21 any toxic requirement, either existing or subsequent, 22 supersedes
the authorization to emit that the
ATUs
23 might otherwise create.
24
So if the MACT standard is tig
hter,
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1 that's the one you have to comply with.
2
MR. DESHARNAIS: And the MACT standard would
3 be technology driven --
4
MR. GOFFMAN: Yes.
5
MR. DESHARNAIS: -- and not a cap situation?
6
MR. GOFFMAN:
That's correct. Now, my
7 understanding is that the U.S. EPA is trying to
8 develop some flexibility alternatives for
9 implementing the MACT standard, which could in some
10 cases leave some individuals, as we expressed, in
11 mass quantitative terms, but other than, that I'm not 12 familiar
with the specifics.
13
MR. DESHARNAIS: I have one additional
14 question.
15
Do you believe that the
seasonality of
16 the program will in any way affect it positively or
17 negatively as far as its functioning of the trading
18 program?
19
MR. GOFFMAN: I don't think it will have an
20 effect one way or another.
21
MS. MIHELIC: I have a follow-up question.
22
When you are talking about the MACT
23 standards and those being technologically driven
24 standards -- I guess there is a two-part question
L.A. REPORTING - (312) 419-9292
339
1 here.
2
Isn't the purpose of this program to
3 avoid technology driven standards by using the
4 market-based approach?
5
MR. GOFFMAN: Yes.
6
MS. MIHELIC: Isn't it possible that since
7 some MACT standards won't be promulgated until after
8 1999, sources will be required to use the
9 market-based approach, but yet then still be required
10 to implement technology driven standards?
11
MR. GOFFMAN: It's possible. I think
12 that that's something that could procedurally
13 be ultimately resolved sort of in a dialogue with
14 the EPA.
15
I could certainly imagine a circumstance 16 in which
-- that it would be possible that for some
17 sources, the VOM reduction requirements might be
18 actually more stringent in that instance, in which
19 that case I find it hard to imagine that the agency
20 would not take cognizance of that.
21
MS. MIHELIC: Currently, the agency -- the
22 U.S. EPA is -- when you are referring to the agency,
23 you mean the U.S. EPA?
24
MR. GOFFMAN: The U.S. EPA.
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1
MS. MIHELIC: There is no mechanism right now
2 in which they are evaluating market reduction-based
3 approaches with the MACT standards?
4
MR. GOFFMAN: No, but my understanding is
5 that in terms of state delegation of implementing
6 Title 3 programs under the Clean Air Act, there
7 would be procedures for that.
8
MR. TREPANIER: I
n your support for this
9 program, do you see that part of that support
10 based on this program could be used in 1999 to
11 accomplish further reductions in VOC emissions?
12
MR. GOFFMAN: Yes, yes.
13
MR. TREPANIER: Do you have an opinion if 14 accomplishing
reductions within the next period, 15 beginning in 1999, would be of a
less expense to 16 the people of Illinois or would it cost about the 17
same as -- and I'm not talking about the expense 18 of the pollution
control equipment, but the
19 expense of making the work.
20
Will it be cheaper on the second -- if
21 there is a second set of reductions?
22
MR. GOFFMAN: Yes.
23
MS. SAWYER: I think that's a little
24 speculative. There might be some general area in
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1 which Joe can provide an answer, but in terms of
2 what the economic impact of what further reductions
3 may be, we don't know that absolutely. We have
4 some --
5
MR. TREPANIER: Okay. Well, specifically --
6
MS. SAWYER: Joe can go ahead and answer the
7 question to the extent of a theoretical basis, but I
8 think that's the extent to which he can provide an
9 answer.
10
MR. TREPANIER: Do you believe that
11 establishing baselines is a significant cost of
12 operating this program?
13
MR. GOFFMAN: I believe establishing baselines 14 is a
significant one-time startup cost of setting
15 this program up.
16
Using the acid rain experience as a
17 direct analogy, the actual year-to-year costs
18 of operating this program are mind
bogglingly
19 cheaper than operating on a year-to-year basis
20 alternative kinds of programs.
21
MR. TREPANIER: When the -- when this whole
22 system -- when we're receiving a benefit from the
23 system and we're receiving the benefit of the system, 24 which I'm
going to say is a reduction in the level
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1 of pollution, is that to -- under the system as it
2 is designed, when will that occur?
3
MR. GOFFMAN: It will occur
as soon as the
4 first year of reductions are required.
5
MR. TREPANIER: Okay. And if there are any
6 other innovations that are accomplished -- pollution
7 control innovations that are accomplished under this
8 trading system, would that -- besides the period when
9 the reduction and levels of ozone is allowed, the
10 allotments are reduced, that's going to drive -- if
11 I'm understanding your testimony -- that's going to
12 drive innovation?
13
MR. GOFFMAN: Right.
14
MR. TREPANIER: -- in
the system?
15
MR. GOFFMAN: Right.
16
MR. TREPANIER: When innovation is driven at
17 any other time when the system is operating, would
18 that be when there is someone standing who has been
19 waiting to produce an item that will require the
20 emission of VOCs and that person is waiting to create 21 their item
and wants to purchase an allotment?
22
MR. GOFFMAN: That's one way. I mean, if
23 there is a new use of these materials or a new
24 actor that wants to use them coming up against the
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1 constraint of the cap, that could definitely drive
2 the search for innovation to accommodate that.
3
There are all sorts of -- even with
4 existing users and existing uses, the constraint
5 of the cap coming up against changes, fluctuations,
6 and economic activity existing firms will -- and
7 plus the design to minimize costs will also drive
8 innovation.
9
There is no particular method that I
10 know of for sorting those different innovation
11 drivers, but both are important.
12
MR. TREPANIER: Okay. When -- when you're --
13 those innovations drivers that you mentioned, were
14 those connected to this market system?
15
MR. GOFFMAN: Yes, yes, absolutely.
16
MR. TREPANIER: I'm not real clear, though,
17 on when the corporation wants to save money. I
18 understand, you know, that it is possible to save
19 money by reducing pollution, but what about -- what
20 under this market system allows someone to save
21 money that's going to drive an innovation to a
22 trade?
23
MR. GOFFMAN: Well, if you come up with,
24 let's say, a new process that significantly
L.A. REPORTING - (312) 419-9292
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1 reduces VOC emissions beyond what's required under
2 the cap or under your initial allotment, one strategy
3 that a purchaser of that process or a user of that
4 process can adopt is to apply that process and then
5 sell the excess emissions to another source under
6 the cap and the revenue basically allows the seller
7 to finance, in whole or in part, its reduction
8 strategy using the new process.
9
MR. TREPANIER: Okay.
10
MR. GOFFMAN: So that the net cost of the
11 company might be rather low in that scenario. At the 12 same time,
the purchaser of the surplus reductions is 13 presumably making the
purchase of those reductions
14 because the net cost of doing that is smaller than
15 making the reductions on-site.
16
So both actors in that scenario are
17 responding to a cost minimization imperative while
18 specific to meeting their emissions constraints.
19
MR. TREPANIER: So that's a -- that was a
20 theoretical -- you are explaining a situation
21 where somebody meeting their reduction, had their
22 allotments reduced, and they need to meet it, it's
23 going to drive innovation?
24
MR. GOFFMAN: Right.
L.A. REPORTING - (312) 419-9292
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1
MR. TREPANIER: Secondly, a corporation, is
2 this true, a polluter may reduce their pollution in
3 order to free some of their allotments to sell to
4 someone who might want to begin polluting?
5
MR. GOFFMAN: That's correct. Remember, if
6 you will -- environmentally, as long as there is
7 only a fixed number of allotments, i.e., there is
8 a cap, essentially from a VOM control point of view,
9 the atmosphere is different to whether any different
10 given set of allotments is used to emit VOM by an
11 existing actor or new actors.
12
That's one of the key features of this
13 program, as I understand it, that new sources have
14 to come in and purchase allotments from the existing
15 pool. Their entry into the economic market does not
16 expand the cap.
17
So to define the environmental objective 18 here as
VOM-specific, which I think is fair to do,
19 then, you are encouraged to do that, and any given
20 increment of
ATUs reduced can be used by a new actor
21 or an existing actor.
22
MR. TREPANIER: That amount with -- under
23 trades, where under a steady cap, then, you are not
24 suggesting that these trades involve an increase
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1 in air quality?
2
MR. GOFFMAN: These trades -- no, it's the
3 cap that provides the increase in air quality.
4
MR. TREPANIER: What we would just be seeing
5 changing, then, would be the economic forces -- is
6 what we are seeing changing, then, the economic
7 forces that are able to control this emission
8 of pollution?
9
Is it the emitter who has a higher
10 profit margin or has a profit per VOC emitted
11 that will come to -- be driven to purchase in the
12 market?
13
MR. GOFFMAN: Possibly, but yes, you will
14 see that trading itself is essentially a reallocation 15 of
economic responsibility. I can't -- I haven't
16 thought enough about whether that reallocation of
17 economic responsibility will favor firms of one
18 profile as opposed to another.
19
It may favor firms that are relatively
20 uncontrolled today plus the marginal cost of
21 production may make the net sellers. It may, on
22 the other hand, favor firms that are, quote, unquote, 23 relatively
clean.
24
It's not clear -- I don't think there
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1 is any evidence, and I know that people look for it,
2 but I don't think they have found it, that these
3 kinds of trading systems specifically favor economic
4 actors of a specific economic profile.
5
MR. TREPANIER: Do you think the proposal that
6 you have come up with has an application if it were
7 spread out over a greater number of the sources, that
8 if we brought the level down, could that level be
9 brought down to, say, ten percent of where it is now
10 and would it be workable in your estimation?
11
MR. GOFFMAN: In theory, yes. It could be --
12 a system like that could be applied to any level
13 of emissions reductions and I say that because the
14 experience of the Clean Air Act is that the supply
15 of technological innovation to meet increasing
16 pollution constraints, whether they are imposed
17 under programs like this or imposed under command
18 and controlled programs has been there.
19
So while people might argue from the
20 point of view of existing technology on January 22,
21 1997, a cap below a certain level is not feasible
22 depending on how well you mobilize the forces of
23 innovation in the design of your program, things
24 that appear to be unfeasible today can now be
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1 feasible at some future date and readily affordable.
