ILLINOIS POLLUTION CONTROL BOARD
March
8,
1984
IN THE MATTER OF:
R81—20
ALTERNATIVE CONTROL STRATEGIES,
)
(Docket B)
FINAL RULE (Docket B)
)
ADOPTED RULE.
FINAL ORDER.
OPINION AND ORDER OF THE BOARD
(by J.
Anderson):
I.
Procedural History
On June
2,
1983 the Final Rule in the proceeding captioned
R81—20,
Alternative Control Strategies was divided into two dock—
ets.
Docket A was adopted on that date and filed with the Secre-
tary of State.
Docket
B, pertaining to Section 202.401: Duration
(formerly Section 202.145), was published in the Illinois Register
on July
8,
1983 to obtain additional public comment on the “useful
life” issue.
A hearing was held on Docket B on October 28,
1983.
Subsequent to that hearing,
an additional public comment period
was allowed to enable hearing participants to summarize their
views.
The record which
forms the basis for this rulemaking is
the following:
the public comment, testimony,
exhibits, Economic
Impact Study,
(EcIS) and Orders and Opinions of the Board in R81-
20
(Interim Rule) and R8l20
(Final
Rule, Docket A), the public
comment received following the July
8,
1983 Register publication
of Docket
B, the transcript of the October 28,
1983 hearing, and
the public comment received following that hearing.
Notice of this rulemaking was filed with the Joint Committee
on Administrative Rules
(JCAR)
for Second Notice pursuant to Sec.-
tion 5.01(b) of the Administrative Procedure Act.
JCAR reviewed
this rulemaking at its February 23,
1984 meeting and had no
objections.
The Second Notice period expired on March
5,
1984.
II.
Introduction to the Useful Life Issue
The Opinion accompanying Docket A of this proceeding explains
the evolution of the useful life limitation in this proceeding.
Briefly,
the initial
proposal for the Interim Rule did not address
shutdown emission sources at all.
However,
the adopted Interim
*The Board appreciates the efforts of administrative
assistant Pat Sharkey,
who acted as Hearing Officer and
provided assistance
in drafting this rule and Opinion.
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—2.-
Rule did allow credit for shutdowns and also stated that an
Alternative
Control Strategy (ACS) permit “may not be issued for
a period of time which is greater than the useful life of an
emission source which contributes an emission reduction to the
ACS” and noted that the burden of proof on this issue
is on the
applicant.
Docket A of the Final Rule adopted the additional
limitation that “a shutdown emission source shall be deemed to
have a useful life of no more than five years.”
The Board has maintained, since the adoption of the Interim
Rule, that the crediting of emission reductions from shutdowns
will not threaten the “environmental equivalence”
goal of the ACS
so long as such credits are limited in duration to the life
expectancy of the emission source.
(See the June
2,
1983, Opin-
ion and Order of the Board,
R81-20
(A), pp.
21-23.) However, the
Board has also recognized the need to provide standards for the
determination of useful
life.
In Docket
A, the Board adopted the
five year maximum limit as
a “reasonable temporary solution”
which would provide a definite, limited duration until a more
flexible and realistic standard could be developed.
This rule-
making
is designed to provide such a standard.
In the Docket B comment periods, two commenters reiterated
their position that the “useful
life” limit should be omitted
entirely.
(P.C.
48 and 50.)
However, they do not refute the
Board’s finding in Docket
A that absent the useful
life limit air
quality degradation would be allowed to occur.
The Board once
again notes the Economic Impact Study finding that the useful
life provision will avoid air quality degradation costs
of be-
tween $6.7 and $33.4 million.
(See EcIs pp. xvi—xvii,
pp.
86—126.)
To eliminate the useful
life provision while allowing
the uoe of emission reduction credits from shutdowns would under-
mine the “environmental equivalence”standard established in the
Environmental Protection Act
(Ill.
Rev.
Stat.
ch. 111½, par.
1009.3) because existing pollution levels would linger on in the
form of emission reduction credits beyond the normal lifetime of
the emission source.
Thus, the Board cannot eliminate this
provision even if we accept the lower estimate of economic
damages,
as suggested by one commenter.
(P.C.
48.)
Moreover,
linking the duration of an emission reduction
credit to the expected useful life of the equipment producing the
credit is
an equitable solution to the shutdown problem.
One
witness stated that the assigning of a useful life to an emission
source would require complex,
subjective and speculative decision
making.
(H.
1054—1060.)
S~thilethe determination of useful life
does involve prediction,
the planning processes of most businesses
involve making similar predictions.
(P.C.
54,
R.
1067.)
Further—
more, the mechanism for reevaluation established in this requla—
tion will allow the Agency and applicant to verify their original
57-80
—3—
estimates of useful
life.
(R.
1110—1112)
The Board also notes
that a clear statement of the duration of such credits should be
of benefit to business planning, emission reduction “trading”,
and air quality management.
(R. 1055,
1110.)
