Illinois

Environmental

September 2004

Protection Agency

IEPA/BOA/04-020

Fossil Fuel-Fired

ORIGINAL

Power Plants

-

~

2 C'G

~~

Report to the House and

Senate Environment and

Energy Committees

Illinois Environmental Protection Agency

1021

North Grand Avenue East P0 Box

19276

Springfield, Illinois

62794-9276

Renee Cipriano, Director

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Fossil Fuel-Fired Power Plants

Report to the House and Senate

Environment and Energy

Committees

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Contents

Preface

11

Executive Summary

11 ,

Chapter 1 - Electric Generating Units in Illinois and Their Emissions of Concern 1

Chapter 2 - Human Health Implications from Air Pollution 2

Chapter 3 - Air Pollution Control Technologies For Reducing Power Plant Emissions 7

Chapter 4 -Overview of National Power Plant Emission Reduction Proposals and Their

Estimated Emission Reductions

17

Chapter 5 - Energy Issues: Federal and State Policies and Programs and Energy

Challenges

25

Chapter 6 - Opportunities Presented Through Renewable Energy, Recycled Energy, and

Demand Side Management

33

Chapter 7 - Greenhouse Gas Emissions: National, and Nongovernmental Policies and

Program, and Challenges

46

Chapter 8 - Overview of Emission Trading Programs

55

Chapter 9 - Costs and Market Impacts of Power Plant Emission Reduction Proposals 60

List of Appendices, Tables, and Figures

71

Acronyms

73

Endnotes

74

Appendices

A-1

i

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Preface

Parts of this report were taken directly from other non-copyrighted resources in the

interest of time and comprehensiveness, particularly reports published by the State of

Illinois, the federal government, and other states . Some of these portions contain only

insignificant wording changes from the original sources. Quotations are not strictly used

to distinguish these sections; however, an attempt has been made to accurately reference

and acknowledge these sources. The intent is not for the Illinois Environmental

Protection Agency to take recognition for the original work of these authors, instead, to

include the maximum amount of essential facts as accurately as possible within a

constrained time frame

.

ii

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Executive Summary

The Illinois Environmental Protection Agency (Illinois EPA) was asked by the Illinois

General Assembly to examine whether the State should address further potential

restrictions on power plant pollution. This request was made under Section 9 .10 of the

Environmental Protection Act (Act). This is a report of the Illinois EPA's findings .

The Illinois EPA has prepared this report of its findings to date based on consideration of

a broad spectrum of issues including health benefits, the impact on the reliability of the

power grid, the impact on consumer utility rates and the impact on jobs and Illinois'

economy.

It provides an overview of the principal issues, presents a review of the

information we have gathered that addresses those issues, lists information gaps and

uncertainties and finally, lists the work that remains to develop a solution that does not

create unintended adverse economic consequences for the people of Illinois

.

The information in the report was gathered in a variety of ways including extensive

literature reviews, discussions with peers and experts, and meetings and information

exchanges with the environmental community, power industry, and other interest groups

.

The report reflects the fact that, while many questions have been answered, critical

information gaps remain that must be addressed before any responsible proposal to

reduce power plant emissions can be developed .

Further restricting power plant pollution brings with it four major overarching issues that

must be carefully considered and weighed . First among them is the impact on peoples'

lives resulting from the pollution allowed by the present air pollution standards . Directly

related to this issue are the health and welfare benefits that might accrue with various

pollution control scenarios . Responsible consideration of these important public health

concerns requires a thorough analysis that examines compliance costs and the associated

impacts on employment and related healthcare coverage, electricity system reliability,

and electricity rates on Illinois' economy .

The State of Illinois is committed to providing its citizens with sufficient, reliable and

affordable electricity. The experience of last year's blackout that affected large parts of

the U.S. and Canada clearly demonstrated that the power grid is extremely vulnerable and

that energy reliability cannot be taken for granted. Likewise, affordable power has a

significant and immediate impact on the lives of the people of Illinois . Indeed, impacts of

pollution controls on electricity reliability and rates must be clearly understood before

any responsible and final decision can be made. The General Assembly clearly

understood these important issues in its drafting of Section 9 .10 .

The following sections outline Illinois EPA's major findings to-date in the areas of health

impacts, electricity reliability, electricity costs and jobs impact and presents outstanding

issues that must be addressed before determining the most prudent approach to reducing

power plant emissions in Illinois .

iii

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Health Impacts

The Illinois EPA reviewed the existing major studies on the health impacts of the

emissions from power plants, the technology available to mitigate these effects, and the

various pollution control strategies under consideration . We find the following to be

reasonable conclusions :

1. Public health is affected to varying degrees by emissions from fossil-fueled power

plants. According to U .S. EPA, particulate matter and ozone air pollution

resulting from sulfa dioxide and nitrogen oxides emissions are associated with

respiratory problems. Human exposure to methyl mercury from eating

contaminated fish is associated with adverse health effects .

2. Adverse health impacts can be minimized through the use of technology and

renewable energy.

3. Transport of pollutants from other states is a major contributor to the air quality in

Illinois, and Illinois itself impacts downwind states . Due to interstate transport of

air pollution, this is not an issue that can be contained within or to any single

state .

4. While there are numerous proposed emission reduction strategies aimed at

controlling power plant pollution at the national and state level, the U .S. EPA

currently has two formal regulatory proposals undergoing public scrutiny. U. S .