2
That's one of the reas
ons that
3 designing for innovation is such a critical feature
4 of environmental programs like this.
5
MR. TREPANIER: For efficiency, I offer to
6 submit any future questions at a later time.
7
THE HEARING OFFICER: Let's go off the
8 record.
9
(Whereupon, after a short
10
lunch break was had, the
11
following proceedings were
12
held accordingly.)
13
THE HEARING OFFICER:
We are back on the
14 record in the afternoon after lunch. I'm turning
15 it over to Bonnie Sawyer of the agency for the next
16 witness.
17
MS. SAWYER:
The agency would like to call
18 Roger Kanerva.
19
(Witness sworn.)
20 WHEREUPON:
21
R O G E R K A N E R V A ,
22 called as a witness herein, having been first duly sworn, 23
deposeth and saith as follows:
24
MS. SAWYER: Would you please tell us your
L.A. REPORTING - (312) 419-9292
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1 name?
2
MR. KANERVA: My name is Roger
Kanerva. I'm
3 the environmental policy advisor and director at the
4 the Illinois EPA.
5
MS. SAWYER: Mr.
Kanerva, could you tell
6 us a little bit about your responsibilities as
7 environmental policy manager?
8
MR. KANERVA: It's really a combination of
9 activities that the environmental policy operation
10 is responsible for.
11
One is agency-wide strategic planning 12 that we do
to develop the overall direction our
13 programs are going to take.
14
Another aspect is these market-based 15 approaches
that we have been working on as a policy 16 innovation. In fact, our
work on this emissions
17 reductions market system developed out of that very 18 innovation.
19
There are a number of other special
20 activities. We have been participating with the
21 market system development for the OTAG process.
22 Bharat and his crew and the rest of us are
emersed 23 in it up to
our ears.
24
Then, we also have some agency safety
L.A. REPORTING - (312) 419-9292
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1 activities that we are responsible for and also the
2 chemical safety emergency response effort.
3
MS. SAWYER: Mr.
Kanerva, could you just tell
4 us a little bit about your educational background?
5
MR. KANERVA: I have a Bachelor's and Master's
6 degrees in watership management from the University
7 of Arizona.
8
MS. SAWYER: Please proceed with your
9 presentation?
10
MR. KANERVA: Okay. What we thought we would
11 do, this is a complete package system here that we
12 are bringing in this proposal. We thought it would
13 help to go through sort of a walk-through of the
14 whole proposal to set the stage for them coming back, 15 as Bonnie
mentioned earlier, and taking specific
16 important parts of this and having the presentations
17 by the staff here to go into this in a lot more
18 detail and to work through some actual application
19 examples and really get down to the nuts and bolts
20 of this.
21
But it is a big system. There are a lot 22 of
component aspects to it. So we thought it would
23 be worthwhile to do that overview.
24
We also wanted to say just a few thing
s
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351
1 for the record about the process that we went through
2 to develop this because it has been a very involved
3 and thorough process as far as we are concerned and
4 there have been a lot of opportunities for
5 participation along the way and there has been a
6 lot of participation.
7
So we are going to take a quick look at
8 the development process and then get into the system
9 itself.
10
The presentation that I'm giving
11 basically is organized along the same lines as the
12 testimony outline that you have.
13
THE HEARING OFFICER: I think there are some
14 more in the back.
15
MR. KANERVA: I think there are copies of
16 these actual overheads in the back. There are a few
17 points made here and I would like to sort of expand
18 on some things.
19
Time flies. We actually started working 20 on all of
this stuff back in 1992.
Bharat got a team 21 of us together and we
put together a little proposal
22 and filed it with the U.S. EPA to get some special
23 incentive funding that they had.
24
Based on what we have done as this
L.A. REPORTING - (312) 419-9292
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1 pre-feasibility study work. We wound up doing a
2 lot of literature review in looking at the acid rain
3 program. I think some of those points have been
4 brought out already by Joe
Goffman.
5
We spent a lot of time out talking to
6 the South Coast folks and studying what they were
7 developing. Back in that time frame, they didn't
8 have their system developed yet for
NOx and SO2.
9
But some things came out of that
10 pre-feasibility approach that we carried right
11 into the feasibility work that was the federally
12 funded feasibility work and that's the three things
13 I have listed here.
14
The seasonal control period that we
15 were -- that there might be some real advantages
16 to moving away from the sort of annualized control
17 approach and targeting it when the problem really
18 occurs with ozone, getting on an actual emissions
19 basis as the control focus for the regulatory program 20 rather
than a break limitation type of approach where 21 you don't really have
a good fix on what the real
22 emissions are that you are going to wind up with
23 through your regulatory program, and the cap and
24 reduce as needed, emissions cap in reduction
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1 approach, really started to stand out in people's
2 minds as something we should seriously study.
3
That led us into
the feasibility study
4 work. We actually kicked that off with a big
5 conference that was held up here in the Chicago area
6 in '93.
7
Some of the industry participants will
8 probably remember that. It was well attended with
9 public interest groups and it brought quite a few
10 industry people and consultants and what have you
11 just talking about emissions trading and what the
12 possible benefits and challenges might be.
13
The findings that came out of that study 14 work,
which is documented and available, we made all
15 of this available to people, was that there were more 16 cost
effective emissions reductions that could be
17 achieved through a trading program, that there were
18 incentives to act sooner and be innovative, sounds
19 like some things you heard about an hour ago or two
20 hours ago, and that we were approaching the limits of 21 what we
could do effectively with command and control 22 regulation, and that
there was a greater likelihood
23 of reaching attainment if we went to market
24 approach.
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1
That led us to setting up this emission
2 trading design team. It actually went through a
3 couple of phases.
4
Initially, we thought
Bharat and his air
5 quality gurus thought we were going to be doing some
6 serious reductions of
NOx. We may still wind up
7 doing that, I suppose, but we thought we might be
8 doing that actually in the
nonattainment area up
9 here as a part of the control program.
10
So we started in June of '93 to design
11 a NOx emissions market system and got to the point
12 of actually having a proposal out for public review.
13 That was in September.
14
Then, low and behold, the air quality
15 modelers surprised us in December and they said,
16 whoops, NOx reductions don't help. They actually
17 hurt in the nonattainment area.
18
So we switched over looking at the VOC
19 or VOM market system approach in '94 and then went
20 through about a year's development process there.
21
There were four industry participants
22 that were added to that group -- Abbott Labs,
23 Caterpillar, Corn Products, and Amoco -- to bring
24 in the VOC perspective. Commonwealth
Edison had
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1 already been on the team prior to that because of
2 their NOx emissions. So that's the team that
3 actually stayed in place and worked through the
4 rule development and helped us with that process
5 all along.
6
It culminated -- their work culmi
nated
7 in the proposal that Bonnie Sawyer had mentioned. I
8 guess this is in the record. It's the final proposal
9 of March of '93. That was the actual sort of work
10 product of the design team.
11
Anybody and everybody who has had any
12 interest in this has access to those and has copies
13 of them and it has been widely disseminated and
14 discussed.
15
There are a lot of things thrown up
16 here, but we wanted it real clear and wanted the
17 policy mandate to be proceeding with this market
18 system, which led our director and
Bharat and the
19 rest of us to actually work on authorizing
20 legislation, which tends to get overlooked
21 occasionally in these discussions we are having,
22 but this clearly does put the responsibility on
23 the agency to proceed with the development of the
24 market system. It's Section 9.8 of the act that
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1 was amended.
2
It required us to design an emissions
3 reductions market system and, in fact, when we
4 testified before the Senate and the house committees
5 on this legislation, we actually described this
6 proposal to them and explained how we had developed
7 it and said that that was going to be the basis for
8 the actual rule development work that would go on.
9
It authorizes IEPA to propose and the
10 board to adopt rules for the ERMS and it also
11 includes an express legislative authorization for
12 sources to be able to exchange trading units, which
13 in some other state programs, as they were developing 14 their
programs, there came some confusion on whether
15 or not there really was authority to be able to trade 16 across
sources, which has not been traditionally how
17 the laws have been set up to make sure there was no
18 question, we actually put that provision in the
19 amendment to the act.
20
A related agreement among the parties,
21 the legislation did go through with certain
22 assurances, which are mentioned -- have been
23 mentioned in various portions of our testimony or
24 what have you.
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1
There was an agreement among the folks
2 that supported the legislation that we would try and
3 have a cooperative sort of developmental process to
4 work out the rules.
5
We would have open review of the
6 different drafts that we developed and everyone would
7 have sort of a crack at helping design and resolve as
8 many of these issues as we could before we brought it
9 up before the board.
10
We wanted to continue to refine our air
11 quality strategy. I think that's a really important
12 point. I'm sorry I had to miss yesterday's hearing.
13 I assume, Bharat, you maybe brought this out, but the 14 Air Bureau
basically made a commitment to people as
15 we developed this market system rule, that we would
16 work on the air quality strategy concurrently and, in 17 effect,
when this got filed, they would know what the 18 air quality plan was
going to be. Otherwise, how
19 could they make their decision on this market
20 system?
21
The air quality approach that finally
22 got adopted was what you heard described yesterday
23 and it was touched on today as this phase approach
24 and this first reduction requirement.
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1
We have kept to that and people do know
2 where they stand at least to the extent that we can
3 define it.
4
We agreed to develop an alternative
5 compliance market account approach. You heard about
6 the ACMA, you heard that mentioned already. That is
7 an important enhancement to this system that was not
8 in our design proposal.
9
It came up as the legislative discussion
10 was taking place and we are going to devote a segment 11 of our
more detailed testimony to explaining what
12 happened with that and why it was done, but it
13 represents kind of an insurance pool or a safety net
14 for participants in this system so that they can
15 access it if all else fails.
16
We would do more work on the en
forcement 17
provisions and some of the implementation aspects of
18 this because there were some serious questions when
19 we left off with this proposal about how do you
20 coordinate all of this with Title 5 permits.
21
We don't want to create a bunch of
22 duplicative reporting. We want a system that's all
23 blended together. So we agreed to do that and I
24 think the system that's been filed before the board
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1 does achieve that.
2
I want to emphasize a seven-key policy
3 feature that is really behind how this whole system
4 is put together. If these make sense, then, a lot of
5 the nuts and bolts of the system really tend to just
6 fall in place.