!~eciflc
Provisions of~Pr~sal
As stated earlier, this rulemaking will delete the five year
maximum useful
life for shutdown emission sources.
The comments,
testimony and ECIS all indicate that the useful
life of emission
sources vary greatly,
and, furthermore, that a high percentage of
the emission sources involved would have more than a five year
useful life remaining upon entering an ACS.
(See Exhibit No.
1,
Economic Hearings, pp.
4—15.)
Instead of specifying a maximum duration, this rule provides
that useful life shall be determined on a case by case basis
after the consideration of “all factors which
the
Agency
rea-
sonably construes as bearing upon the useful life.”
Minimally,
the five factors listed in subsection
(b) must be considered.
Other catagories of considerations must be justified by the
Agency as bearing upon the useful
life question.
Where a shutdown emission source is providng an emission
reduction for use in an ACS, the ACS permit must contain the
Agency’s determination of the useful life as a permit coridition.*
It should be noted that the useful life may be determined to be
longer than the period for which a particular permit is issued.
By requiring that this determination be contained in a permit
condition, the Board intends that it may be appealed by the
permit applicant either upon issuance of the permit or upon any
renewal.
Upon initial permit issuance, the applicant may prefer
to accept a shorter useful life determination than it believes to
be correct,
and hope to pursuade the Agency to extend the useful
life when it comes up for review at renewal time.
Since there is
no advantage in forcing the applicant to appeal this condition
until
it actually restricts the operation of the ACS, and since
there may he an advantage
in allowing more information to develop
over time, an opportunity for appeal of the permit condition will
be available at either issuance or renewal without prejudice to
the petitioner.
While the mechanism of requiring the useful
life
determination as a permit condition was not specifically addressed,
the testimony at hearing presumed that useful life would be
treated as an “operating condition,”
(H.
1067-1088.)
Furthermore,
potential disagreements over useful
life can best be resolved
through the usual permit appeal process.
*5u~j~ctjon(b)
states that the Agency shall consider the
useful life of all emission sources which contribute an emission
reduction to the ACS.
This follows from the subsection
(a)
limitation that “an ACS permit may not
be
issued for a period of
time which is greater than the useful
life of an emission source
which contributes an emission reduction to the ACS.”
However,
the Agency need not specify the useful life as a permit condition
unless an emission reduction from a shutdown is involved.
57-81
‘-4—
As noted above, this rule requires that useful life be
considered both upon initial issuance of the permit and upon any
renewal.
A great deal of the October
28,
1983 hearing focused on
the “reevaluation” issue.
(See
H.
1048—1116.)
Most witnesses at
that hearing agreed that a reevaluation of useful
life upon
application for renewal was appropriate,
if not implicit.
(R.
1049—1050,
1081.)
At such time, new information or
a change in
circumstances may indicate that the actual useful life of the
emission source involved has turned out to be either longer or
shorter than originally predicted.
Where a shutdown emission
source is involved, the applicant and the Agency will look at
comparable emission sources when reevaluating the predicted
useful life of the now shutdown and long-gone equipment.
(R.
1115—1116)
Clarifying the fact that an opportunity for
reevaluation is available should alleviate some of the concern
about under or over predicting useful
life.
It provides an
ongoing mechanism for linking the duration of credits to what
is actually occurring in the industry involved.
Five
factors are listed in subsection
(b) which the Agency
must consider as a minimum.
Generally stated,
the Agency’s
review will begin by looking at the anticipated useful life of
the emission source and then add or subtract from that original
projection based upon the physical condition, technological
acceptability, and economic viability of the emission source.
It
will also test this projection against the demonstrated useful
life of other similar emission sources, particularly where the
emission source itself is shutdown.
Subsections
(b)(1)
and
(5)
were proposed in the Illinois Register publication and have been
retained as they are necessary components of the review process.
Subsections
(b)(2),(3), and
(4), as adopted here,
were developed
in response to comments received following the Illinois Register
publication.
Subsection
(b)(2) focuses
on
“the physical condition of the
principal components.”
The Illinois Register publication speci-
fied that the age,
level of use and wear, and operating effi-
ciency of the principal components were to be considered by the
Agency.
(See former subsections
(b)(2),(3),. and
(4).)
These
considerations all relate to the physical condition of the emis-
sion source.
(P.C.
49,
R.l070.,)
However, rather than list these
specific points, the Board has chosen to use the more general
term “physical condition” in subsection
(b)(2) in order to provide
a focus on the actual underlying concern with how well and how
long the equipment can physically be expected to operate.
Subsection
(b)(3) and
(4)
focus on technology and economics,
respectively.
Witnesses at the October 28,
1983 hearing, pointed
out that considerations other than the physical condition of an
emission source may also dictate its useful
life.
(R. 1068—1147.)
57-82
—5..-
For
example,
the
useful
life
of
an
emission
source
may
be
cut
short when advances
in technology or in the field make it obsolete
or technologically unacceptable to the industry.