7
The first being the post-RACT, that
8 this system applies beyond the RACT controls.
9 That has come up. I heard that several times this
10 morning. There were some participants who raised
11 that.
12
That was done after a very long,
13 thorough discussion of the importance of keeping the
14 RACT control structure in place. What it does is it
15 directs the issue of what happens if you get a bunch
16 of emissions to come out in a particular point in
17 time. It's this peaking question that kept coming up 18 as one of
the possible side effects of this program.
19
20
Our partial answer to that is, well, you 21 will have
this sort of steady annualized RACT control 22 program that stays in
place. That's sort of our push 23 off point so that we won't all of
the sudden have a
24 bunch of emissions occur when we don't want them to.
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1
The seasonal control, rather than the
2 old annualized approach, the five-month season that
3 we are setting up as the control period, really, kind
4 of let's us put the -- do the more cost effective
5 approach right to dealing with the air quality
6 problem.
7
Phased emission reductions, obviously,
8 that's the whole strategy behind how the air quality
9 aspect of this will be done. It builds in MACT.
10 That was a major question that came up as we were
11 designing this system. Is it going to wind up
12 resulting this trading of air
toxics and people
13 trading out of their MACT technology standards?
14
We finally decided there is no real
15 answer to that that works other than no. Just put
16 MACT in place. There's a federal hazardous air
17 pollutant program, apply it, and that's the answer
18 the nation selected for controlling
toxics.
19
It's what should be applic
able in
20 Illinois, but interestingly enough, the reductions
21 that take place in MACT, that they are beyond the
22 minimum requirement for the VOC control program,
23 they can take credit for that, trade it with people,
24 and get some value from it.
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1
Participation thresholds, it became very
2 clear after Bharat and I sat through numerous hours
3 of hearings out at South Coast as different sources
4 described some of their concerns that South Coast is
5 still trying to work out, but there is some point at
6 which it's just not efficient to try and regulate
7 some of these emissions in sort of a total source
8 sense.
9
We really settled on this ten tons as
10 kind of a practical boundary line that still gives
11 us the amount of reductions that we need. There
12 were some arguments that maybe it should go much
13 lower than that and we just weren't convinced that
14 that made sense.
15
A flexible market structure, we think
16 we have left about as much flexibility that we can
17 and still be responsible, but we still have the
18 performance assurance that we need in there to get
19 the system to be accountable.
20
Now, let's see if I can keep this from
21 being backwards. This is as fancy a graph as we get
22 today. This is a culmination. I thought it might be 23 helpful.
There are an awful lot of provisions in
24 there. As you start to work your way through it, you
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1 tend to get a little bit bogged down in how the basic
2 pieces fit together.
3
So I thought it would be helpful to put
4 just sort of a flow chart in there about how the
5 whole system plays out without worrying about all of
6 the specific details initially.
7
We start it off with taking -- having
8 people that will be participants in the system file
9 their applications for January 1 for what I will call
10 participating sources.
11
One of the features built into this,
12 which is something also that
Bharat worked out with
13 people, is that in the first 120 days, I think it is, 14 after
people's applications are in, we make what's
15 called a preliminary baseline determination in order
16 to give people as early a read out as possible what
17 their starting point is going to be in this system
18 so they can start to figure out their compliance
19 strategies real quickly rather than wait until later
20 on when their permits actually get modified or
21 issued.
22
Then, there will
be a period of time
23 through '98 and probably actually stretching to '99
24 a little, that the actual Title 5 or CAAPP permits
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1 would be issued or modified depending on the status
2 for our source.
3
The requirement to come in for a
4 transaction account is actually 30 days prior to
5 the first season and the first season for having
6 allotments in place is 1999 in the way we set the
7 system up.
8
The next event would be the actual
9 seasonal emission report. One of the things that
10 we were asked to do was coordinate these two --
11 completely coordinate some of the recording process
12 for these two systems and we have done that by having 13 the
seasonal information just be a component that's
14 filed early of their annual emissions report already
15 being filed with the agency.
16
This reconciliation period is a time in
17 which people could figure out if they need to do
18 some -- seek some trading units in the market in
19 order to work out -- meet their compliance
20 requirements. The compliance -- actually, the
21 compliance decision would come at the end of each
22 calendar year or at the end of December.
23
We actually do have to make a
24 milestone demonstration. I guess it's important to
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1 say that somewhere along in this process. It's not
2 actually going to be part of the market system, but
3 Dick Forbes and his staff and everybody has to figure
4 out if we have made the amount of emissions
5 reductions that we were looking for in order to get
6 the three percent ROP for each year in the 90 percent
7 target.
8
Then, we will put together our annual
9 performance review report by May of 2000, the first
10 year after the ozone season. I'll try to say a
11 number of things about that because I think there
12 were some questions that got raised earlier about
13 tracking of trends and all of this and that will be
14 our answer on how we do this report.
15
We have one question mark on here, which 16
Bharat
has promised he will resolve for everybody I
17 guess sometime this year, and that is will there be
18 some sort of Phase 2, there probably will be, and
19 what kind of reductions might be involved with that.
20
Okay. I'm not going to hit on every
21 one of these points or we would not be able to get
22 through this in time, but I'm just going to mention
23 a couple of things about what we have outlined here
24 of what the specific provisions of the proposed rules
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1 are and then, as I said, we are actually going to go
2 back and pick up the details of certain parts of
3 this.
4
An allotment trading unit is sort of a
5 key definition obviously. What size do you set it
6 at? We actually spent quite a bit of time talking
7 about all of that. In the acid rain program, the SO2
8 program, since you are dealing with really huge
9 amounts of emissions, they said it's as high as a
10 ton, but when you are dealing with smaller sources
11 that need a finer increment of emission to be able
12 to get down to, we thought it needed to be quite a
13 bit less than a ton. At one point, we even looked
14 at 100 pounds and kind of convinced ourselves that
15 maybe that was too small.
16
We did reject out of hand that had no
17 further discussion of the one pound for every unit
18 that South Coast had.
Bharat and I just -- that
19 was too much for us. So people seemed to be pretty
20 comfortable with that size.
21
I have listed the names here just to
22 mention them for the folks that would really be
23 in this system, the participating sources, general
24 participants, new sources, and special participants,
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1 and I will touch on those a little bit later.
2
We think we have covered all of the
3 possibilities here. The participating sources are
4 basically the existing folks that are out there that
5 will be getting allotments and et cetera. The new
6 ones will come in after the first season.
7
The general participant is something
8 we have put there really as a result of input we
9 got from kind of entrepreneurs, people that thought
10 they would really be able to help make this market
11 work, for instance, in sort of a broker role where
12 someone might want to have a transaction account and
13 essentially as a service take care of some of the
14 market activities for some of the participating
15 sources or go out and find some emissions reductions
16 themselves and kind of work
17 with it that way.
18
Special participant is to try and take
19 care of something that has really come up in each
20 market program. There are always some folks that
21 will get access to allotments that simply want to
22 retire them and as an air quality benefit kind of
23 issue.
24
We had a concern about all of the
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1 complexities of getting transaction accounts and
2 getting all set up in the system and then just
3 taking some ATUs and retiring them and that's all
4 you do. So we've set up sort of a special simplified
5 approach for that. They just register with an
6 agency, basically. They don't get a full account.
7
Emission management periods, the control
8 period is the seasonal allotment period, it's May 1
9 to September 30. It's that five-month period
10 followed by what we call the reconciliation period,
11 a three-month time frame for sources to basically
12 figure out and resolve any remaining compliance
13 issues.
14
Now, this is one of the really important 15
flexibilities about this system that I think gets
16 overlooked on numerous times. Now, folks, you've got 17 three
months after you find out where you stand with
18 your emissions or if it's a couple weeks after the
19 season to calculate it, you've got two and a half
20 months to take advantage of work within the market
21 and make whatever arrangements that you need to make
22 sure you are okay on the compliance perspective.
23
Then, it lists certain source
24 responsibilities in there for -- depending on what
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1 category of source you are, which we will cover
2 later.
3
Applicability, participating sources
4 are obviously the biggest piece of this picture when
5 we start and it leaves off with probably the most
6 important point that was driven home to us by
7 certainly the regulating community. As best I can
8 tell, I think everybody was pretty comfortable with
9 this, and that is, there ought to be sources that are
10 required to have a cap permit. They are the ones
11 that are going through all of the steps of putting
12 together the more facility-wide or source-wide type
13 of permit, meeting all of the federal regulations
14 and requirements for doing that.
15
The more that was discussed, they are
16 the ones that have the annual emissions reporting and 17 everything
to go with it. So we were pretty much
18 convinced to connect it to the cap permits and then
19 the seasonal baseline, seasonal emissions of ten tons 20 starting
in '99 is kind of the -- that's the level
21 we have been talking about with people going clear
22 back to the proposal itself. It's one that people
23 seem to have gotten pretty comfortable with.
24
A key aspect for the U.S. EPA in our
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1 discussions with them is this point about subsequent
2 increases. This isn't a one-time decision and never
3 revisited. So if somebody is at eight tons in '99,
4 but did not come into the system, but subsequently
5 goes to 12 later on, they actually have the
6 responsibility to get in the system and be a
7 participant unless they take one of the other outs
8 of some kind. It does bring people in if emissions
9 go up so you don't wind up messing up your reduction
10 strategy.
11
There are a couple of exemptions put in
12 here. I guess we will talk about that in a little
13 bit more detail later. These came specifically at
14 the request of some of the participating regulating
15 community folks, industry folks.
16
One is an opt out, if you will, and you
17 take a limit of 15 tons per season. Some folks just
18 say, well, look, your number is ten. We're at 14.
19 We don't think there is any problem. We're not going 20 to go any
higher. Gee, couldn't we just get out of
21 this somehow or another? We would rather not do it.
22
We've been kicking that arou
nd. We
23 thought, well, if they are willing to put a cap to
24 assure us their emissions will stay there, why not
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1 give them that option?
2
The same way with the 18 percent, some
3 sources -- I can remember the meeting where someone
4 stood up and suggested this, and then it got a lot
5 more discussion. They basically asked
Bharat, look,
6 if we're going to make -- to do any kind of
7 reduction, it's going to take 25 percent -- it's
8 going to result in 25 percent if we put on some
9 certain kinds of control on here. If we do that
10 one time and we do it right up front, can we just
11 sort of be done and excused from this whole process?
12
So we kind of came up with this 18
13 percent approach. Obviously, that's six percent
14 more than the 12 percent reduction, but if they're
15 going to make -- if they're going sort of have an
16 early opt out, we ought to get a little bit of an
17 air quality benefit for it, an emissions benefit
18 for it.
19
So we settled on the 18 percent number.
20 Also, that sort of moves them into the next realm of
21 reduction, if you will.
22
New participating source where one
23 starts operation after May 1, we have used the
24 same -- coordinated this with the same insignificant
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1 units or activities, definitions and decisions that
2 are made for the cap permits.
3
This is -- this question about startup
4 malfunction or breakdown emissions came up numerous
5 times. Are they in? Are they out? How do you
6 account for them? The decision that finally is
7 reflected in this proposal is that if -- if a
8 source's permit allows those things to take place,
9 then, we won't have them as part of the emissions
10 that are controlled by this system.
11
Seasonal emission component, the
12 proposal gets into the -- describes when they do
13 submit the seasonal information and what information
14 is required. Essentially, it's done in two different 15 categories
of folks. If you have over ten emission
16 units, then, you can file at the end of November.
17 If you have less, then, you can file at the end of
18 October. That's because the
reportings are a little
19 more complicated for the sources with additional
20 emissions.
21
As I mentioned earlier, in that overall
22 flow chart, it all starts off with the applications
23 being due January 1, 1998, with a further provision
24 for certain new participation. Then, there is this
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1 key point about the IEPA making a preliminary
2 baseline determination within 120 days. Again, this
3 is so sources can really take advantage of this
4 system and know how to start to work out the
5 compliance strategy as early as possible.
6
There is a section dealing with cap
7 permits for the ERMS sources, which has really a
8 lot of the details of how this system will be put
9 into place. We will get, I guess, into this quite
10 a bit of detail here by the time Chris and the
11 others do their presentations.
12
The final baseline determination is
13 included in them. All of the methods and practices,
14 emissions monitoring requirements, these sorts of
15 things that people asked about, and we've dealt
16 with there.
17
There are certain emission units that
18 could be excluded for different reasons, which we
19 will explain. That's all going to be dealt with
20 there.
21
The actual allotments, the amount of
22 emissions that each party will have, each source
23 will have, will be spelled out in the permit itself.
24 So that will be available up front and available
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1 for public review. Transfers between sources
2 ultimately can be reflected in the permit.
3
Kind of a key point that may not be --
4 that people don't pick up always on is this
5 preliminary versus final baseline determination.
6 We have set it up and the final determination is
7 the one that's appealed, not the preliminary, for
8 a number of reasons obviously.
9
There may be other things worked out
10 between the agency and sources along until the permit 11 is issued.
If anyone has a particular problem with a 12 decision we made, they
will have their opportunity
13 to argue before you all about what the right answer
14 should be. Bharat has assured, though, we're going
15 to work out 99 percent of them and we won't have to
16 worry about that.
17
Baseline emissions, this is another
one
18 of those artful processes, but we finally wound up
19 with sort of a tiered decision process here starting
20 off with the years '94, '95 or '96 as sort of our
21 basic core years that we would look at, and then
22 the source would take the average of the two highest
23 seasonal VOM/VOC emissions, the highest emissions
24 from those, as their baseline with a couple of other
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1 opportunities.
2
For most people I think we have talked
3 with, that probably works fairly well right there and
4 we probably don't need to go any further, but there
5 are some other situations that people would point
6 out to us where they really said, oh, gee, '94 and
7 '95 were really strange years, we have a bunch of
8 downtime. We had special maintenance. We had
9 equipment process change. Our emissions are not
10 representative at all. The really representative
11 year for us is '93. Our feeling was to let people
12 substitute other years in a range from 1990 up to
13 '97.
14
We started in '94 because that's the
15 first year we feel real comfortable with some of
16 our emissions data. The first year they filed, it
17 was a little bit of a challenge to get everything
18 all straightened around and people made a lot of
19 amendments to their reports and they were still
20 getting the process of reporting their emissions
21 sort of really fine tuned, but in looking at the
22 data that we've been getting and what have you,
23 '93 looked a little better and '94 started to look
24 like people really had things under control. So
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1 that's the start point that we picked for this
2 three-year period.
3
There are certain increases and
4 decreases that are then work factored into that
5 baseline that are really important to -- and we're
6 going to go -- I think Chris or somebody is going
7 to go through each one of those provisions in a
8 fair amount of detail and probably present some
9 examples here, because those make a big difference
10 in terms of understanding how this system will
11 really apply to people.
12
One of the big issues that came up was
13 voluntary over-compliance that occurred after 1990
14 and people essentially didn't want to be penalized
15 for the fact that they were at a lower level of
16 emissions than the actual, say, RACT requirement
17 that might be applicable to them.
18
We said, no, we don't want to penalize
19 you. So we will start you at where the RACT level
20 would be as an example although we said we have to
21 update that to get to the post-1996 control period.
22
Essentially, what it means is these
23 increases will kind of take care of the equity of
24 some of the other compliance between sources. We
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1 will all be normalized in '96. We don't want to
2 wind up bringing into it things we don't intend to.
3
There are certain other decreases
4 to reflect special situations with variances or
5 consented release, things like that. Seasonal
6 emissions data will be obviously part of this.
7
Monitoring and methods has gotten
8 some discussion with folks. We really settled
9 down that however it is we would work it out with
10 the cap permit, how they would be accountable under
11 their cap permit, that's really probably the approach 12 that will
apply in the market system too.
13
We had set it up as a minimum meaning
14 if something comes up with the permit process and
15 we feel we really can do something a little better,
16 I think that's open for being worked out, but it's
17 expected to be very similar, I guess, to what we've
18 been doing.
19
Seasonal emissions management, each
20 source receives an allotment beginning in '99.
21 Allotments in trading units are valid for the current 22 season and
next succeeding season.
23
I thought Joe Goffman did a good job
24 of kind of explaining our approach to that. We have
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1 an unlimited life on it. You're liable to create
2 some possible problems with the banking approach, but
3 it does give people the flexibility rollover
4 emissions from one year to the next and build-up a
5 reasonable emissions bank and take advantage of
6 that.
7
I mentioned the ATUs representing 200
8 pounds and the initial allotment that they would get
9 would be baseline emissions, but reduced by the 12
10 percent. That is our target for the rate of progress 11
requirements.
12
Any further -- in the rule itself,
13 this is a commitment that we made to the regulating
14 community, that the next round, if there is a
15 question mark on our flow chart, the Phase 2
16 reductions beyond the 12 percent, will be back
17 here and it will be another rulemaking, we'll
18 go through the same process of justification and
19 what have you that got us to this or this proposal.
20
Exclusions from further reductions,
21 that's one I mentioned earlier. There were a number
22 of situations that came up. The first one, the
23 NESHAP and MACT standards, actually one of the
24 assurances that's in the legislation, the amendment
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1 to Section 9.8.
2
There are situations really for equity
3 purposes and what have you where it just probably
4 doesn't make sense to go any further, obviously, if
5 they have gone as far as they can with technology,
6 et cetera. It's sort of the bottom line rather than
7 have people face sort of a technical impossibility.
8
So we've set up the best available
9 technology decisions that also could be a reason to
10 exclude units. An important aspect of that when
11 we first worked on that, we talked about excluding -12 every one
had in their mind, oh, let's exclude the
13 whole thing from the system completely. It was
14 actually our economist participants and friends who
15 said, oh, my
gosh, don't do that because you're
16 losing a real opportunity. Exclude that emissions
17 unit from the reduction, the 12 percent reduction,
18 but leave the emissions in the system because later
19 on, if for some reason through innovation or what
20 have you that they find that they can make reductions 21 from that
unit, then, that becomes something as
22 tradeable as somebody who has value and they get some 23 benefit
from it. That's really the way we have left
24 that since that time.
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1
There are a couple of special emission
2 reduction situations and any one of these is
3 probably -- will need a fair amount of discussion
4 so I will just make a highlight point here.
5
One is source shutdowns. Another major
6 magic formula here, the 80 percent, 20 percent, I
7 think in one graph, we had 70/30. We had comments
8 from public interest groups saying that 100 should
9 go for air quality benefit. Why should a source
10 continue to do anything? I would say probably about
11 every percentage and every possible way of dealing
12 with this, we have heard some oral comment or gotten
13 written comments if we went through our four rounds
14 of drafting, four drafts of rules for the proposal.
15
This reflects sort of our best judgment
16 as to where to wind up with this. There ought to
17 be some benefit to the system as a whole, but the
18 sources are the ones that are incurring the majority
19 of the costs and probably deserve to see some -- and
20 do deserve to see some of the benefits. So we
21 finally went with an 80/20 split. There may be
22 other folks who argue one way or another for that.
23
Emission reduction generator is
24 another interesting wrinkle that developed as we
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1 get into this. We feel there are going to be
2 some opportunities out there to get some emission
3 reductions from other stationary sources, but
4 that are outside the system. They aren't required
5 to be participants and that should be a compliance
6 option for people. If they get reductions to happen
7 in the nonattainment area from smaller stationary
8 sources and take -- essentially convince us that
9 they met certain conditions, then, that becomes the
10 way they comply rather than reduce something at
11 their own location.
12
Intersector transactions, this starts
13 to show where the market system can really create
14 a whole different set of options for people and
15 open up the process of getting reductions we need.
16 We've shown you an example here in these overheads,
17 not mentioning the rule, per se, but car scrapping,
18 for instance, the pilot project work that we did,
19 showed that that looks like it could be a very viable 20 option in
some cases. We did this emissions
21 reductions. We can bring that in and provide
22 trading units for that and essentially, that could
23 be somebody's compliance program, which under the
24 old command and control approach, that was not even
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1 available as an option at all and it still isn't.