In addition,
the physical useful life may be shortened when the operation of
an emission source becomes economically uriviable,
e.g. the product
line is phased out.
These considerations are valid because the
duration of an emission reduction credit should parallel the
operating lifetime that an emission source would have had had it
not been used in a ACS.
Examples were presented in the record of technological and
economic conditions
which may affect the useful life of an
emission source.
(H.
1068—1070.)
Simply stated, although an
emission source may he technologically current and viable at the
outset of an ACS, conditions in the industry may be anticipated
to change during the term of the ACS.
Where this is
foreseeable
at the outset,
the useful
life may he geared to these anticipated
changes.
Where these changes were not forseen at the outset,. but
are foreseen or have actually occured by the time of renewal, the
useful
life may appropriately be shortened or lengthened to
reflect these changes.
*
Subsection
(b)
has been revised to reflect the factors
discussed in the preceding paragraphs.
However, the Board has
declined to include some of the detailed language on these points
which was proposed in comments and the hearing testimony,
(P.C.
46,49, and 51;
H.
1149—1179.)
Where such detail merely provides
examples,
(H.
1137—1143.) the Board is not persuaded that it is
helpful, and,
in fact,
believes it might unduly focus the review
on what, in practice, may turn out to be inapplicable or ineffec-
tive predictors of useful
life,
(H.
1043,)
It may also imply
that other predictors are less valid.
(H.
1166.)
There is not
enough information in this record for the Board to determine
whether “profit margins,”
“product quality,” “corporate marketing
strategies”
or other suggested “examples”
of these factors are
*On
a
point
relateãto
the
“economic
viability”
considera-
tion,
one
witness
raised
a
question
as
to
whether
the
useful
life
provision
should
be
clarified
to
insure
that
an
emission
source
which
is
planning
to
eventually
shutdown
for
solely economic
reasons could not obtain an emission reduction credit for that
period.
(R.1149—1151..)
This should not be necessary.
Both the
Act and ACS rules require the impact of the ACS to be environ-
mentally equivalent to that which would otherwise be achieved and
maintained under existing requirements.
Therefore, under the
existing language no credit is available in such
a situation,
(See June
2,
1983 Opinion and Order of the Board, H81—20,
Docket
A,
pp.
15-16,
21.)
The Board also notes that the shifting of
production to another emission source outside the ACS would be
prohibited by Section 202.306(b)
in conjunction with 202.111(b).
57-83
valid predictors of useful life
Until more information is
developed on these points,
the Board believes it would be unwise
to require the Agency to consider them in every situation, as
would be required by the proposed amendments.
Rather, those
factors which the Agency “reasonably construes as bearing on the
useful life” will provide the standard for review of appropriate
predictors.
As one witness pointed out
(R.
1139), there is no
right to third party appeals on these permit decisions; however,
this is not unlike other permit decisions.
Furthermore, as
stated above, the Board does not believe the proposed detail
would provide greater protection of the public interest than a
comprehensive review of all relevant predictors.
Finally, this rule contains a new subsection
(C)
which
explicitly requires the Agency to make an appealable record of
what it has considered and the basis of its useful life determina-
tion.
While this information would not appear in the permit, it
would form a part of the permit file and provide a basis for
Board review on appeal.
ORDER
Section 202.401:
Duration
a)
A permit containing an ACS shall be issued for no
longer than five years,
or for such shorter period
as the Agency may specify as necessary for periodic
review of the ACS or to accomplish the purposes of
the Act or of this Chapter.
However, an ACS permit
may not be issued for a period of time which is greater
than the useful life of an emission source which
contributes an emission reduction to the ACS.
The
burden of proving the useful
life of the emission
source is on the applicant.
P-the-pt~peee—e~
~
~
b)
Upon the initial issuance or renewal of an ACS permit,
the Agency shall consider all
factors which it reason-
ably construes as bearing upon the useful life of an
emission source which contributes an emission reduc-
tion to the ACS.
Where
a shutdown emission source
contributes an emission reduction to an ACS, the
Agency shall specify the useful life of the shut-
down emission source in
a permit condition.
Factors
which the Agency considers shall
include, as a
minimum:
1)
The anticipated useful
life of the principal
components of the emission source upon purchase
57-84
-7—
~J
The physical condition of the principal
components
of the emission source
~J
The technological acceptability of the emission
source
j~,
The economic viability of the emission source
and
,~J
The demonstrated useful life of emission sources
of the same category or functional
type.
2j
The Agency shall make a record of the factors considered
and the basis for its initial or modified determination
of useful life made pursuant to subsection
(b).
IT IS SO ORDERED.
I, Christan
L.
Moffett, Clerk of the Illinois Pollution
Control Board, hereby certify that the above Opinion and Order
was adopted on the
day of
f)M.iJ.
,
1984 by a vote of
Christan L. ~
Clerk
Illinois Pollution Control Board
57-85