2
Market transactions, there have been
3 a number of questions about this off and on, but
4 there is really two parts to how the transaction
5 process would operate. One is this sort of public
6 bulletin board system and behind that would be an
7 ERMS database or a transactions account database
8 like a banking system, so to speak, where nearly
9 all the nuts and bolts and details about what's
10 happening with the market would be located, but
11 there would be certain information posted publicly.
12 Who had accounts? What are the levels in the
13 accounts? Have transactions been taking place?
14
Price, however, would not be part of
15 that bulletin board, which is something that's gotten 16 a lot of
discussion back and forth. We would wind
17 up just reporting probably on an average basis what
18 transaction prices were out there, but not on a
19 case-by-case basis.
20
Each source -- participating source who
21 is a full participant in the system would get a
22 transaction account. It has a designated account
23 officer. We still think it's important that they
24 complete a training program. This is different.
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1 It's not the old way of regulating. There are some
2 bells and whistles to this that people should be very
3 familiar with.
4
As we get this transaction account
5 system, there will be forms and there will be
6 procedures they need to follow.
7
We have, however, made this a lot
8 less onerous than when we started out. We actually
9 started off by saying -- trying to work on an
10 approach where there would be certified account
11 officers and what have you. It was all getting so
12 complicated we just got away from that and said as
13 long as they designate a person, the person gets
14 some training from us, fine, we will let it go at
15 that.
16
General participants, I mentioned, do
17 have a transaction account. The special participant
18 does not need one. They just register with us. We
19 are convinced that we can get these transactions all
20 entered into the database and official within a
21 week's time, which is pretty fast.
22
Performance accountability, there are
23 a number of provisions in there that I think we are
24 real comfortable will work well in this system.
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1 There's a compliance -- accounting provisions where
2 each source has to maintain a compliance master file
3 that pulls this information together.
4
We really borrowed this concept from
5 something Bill Compton will talk about when he
6 presents his testimony and that is the approach
7 taken with the heavy-duty engine program and the
8 requirement that has sort of an
auditable file
9 where there is accountability here that will have
10 all of the information that you need.
11
We describe a master file review. Well, 12 it's a
compliance review is what it is to look at all 13 of their information
to make sure that things are
14 there that should be there and two, that we were
15 satisfied with the quality and the accuracy and what
16 have you.
17
Every time we do one of those reviews,
18 and that's going to be a very thorough process, I
19 believe, we're going to come out with an actual
20 report and provide that to the source and that would
21 be accessible to the public as well to show what we
22 found out from that process.
23
One of the things that we agreed to do
24 in this review process to help deal with this
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1 question about are certain things happening at
2 facilities, are hazardous or toxic air emissions
3 going up that might not have gone up because of
4 trading, what have you, that's something that we
5 will check when we do one of these reviews. We
6 will actually look at have they conducted
7 transactions there and did any of those transactions
8 influence the level of the emissions of hazardous air
9 pollutants?
10
So that will be deal
t with case-by-case
11 in these reviews and then also will be reported on
12 annually in the performance report.
13
We mentioned already the reconciliation
14 period. That's the time where a source can continue
15 to make transactions to try and work out their
16 compliance concerns.
17
So let's say someone goes into a season, 18 thinks
they'll be okay, and gets to September 30, as
19 soon as they reconcile their emissions and they have
20 the data, they realize, oh, my
gosh, we're a few tons 21 off,
something just didn't quite go the way we wanted 22 or what have you,
they still have several months to
23 go out to the market and try and -- or come to the
24 ACMA and take care of their compliance issue.
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1
Under performance accountability is
2 the description of the ACMA. It's probably one of
3 our least creative snazzy acronyms that we have
4 managed to come up with over the years. It sounds
5 like some sort of a health problem to me half the
6 time.
7
Alternative compliance market account is
8 the approach that we came up as sort of this safety
9 net. It's really meant to be a secondary source of
10 ATUs that participants can use. This came up in the
11 context of the what if context. That's what I refer
12 to it as.
13
A number of sources were saying, gee,
14 what if we get into an odd situation year and
15 everybody hordes their allotment and nobody will
16 trade with me? I'm stuck.
17
One answer to that, which w
as in an
18 earlier version of this -- I promised an unnamed
19 party that I would mention this, so I'm going to
20 do it. You heard that the acid rain program has an
21 auction process, which is one way to sort of
22 assure -- that was a political problem Congress dealt 23 with. Oh,
my God. I won't be able to get any access 24 to emission units. I
have been trading units or
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1 allowances for SO2. There ought to be some way that
2 I can make sure or there is something I can go
3 compete for. So they put in the auction and set
4 aside allowances for that auction.
5
We actually started our system out the
6 same way. We had an auction early on and the very
7 warm response we got was no, no way, we don't want to
8 give up part of our emissions, put them in the
9 auction, and have to buy them back.
10
People were comfortable with this kind
11 of approach, and that is to have sort of a separate
12 insurance account, if you will, that every
13 participating source would contribute one percent
14 to. That's actually part of how the 12 percent gets
15 generated. That would be put into this ACMA each
16 year.
17
There are also several other sources
18 that would go in there, that 20 percent from the
19 shutdowns, the extra six percent for someone who
20 wants to opt out at 18 percent, and believe it or
21 not, voluntary contributions.
22
I mean, we still -- we've got people
23 that have talked to us about this and we really do
24 expect people to wind up just flat out contributing
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1 part of their allotment that want to do it for the
2 overall viability of the system.
3
Then, we set up a two-step access
4 process. I think I'll save that to the detailed
5 testimony later on. The idea is as long as there
6 are eight ATUs available in there, basically anybody
7 can get them on a first come, first serve basis.
8 Then, in case we run into a situation where we're a
9 little short, we have an extra wrinkle in there so
10 that people could still get some kind of help.
11
I think I have gotten to the last
12 overhead. Okay. Emissions excursions compensation,
13 another mouthful of words. It means you've got to
14 make the system square up at the end and if someone
15 has gotten into a compliance problem and they've got
16 an excursion, they've emitted more than they've got
17 ATUs to cover, then, in order to assure that we get
18 the end product that we want, we've put in there a
19 compensation approach at one and a half times, 1.2
20 times, a 20 percent kicker the amount of the
21 excursion.
22
Obviously, to sort of have a
23 disincentive to this, well, we emitted more than we
24 need to because we are
are going to have to catch up
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1 or pay for it in the long run. If it happens two
2 times in a row, we push it up to one and a half
3 times.
4
Now, the way we've set this up as a
5 default is that they have to go pay that differential
6 out of the -- by purchasing out of the ACMA, which
7 is at a high-end dollar amount. That's going to be
8 again something we think certainly will help ensure
9 or detour noncompliance, but if a source really
10 doesn't want to pay that rate, they can advise us
11 within a certain time frame, at least 15 days, and
12 have it taken out of their next allotment, but that
13 means they have to scramble and figure out next
14 season what they're going to do so they have less
15 emissions.
16
Emergency conditions, there is a
17 provision in there on that. I think it was a
18 question that came up during the development process, 19 gee, what
happens if we have an explosion in a
20 facility, it's totally beyond our control, or some
21 sort of strange event takes place?
22
I think our feeling was that if it is
23 an aberration, a one time incident, something that
24 doesn't happen on an ongoing basis, it isn't likely
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1 to happen next season, but in fact, there ought to be
2 a time out provision for those emissions. It's just
3 not going to be fair to uphold people to that.
4
Then, there is the review procedures
5 where -- that have been mentioned, the annual
6 performance review report. We really do intend there
7 to try and get at a number of these questions that
8 come up. What are the trends? Where are the
9 tradings taking place? Is there any net movement or
10 flow of emissions from one geographic area to
11 another? We will keep track of that sort of thing
12 and it will be reported the idea is if something
13 really significant develops in that process, then,
14 we actually ought to do something about it.
15
I think actually the way we wound up
16 here with Bharat's approach with this phased air
17 quality strategy, it actually makes this all fit
18 together even better.
19
One of the concerns that was raised
20 early on -- well, early in this drafting process
21 of the rule was if we have a full 11-year attainment
22 program, then, we are sort of buying off on the whole 23 system on
the front end and are we really going to
24 get these kinds of problems dealt with or not?
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1
Well, now we're moving into a three-year
2 reduction period program and we'll be back probably
3 after that. So if the first three reports show some
4 sort of a trend of some kind, we can still do
5 something about it.
6
That pretty much sums
up my first
7 piece.
8
MS. SAWYER: Thank you, Mr.
Kanerva.
9
THE HEARING OFFICER:
Before we go on with
10 questions, Mr.
Kanerva has to leave at 4:00 o'clock
11 today.
12
I was thinking we could take a quick
13 five-minute break now and then we can get into the
14 questions for him. If we don't finish all of the
15 questions, we will have to start up again at another
16 date with questions for Mr.
Kanerva.
17
I think that's the best way to handle it 18 right
now. So why don't we take a five-minute break. 19 Be back here as soon
as possible.
20
(Whereupon, a discussion
21
was had off the record.)
22
THE HEARING OFFICER:
We are going to open
23 questioning for Mr.
Kanerva, but let's keep in mind
24 the fact that he testified generally about the
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1 proposal.
2
I don't know if he is prepared to answer
3 specific questions to specific sections. So if you
4 have general questions about the overview or how this
5 proposal might interact with other things out there,
6 I think that that might be appropriate questions.
7
MS. FAUR: Hi. I'm Cindy
Faur from
8 Sonnenschein again.
9
In your testimony, you recalled a
10 meeting where you discussed the 18 percent reduction
11 exemption. Can you elaborate how 18 percent was
12 selected?
13
MS. SAWYER:
Well, this is one of those
14 areas -- I mean, he can answer it, but it is one
15 area that we will present more testimony on.
16
MR. KANERVA: Yes. I think that would
17 probably be the best way to handle that because there 18 was a
specific process the air folks looked at to
19 come up with that.
20
They clearly felt what the source view
21 as the quote, unquote, benefit or getting out of the
22 process, that it ought to be a larger reduction than
23 just the 12 percent. There ought to be some gain to
24 it. They can explain that.
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1
MS. FAUR: Okay.
2
MS. ROSEN: I'm Whitney
Rosen from the
3 Illinois Environmental Regulatory Group.
4
If this is a specific question, I
5 apologize. How often does the agency plan on
6 conducting matter file reviews that you have referred
7 to in your testimony?
8
MS. SAWYER: I'm sorry to do this, and I'm not
9 trying to be difficult on this, but we're going to
10 present testimony by David
Kolaz and he is in charge
11 of the agency's compliance unit, and he would be more 12 able to
answer that question.
13
MS. ROSEN: Thank you.
14
MS. MIHELIC: I'm
Tracey Mihelic from Gardner, 15 Carton &
Douglas.
16
You spoke earlier about the members of
17 the design team that were companies located in the
18 Chicago nonattainment area and I have Abbott Labs and 19
Caterpillar. Who were the other companies?
20
MR. KANERVA: Corn Products Company and
21 Amoco.
22
MS. MIHELIC: Do you know what the annual
23 emissions from these sources currently are?
24
MR. KANERVA: They are listed in the final
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1 proposal document. I don't remember off the top of
2 my head what they were.
3
MS. MIHELIC: Did the agency ever consider,
4 including the design team, a source with low VOC
5 emissions, perhaps below 20 tons?
6
MR. KANERVA: I was going to ask you what you
7 mean by low.
8
MS. MIHELIC:
Around 25 tons.
9
MR. KANERVA: Actually, I don't know. Bill
10 Compton may be testifying about this. Caterpillar's
11 emissions at one of their facilities really are not
12 that large. I forget.
I think they are not more
13 than 25. That's Joliet. They are not a
multi
14 hundred tons of source by far.
15
MS. MIHELIC: You stated earlier that you
16 participated in drafting the language of Section 9.8, 17 is that
correct?
18
MR. KANERVA: Yes.
19
MS. MIHELIC: Can you tell me what
20 proportionate share means in Section 9.8(c)(3)?
21
MR. KANERVA: That's one where Mr.
Mathur is
22 the best expert to describe that, not me. I
23 steadfastly stayed out of the proportionate share
24 debate.
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1
MS. MIHELIC: So you don't know what
2 proporationate share means, the definition?
3
MR. KANERVA: I think he can give you the
4 most accurate description of it. I think I have in
5 my mind a concept, but it gets involved to say it
6 correctly.
7
MS. MIHELIC: I guess, for the record,
Bharat
8 would be part of the panel that later we're going to
9 be able to ask questions to?
10
MR. MATHUR: That's right.
11
MS. MIHELIC: Do you know what the threshold
12 for sources that were going to be subject to the
13 South Coast Areas Reclaim Program, VOC reclaim
14 program was?
15
MR. KANERVA: If recollection serves me
16 correctly here, when they were still doing all three
17 pollutants, SO2 and
VOCs, I think their threshold was 18 four tons
on an annualized basis, which is pretty
19 small.
20
MS. MIHELIC: Is there a difference between
21 sources in the South Coast area and the Chicago
22 area which makes it more difficult to seek reductions 23 from
sources with four tons or above?
24
MS. SAWYER: Could you restate that question?
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1
MS. MIHELIC: Is there a difference between
2 the types of sources located in the South Coast area
3 and Chicago area which makes it more difficult to
4 seek reductions from four-ton sources or involved in
5 the Chicago area?
6
MR. KANERVA: I have just a couple comments.
7 We are not at a four-ton level so I'm not quite sure
8 why you're referring back to the four tons.
9
MS. MIHELIC :
I'm wondering why you chose --
10 why in the South Coast area, there are four tons and
11 what the difference of the source is here. Why would 12 they need
to go down to four-ton sources?
13
MR. KANERVA: I'm not --
14
MS. MIHELIC: I guess
Bharat should be
15 answering these questions? I don't mind.
16
MS. SAWYER:
He is a sworn in witness.
17 That's fine.
18
MR. MATHUR:
There are no differences in
19 the kind of sources in South Coast and in the Chicago 20 area, but
we have to remember that the South Coast
21 area, which is predominantly Los Angeles, is an
22 extreme nonattainment area and their need for VOC
23 reductions is significantly higher than in Chicago.
24 I believe that is one reason they went down to four
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1 tons.
2
MR. KANERVA: They have also historically
3 regulated sources to a greater extent in the past
4 than we have had to do here so far.
5
MR. MATHUR: That is correct.
6
MS. MIHELIC: Do you know what the South
7 Coast Area Quality Management District is doing to
8 demonstrate compliance with the Clean Air Act since
9 it has dropped its reclaim program for
VOCs?
10
MR. KANERVA: I'm not current on that.
11
MS. MIHELIC: Okay.
12
MR. MATHUR: Let me add to that.
13
Based on my information, the South Coast 14 area has
not dropped their VOC reclaim program. They 15 have deferred the
startup of that program.
16
MS. MIHELIC: When you say defer the startup,
17 have the regulations actually been enacted?
18
MR. MATHUR:
I do not believe that they have
19 formally been adopted by their board. They have been 20 developed.
By deferred, I mean they have deferred
21 the startup of their VOC reclaim program.
22
MS. MIHELIC: I guess I'm trying to say when
23 you say startup of the VOC program, it's not
24 enacted, so they have deferred enacting that program
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1 also.
2
MR. MATHUR: That's my information, but they
3 would know best.
4
MS. MIHELIC: The rest
of the questions are
5 specific.
6
THE HEARING OFFICER: Anyone else?
7
MR. TREPANIER: Good afternoon. I'm
8 Mr. Trepanier.
9
What's your best estimate of the
10 manpower that's needed -- excuse me -- the people
11 power that's needed to operate the system?
12
MR. KANERVA: That's really a question for the 13 Air Board
to answer.
14
MS. SAWYER: Yes. It's primarily going to be
15 the Air Program to implement it.
16
MR. MATHUR: Let me answer that. We plan to
17 implement it with the staff we've got and if down the 18 road we
need additional staff, we shall so seek
19 additional staff.
20
MS. McFAWN:
How many persons is that,
21 Bharat?
22
MR. MATHUR: If the Division of Air, there are 23 about 275
people. Exactly how many will be involved
24 in this particular program, I cannot tell at the
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1 moment.
2
MS. McFAWN: Okay.
3
THE HEARING OFFICER: Are there any other
4 questions?
5
MR. TREPANIER: Is the program designed to net
6 a 12 percent reduction from source points by 1999?
7
MS. SAWYER: I think we've answered that
8 questions on numerous questions.
9
MR. TREPANIER: Okay. I'll ask the next
10 question, assuming that the answer to that is yes,
11 is that 12 percent reduction necessary for compliance 12 with the
Clean Air Act?
13
MS. SAWYER: I think we've answered that
14 question also.
15
MR. TREPANIER: That has not been made clear
16 to me. I have heard a nine percent rate of progress
17 is required and this program is shooting for 12
18 percent.
19
MS. SAWYER: Well, we did explain that in
20 greater detail during Mr.
Forbes' questioning or
21 Mr. Forbes' direct testimony. He went through a
22 slide that explains that.
23
THE HEARING OFFICER: Can Mr.
Kanerva answer
24 the question?
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1
MR. KANERVA: Well, the other three percent,
2 one percent is for the ACMA and two percent is to
3 satisfy contingency requirements that's looked for
4 in the implementation plan.
5
If you are sitting in
Bharat's seat
6 and you are trying to hit exactly nine percent,
7 it's a little bit of a challenge to be comfortable
8 with that. So there is an additional two percent
9 contingency there.
10
MR. MATHUR: Let me add to that for the
11 record. The Clean Air Act requires an aggregate
12 nine percent reductions of the total VOC inventory
13 over a three-year period.
14
The Clean Air Act does not require that
15 each sector has to do nine percent. Mr.
Forbes, in
16 his testimony, and I, in mine, explained how we
17 arrived at the 12 percent of this particular
18 proposal.
19
MR. TREPANIER: Maybe you can understand the
20 difficulty in assimilating this information when it
21 came prior to the general description.
22
I was reading in the EPA, Section 9.8,
23 that the design of the system is to maintain
24 attainment. If given in 1999 we have made the 12
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1 percent deduction, how would the trading system
2 maintain -- have an effect on maintaining
3 attainment?
4
MR. MATHUR: Let me answer that. As we have
5 explained several times over the last two days, this
6 particular reduction target of 12 percent is the
7 first phase of the possible
multi phase emissions
8 reduction targets. The 12 percent is the initial
9 contribution, in other words, helping achieve and
10 subsequently maintaining the ozone standard.
11
THE HEARING OFFICER: Are there any other
12 questions?
13
MR. TREPANIER: Yes. Well, in this question,
14 what I'm asking, short of another rulemaking, how
15 does this program in 1999, this pollution trading,
16 assist in maintaining attainment?
17
MR. MATHUR: It does not. It does not intend
18 to achieve in maintaining attainment at this time. I 19 think the
agency has stated several times after the
20 completion of the OTAG study, we intend to come back
21 to the board should it be determined that we need
22 further reductions on the stationary sector through
23 a continuation or revision to the trading program.
24
MR. TREPANIER: Okay. I think I'm starting
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1 to understand where I'm not connecting with you on
2 this question. I'll rephrase it.
3
When Chicago ultimately obtains
4 attainment, is there anything in this trading
5 system that would assist in maintaining attainment?
6
MR. MATHUR:
Yes. When we finally come
7 in with the final target reduction, the level of
8 emissions that will be achieved by the stationary
9 source sector at the end of the trading program,
10 that will be a final cap that those sources will
11 have to maintain.
12
By maintaining that cap which would be
13 adequate to demonstrate attainment, we expect we will 14 maintain
attainment.
15
MR. TREPANIER: You referred to the end of the 16 program.
So that would be at the point of attainment 17 then?
18
MR. MATHUR: That is correct.
19
MR. TREPANIER: And is that also your
20 understanding, Roger, that the program ends at the
21 point of attainment?
22
MR. KANERVA: No. The program doesn't end.
23 The reduction stops when you get to your attainment
24 target, but the emissions cap -- what he is trying
L.A. REPORTING - (312) 419-9292
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1 to say, the emissions cap for each source stays in
2 place and they continue to get allotment and they
3 continue to have to show compliance and in that way,
4 we are sure that we can stay at that reduced level of
5 emissions.
6
MR. TREPANIER: When that emis
sions cap is in
7 place, is that going to be included in that source's
8 Clean Air Act permit?
9
MR. KANERVA: Yes.
10
MR. TREPANIER: So if the cap is included
11 within the Clean Air Act permit, what purpose is
12 the granting of allotments and the trading of
13 allotments -- how is that related to maintaining
14 that cap if the cap is already maintained in the
15 clean air permit?
16
MR. KANERVA: Well, the cap is in the form of
17 an allotment, X-number of
ATUs, and we covered their
18 emissions at ten
ATUs per ton. That's what the cap
19 is. It's a certain amount of allotment trading units 20 that are
issued to that source.
21
Now, it's up to them to do what they
22 will with that. They can use it for compliance
23 purposes or if they make reductions of some kind
24 and they have trading units available to trade
L.A. REPORTING - (312) 419-9292
403
1 with someone else, it's all up to them. Nobody
2 has to trade.
3
The source, in fact, can act in a
4 traditional manner if they want and just do emission
5 reductions and sit tight. It wouldn't make a whole
6 lot of sense if they can get some value of it, but
7 they could.
8
MR. TREPANIER: Could they use their
9 allotments as collateral for a million dollar loan, I
10 mean, given economics on the market.
11
MR. KANERVA: That's not relevant to this.
12
MS. SAWYER: That's a speculative question
13 and Mr. Kanerva is not in a position to answer that
14 essentially legal or tax-based question.
15
THE HEARI NG OFFICER: I don't think it goes
16 to this testimony either. So I think you can ask
17 another question if you have one.
18
MR. TREPANIER: When you recall the meetings
19 that were held in coming forward with the proposal,
20 the meetings that you were able to recall, are
21 those -- do you recall a meeting where you came
22 forward with this proposal, that you met with people
23 from the community that weren't from the potentially
24 regulating communities?
L.A. REPORTING - (312) 419-9292
404
1
MS. SAWYER: First of all, before we go on
2 with this questioning, you have asked this question
3 essentially in some form or another with every
4 witness and as Board Member
McFawn explained, we
5 are in the process of going through the public
6 hearings for this rulemaking proposal.
7
This is the forum that the General
8 Assembly found to be the appropriate forum to conduct
9 these public hearings. I think you can answer in
10 terms of outreach meetings that we held.
11
MR. KANERVA: You used the word community.
12 I will respond, but I'm not sure if I'm connecting
13 up with you. You can let me know if I am or not.
14
In terms of interested groups, we
15 obviously met with all the sorts of folks in the
16 regulating community, but we also met with public
17 interest groups. I think you attended one sort of
18 workshop session that we had. I believe it might
19 have been about the second drafts or maybe the
20 third.
21
I didn't double-check this, but you sat
22 in on a workshop that Roy
Harsch helped arrange with
23 us. There were some public groups there. There was
24 public interest group participation from the Chicago
L.A. REPORTING - (312) 419-9292
405
1 Lung Association and several others as well the
2 Midwest Center for Environment Policy that sat in
3 on the more or less quarterly policy advisory group
4 meetings that we had, the great big group that we
5 would get together and update on our work.
6
That was the main way we us
ed to
7 outreach to people. If they wanted to meet with
8 us and they had some kind of workshop discussion,
9 we would do that in group settings if we could.
10 I don't even recall a number. It's a lot.
11
MR. TREPANIER: Did you hold a public
12 meeting with persons that had environmental concerns
13 regarding the proposal as I had requested when I
14 did find out about the workshop in Chicago on the
15 day prior to it occurring and requested that such a
16 meeting be held, was that ever held?
17
MR. KANERVA: The meeting you are describing
18 was not held. What we did -- and again, this is sort 19 of an
efficiency thing, we felt it would make sense
20 to get public interest groups together as sort of a
21 group type of thing to talk to as many folks as we
22 could or as possible.
23
The discussion basically was they
24 weren't comfortable with that particular mix of
L.A. REPORTING - (312) 419-9292
406
1 groups. So the whole thing sort of fell a part
2 and we finally wound up meeting with a couple of
3 them individually, but we did not put in place
4 the meeting that you are talking about.
5
MR. TREPANIER: Do you have knowledge that
6 the -- if the agency did any mailing to the mailing
7 list they established?
8
Are you aware of the mailing list that
9 you directed me to for this proposal? Do you still
10 recall that that existed?
11
MR. KANERVA:
Yes. There is a mailing list
12 for everybody involved in our policy group activity.
13 There was a mailing list for that. Now, you are
14 saying proposal. That's probably a separate
15 arrangement
16
MS. SAWYER:
Yes. We sent out numerous
17 drafts to the entire group.
18
MR. KANERVA: Every one that was on the
19 original mailing list for the clean air policy
20 group?
21
MR. KANERVA: That's the mailing list. That's 22 who we
sent the draft various -- draft rules.
23
MR. TREPANIER: Is that a mailing list
24 separate from the Clean Air Forum mailing list?
L.A. REPORTING - (312) 419-9292
407
1
MR. KANERVA: It's the same.
2
MS. SAWYER: It's bigger.
3
MS. McFAWN: You seem to be having some
4 confusion about the mailing list. I have to say
5 I'm not quite sure what this mailing list is
6 myself. I'm not sure how relevant it is to this
7 proceeding. Maybe you could provide us with a copy
8 of it in its final form and just an explanation of
9 when and how you used it?
10
THE HEARING OFFICER: Are there --
11
MS. SAWYER: I guess. I mean, we have had
12 this question asked to numerous people. Maybe we can 13 talk about
it after the hearing. I guess we are not
14 sure what you are trying to get at with all of these
15 questions.
16
MR. TREPANIER: I can submit it in writing
17 because I know the names of persons, who held the
18 mailing list and what date they had the mailing list
19 on and what date you told me my name was on the list
20 and the fact that there was never a mailing from
21 this list although other lists were used. I'm trying 22 to ask
questions along this and you seem not to be
23 real clear on what mailing list was used.
24
MS. SAWYER: Well, we have numerous mailing
L.A. REPORTING - (312) 419-9292
408
1 lists.
2
THE HEARING OFFICER: I guess at this point
3 since Mr. Kanerva has to leave at 4:00 that I will
4 stop with this line of questioning. If you feel a
5 need to raise these questions at another time, and
6 I think possibly in the interim, you can talk to the
7 agency, you can raise those questions at the next set
8 of hearings and see what we get.
9
Now, if you have other questions for
10 Mr. Kanerva beyond what mailing list was used prior
11 to the proposal being filed, feel free to ask that.
12
MR. TREPANIER:
Okay. I might need a
13 minute.
14
THE HEARING OFFICER:
Okay. I have a
15 question.
16
In the beginning of your testimony,
17 you mentioned a feasibility study being done.
18 Now, was the study done before the final design
19 proposal?
20
MR. KANERVA: Yes.
21
THE HEARING OFFICER:
Was that s tudy part of
22 the record?
23
MS. SAWYER:
Let me just clarify what study
24 you're referring to. Since the pre-feasibility?
L.A. REPORTING - (312) 419-9292
409
1
MR. KANERVA:
No, the pre-feasibility study.
2
MS. SAWYER:
I believe so. I have to look,
3 though.
4
THE HEARING OFFICER: If you could, check to
5 see if it is? If it isn't, is there any way we could
6 get it included?
7
MS. SAWYER: Sure.
8
THE HEARING OFFICER: I have one other quick
9 question. I could probably read the rule and find
10 out for myself, but I'll just ask it anyway.
11
In the year 2000, under the diagram
12 we are talking about, how the agency has to make
13 a ROP demonstration, is that to the U.S. EPA?
14
MR. KANERVA: Yes.
15
THE HEARING OFFICER: I have one more
16 question.
17
In your discussion about the baseline
18 emissions, I could probably figure this out too, but
19 you talked about you could substitute other years
20 justified by, you know, justified within the 1990
21 1997-year span. If you are a new source, is there
22 a span for new sources to justify or do they start
23 with 1990/1997?
24
MR. KANERVA: I assume Chris will probably
L.A. REPORTING - (312) 419-9292
410
1 get into that with more detail. It's a separate 2 procedure for a
new source.
3
THE HEARING OFFICER: Okay. I'll save it 4 then.
5
MR. KANERVA: There's two different approaches 6 depending
on whether it's a major new source or not.
7
THE HEARING OFFICER: Thank you.
8
MS. McFAWN: I have a quick question also.
9
Like Chuck is saying, it's probably
10 in the rule, but concerning interceptor transactions, 11 you said
ATUs will be assigned emission reductions, 12 who receives those
ATUs,
for car scrapping activity, 13 the car scrapper or the state?
14
MR. KANERVA: Actually, that's something we
15 wound up streamlining a fair amount. It started
16 out that we were thinking of just giving those to
17 whoever it is that generated the actual reduction
18 like the car scrapper or whatever.
19
We finally realized that in order to
20 keep the mechanics of the system working better, et 21 cetera, any
of those reductions ought to be applied 22 for through one of the
participants.
23
So we actually -- actually, part of
24 the sponsorship would be linked up to the
L.A. REPORTING - (312) 419-9292
411
1 participating source or a general participant and 2 they would
actually be part of applying for those 3 and they are the ones that
would actually get the 4
ATUs.
5
MS. McFAWN:
So for instance, if it was a 6 car scrapper, it
would make more sense that they 7 would be a general participant?
8
MR. KANERVA: Right.
9
MS. McFAWN: Thank you.
10
THE HEARING OFFICER: Are there any other
11 questions?
12
MR. DESHARNAIS:
I have one question. You
13 mentioned that the ERMS database will be available in 14 bulletin
board format. Is that going to be available 15 on the Worldwide Web or
how is access
16 to that going to be?
17
MR. KANERVA: That's an interes
ting thought. 18 It could
be, but at this point, we really focus more 19 on just having it set up
as a database -- a typical 20 database to be accessed by the account
holders as our 21 main focus. That doesn't mean that we couldn't put
22 it up for anybody to access on a broader scale.
23
MR. DESHARNAIS: The question I'm getting at 24 is access.
L.A. REPORTING - (312) 419-9292
412
1
MR. KANERVA:
Right. We clearly would want
2 to have good accessibility because we have had --
3 this question about how do we find each other in
4 the marketplace and we don't want to wander around
5 blind and all the rest, that's come up continuously.
6 So we said anybody would be able to access and find
7 out if people were posting units for sale or
8 interested in a purchase or actually check allotment
9 levels, too, so you can kind of make your own
10 judgment as to who to talk to.
11
THE HEARING OFFICER: Mr.
Newcomb?
12
MR. NEWCOMB: I have just a quick question.
13
Has the IEPA alread
y determined who the
14 contractor is to design the ERMS database?
15
MR. KANERVA: No, and we are taking no
16 applications today!
17
MR. TREPANIER: When the emissions -- when
18 certain emissions are not regulated under this
19 program, emissions such as emergency conditions
20 or startup and malfunction, if those are provided
21 for in the operating permit, has the design team
22 totaled the amount of emissions from the source
23 points that they are exempting from the program?
24
MS. SAWYER: This is a question that I
L.A. REPORTING - (312) 419-9292
413
1 would defer to Mr. Romaine or Mr.
Forbes.
2
MR. TREPANIER: Okay. You mentioned that in
3 December of '93 that the design team was surprised
4 to learn that the reductions in
NOx might actually
5 increase the ozone.
6
My question is since the late '80s,
7 the U.S. EPA and specifically in 1989, the Office
8 of Technology Assessment, has published information
9 saying that it's historically known that
NOx is not
10 the problem in urban areas and reductions in
NOx
11 might actually increase ozone. How is it that the
12 design team was surprised in December of '93 with
13 this information?
14
MR. KANERVA: That's really a question for
15 you.
16
MR. MATHUR:
Let me answer it. You are
17 correct in stating that it has been demonstrated
18 prior to 1990 that
NOx reductions may increase
19 ozone.
20
The Clean Air Act in 1990 that allowed
21 the use of VOC reductions and
NOx reductions towards
22 credit for ROP was a particularly attractive
23 opportunity in the Chicago area where
NOx production
24 had not been previously sought therefore would have
L.A. REPORTING - (312) 419-9292
414
1 been relatively cheap to get.
2
The agency was hoping that those
NOx
3 reductions would become available for use in a
4 Chicago ROP strategy. It was on that basis that
5 the design team embarked on a
NOx trading program.
6
The surprise came when modeling done
7 by the Lake Michigan Air Directors Consortium, which
8 I discussed yesterday, confirmed that the phenomenon
9 that had been known before did exist in Chicago.
10
Therefore, NOx was not available because 11 of its
attractiveness. That was a surprise. Not all 12 urban areas of this
country are experiencing the same 13 phenomenon. It is not true that
NOx is not a viable
14 option in all urban areas.
15
MR. KANERVA: In fact, the Ozone Trading
16 Commission for the northeast has already agreed
17 to and voted on and is pursuing the implementation
18 of a NOx reduction study for the northeast because
19 their modeling showed a different effect.
20
MR. MATHUR: That is correct.
21
MR. KANERVA: It really is area-specific in
22 how it works out.
23
MR. TREPANIER: Okay.
24
MS. MIHELIC:
I have one more question.
L.A. REPORTING - (312) 419-9292
415
1 I think you stated during your testimony that the
2 agency is still considering a
NOx reduction program
3 in the Chicago
nonattainment area.
4
Is that correct or not?
5
MR. KANERVA: No,
NOx reductions in Illinois.
6 In other words, upwind because of this OTAG
7 background ozone study process that's underway,
8 there may turn out to be
NOx reductions outside of
9 Chicago.
10
MS. MIHELIC: But you are no longer
11 considering NOx reductions inside the Chicago area?
12
MR. KANERVA: That's correct.
13
MR. MATHUR: Let me add to that. Like I
14 testified yesterday, it is still our technical
15 conclusion that
NOx reductions in Chicago cause
16 disbenefits. We await final results of the OTAG
17 analysis to determine if that continues to be the
18 case under all of
OTAG's scenarios and even if it
19 continues to be the case, are there any benefits
20 from NOx reductions in Chicago that outweigh the
21 disbenefits?
22
Therefore, we have not finally concluded 23 that
there never will be
NOx reductions in the
24 Chicago nonattainment area. That is our position as
L.A. REPORTING - (312) 419-9292
416
1 of today.
2
MS. MIHELIC: Has OTAG come u
p with any
3 conclusions of what benefits there may be to
NOx
4 reductions in the Chicago area?
5
MS. SAWYER: I'm going to object to this line
6 of questioning. This is a VOC emissions reduction
7 program that we are talking about here.
8
MS. MIHELIC: And I think with all of the
9 alternatives here, the reason that the VOC program
10 has arisen is because it was a
NOx reduction program. 11 Initially,
there is testimony that was provided this
12 afternoon to cause it to realize
NOx isn't right,
13 let's go to the VOC program and --
14
MS. SAWYER:
And I realize that, but I think
15 there is a level of questions that are relevant in
16 that area, but too many questions, I just don't see,
17 as relevant to this proceedings.
18
MS. MIHELIC: Well, because if there are
NOx
19 reductions in the Chicago area, when I have heard
20 testimony yesterday and today, that is going to
21 perhaps cause further reductions in
VOCs to be
22 required because it will be a
disbenefit in this
23 area that will actually cause ozone to increase.
24
THE HEARING OFFICER: What was the question
L.A. REPORTING - (312) 419-9292
417
1 again?
2
MS. MIHELIC: What are the benefits from --
3 what are some of the benefits that OTAG has concluded
4 exist when there are
NOx reductions in the Chicago
5 nonattainment area?
6
THE HEARING OFFICER: Can you answer that?
7
MR. MATHUR: Yes, I can answer that.
8
OTAG has not made any final conclusion
9 yet.
10
THE HEARING OFFICER: It's five minutes to
11 4:00. Mr. Kanerva has to leave a 4:00. So if there
12 are any questions to his overall statements today,
13 why don't we ask Mr.
Kanerva those questions?
14
I'm sure Bharat will be around for the
15 next set and so will Mr.
Kanerva, I hope, but let's
16 focus on Mr.
Kanerva for this last five minutes.
17
Are there any more questions?
18 Okay. Let's go off the record.
19
(Whereupon, a discussion
20
was had off the record.)
21
THE HEARING OFFICER: I think the next
22 hearing we will start off with the agency's
23 presentation of the testimony of the several
24 witnesses. They have mentioned Chris Romaine,
L.A. REPORTING - (312) 419-9292
418
1 Don Sutton, David Kolaz, and Gail. I forget
2 Gail's last name.
3
We will do that in the morning and then
4 we will start up with the questions for them as a
5 panel group who will be joined by Dick
Forbes and
6 Bharat in the afternoon.
7
On the 4th, then, we'll start off, I
8 believe, with Mr.
Goffman's testimony, if he has
9 anymore and questions of him. In the afternoon,
10 I guess we will jump back and see if we have any
11 testimony from the agency unless we have questions
12 from the other day for the panel before we go on,
13 if that's okay.
14
MS. McFAWN: I would say what Chuck alluded
15 to was that we might have to have more hearings and
16 depending on how the questioning of the panel goes,
17 we probably will have a better idea on the 3rd and
18 4th. We would love to know now, but that's
19 premature.
20
Do bring your calendars with an idea
21 of when you think you might be able to reconvene.
22 What we will do is try to set aside a couple of
23 dates that we know we can get rooms for and present
24 them to you at that time.
L.A. REPORTING - (312) 419-9292
419
1
MS. MIHELIC:
I just have a question. There
2 was one -- a person mentioned earlier that would be
3 testifying on the 3rd -- not on the 3rd, but on the
4 4th on the economic impact analysis. What was the
5 name of that person?
6
MS. SAWYER: Cal Case.
7
MS. MIHELIC: And is there any
prefiled
8 testimony by Cal Case?
9
MS. SAWYER: No, there isn't.
10
MS. MIHELIC: And will there be
prefiled
11 testimony prior to the hearing?
12
MS. SAWYER: I'm not entirely sure. He is
13 essentially -- the purpose of his testimony is that
14 he is an economist. He has essentially taken a look
15 at what we did, but he has not conducted an
16 independent economic analysis.
17
MS. MIHELIC: I think that the purpo
se of
18 the prefiled testimony is to allow an opportunity
19 to allow prefiled questions and that opportunity
20 will not be available for his testimony.
21
THE HEARING OFFICER: Let's go off the record
22 for a second.
23
(Whereupon, a discussion
24
was had off the record.)
L.A. REPORTING - (312) 419-9292
420
1
THE HEARING OFFICER: So we were talking
2 about how the 3rd and 4th are going to be handled.
3
I also have mentioned that this
4 transcript is being done
expeditously, which I am
5 told by Lori that we will have it by Monday of next
6 week. Hopefully, that will be here in the board's
7 office for review. You can get copies from Lori.
8 We will be putting it on the web for review hopefully
9 by Tuesday or Wednesday.
10
With that, I will end unless there is
11 something else to be discussed from today's hearing.
12 I will see you all on the 3rd at 10:00 o'clock.
13
(Whereupon, the proceedings held
14
in the above-entitled cause were
15
adjourned to be reconvened at
16
10:00 o'clock a.m. on February 3,
17
1997.)
18
19
* * * * * * * *
20
21
22
23
24
L.A. REPORTING - (312) 419-9292
421
1 STATE OF ILLINOIS )
) SS.
2 COUNTY OF C O
O K )
3
I, LORI ANN ASAUSKAS, CSR, RPR, notary
4 public within and for the County of Cook and State
5 of Illinois, do hereby certify that the testimony
6 then given by all participants of the rulemaking
7 hearing was by me reduced to writing by means of
8 machine shorthand and afterwards transcribed upon
9 a computer, and the foregoing is a true and correct
10 transcript.
11
I further certify that I am not counsel
12 for nor in any way related to any of the parties to
13 this procedure, nor am I in any way interested in the 14 outcome
thereof.
15
In testimony whereof I have hereunto set 16 my hand
and affixed my notarial seal this 27th day of 17 January,
A.D., 1997.
18
_______________________________
Lori Ann Asauskas, CSR, RPR
19
Notary Public, Cook County, IL
Illinois License No. 084-002890
20
21
SUBSCRIBED AND SWORN
22 before me this 27th
day of January, 1997.
23
_____________________
24
Notary Public
L.A. REPORTING - (312) 419-9292