EPA made these proposals in January 2004 and has publicly stated that they

intend to propose final sulfa dioxide and nitrogen oxide rules by December 2004

and final mercury reduction rules by March 2005

.

5. Significant public health and welfare benefits can be derived by reducing power

plant emissions. For example, studies indicate that stricter emission limits would

reduce the frequency and severity of asthma attacks and other cardiovascular and

respiratory ailments. U.S. EPA predicts that its proposed national program will

provide $22 of benefit for every $1 of cost .

What we have not been able to determine is the following

:

1. What will be the health benefits of an Illinois-only approach given the significant

impact of interstate pollution transport?

2. To what extent would an Illinois-specific emission reduction approach achieve air

quality improvements and public health benefits in the absence of a national

emission reduction strategy?

3. Would an Illinois-specific approach result in greater reliance on coal-fired power

plants in bordering states that lack sufficient pollution controls?

4. If new emissions standards lead to lost jobs and higher consumer rates, what

impact would this have on the number of people who lose job-related health

coverage, the amount of income consumers can devote to health care costs, and

how any potential loss of coverage for individuals weighs against potential health

benefits created by new standards?

iv

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We need to examine the public health benefits that would accrue from

a state-specific

multi pollutant strategy,

not accompanied by reductions from out-of-state power plants

that are upwind and that contribute to measured air pollutant levels in Illinois . The

important lesson learned from the planning process to meet U .S. EPA's 1-hour ozone

standard is that a state could make very significant emission reduction within its own

boundaries, but still not meet the national health-based standards, unless local reductions

are also accompanied by significant reductions in transported pollution from upwind

sources outside the state . Because power plants have very high stacks, the impact of their

emissions is generally felt far downwind, as much as several hundred miles. Since

Illinois borders six other states, it is important to take these facts into consideration

.

Illinois EPA must consider the above issues to achieve the balanced approach requested

by the General Assembly .

Electric Reliability

In light of heightened concerns over energy reliability, the Illinois EPA reviewed the

major issues that must be addressed when evaluating the impact of power plant emission

reduction strategies on reliability. Illinois EPA recognizes that implementation of any

state-specific emission reduction strategy must not jeopardize electricity reliability

.

We found the following

:

1 . Transmission constraints represent a major challenge to electric reliability. Since

electricity cannot be stored, the transmission system must permit unimpeded

movement of electricity from suppliers to consumers at all times, but especially

when demand for electricity is at or near its peak .

2. The reliability of the transmission system depends upon critical voltage support

and resource capability at key locations in the grid . Actions that lead to

reductions in these critical factors can ultimately cause widespread service

interruptions or exacerbate a failure of the grid as witnessed in the northern

portion of the U .S. and parts of Canada during August 2003 . Following the

August 2003 blackout, the grid was not completely restored for days to weeks

depending on the affected area costing the residents of those eight states an

estimated $6.4 billion .

3. As part of the Eastern Interconnect (the regional transmission interconnection),

Illinois faces the same electric reliability issues that were highlighted by the

August 14, 2003 power outage

.

4. Grid congestion problems can become particularly acute where certain generating

plants must run because their operation is essential to maintaining grid reliability .

Certain of those older power plants would need to remain in operation to maintain

grid reliability principally because they supply needed voltage support . Choices

would have to be made including installing pollution control technologies on such

units, when it might not be economically warranted by the age and efficiency of

the units, or the units would need to be repowered

.

v

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5

.

Although several state-sponsored initiatives were launched between 1999 and

2002, no additional base-load generating capacity is under construction . While

construction permits were issued for two projects, one has not been able to secure

financing due to soft power markets and the construction permit for the other

project has been challenged by a number of environmental groups, and the permit

is stayed. As a result, at this time we cannot rely on any new baseload generating

capacity to ease any potential strain placed upon the grid by new standards .

6. No significant construction to address transmission grid reliability issues is

planned within the State or within the MAIN (Mid-America Interconnection

Network) electric transmission region of which most of Illinois is a part

.

The Illinois EPA has not been able to determine the following

:

I . We do not have a firm understanding of how a state-specific emission reduction

program would impact power plant closures and electric reliability. Further

analysis is needed to investigate whether stricter emission standards for Illinois

power generators would put them at a competitive disadvantage relative to out-of-

state generators who would not be required to meet the same emission standards

.

If out-of-state generators can offer their product more competitively, Illinois

could lose generation capacity

.

2. Additional examination is also needed to explore whether strategies to

competitively retain and develop generation capacity and preserve reliability in

Illinois are viable. Options that warrant further study include : repowering of

power plants using highly efficient combined heat and power systems (CHP),

renewable energy, clean coal technologies and energy efficiency

.

3. To estimate the impact of a state-specific emission reduction strategy on

reliability, a comprehensive resource and transmission planning analysis (that

includes detailed production cost information for Illinois and the surrounding

interconnect) must be conducted to determine which generating plants might close

and which might install pollution controls . In the absence of this analysis, the

precise impact of state-specific emission standards on reliability in Illinois is

unknown .

Electricity Costs

In addition to ensuring a reliable energy supply, providing affordable electricity is

essential to the well being of all Illinois residents . The likely impact of pollution controls

on electricity rates must be clearly understood before any responsible emission reduction

approach can be determined in Illinois . The Illinois EPA reviewed the available

information on the impact of the various national proposals on electricity costs . This

effort has been complicated by the state of flux in Illinois' electric supply market due to

the shift from a traditional, utility owned and operated, and highly regulated power

generation system, to an increasingly deregulated power generation market . One of the

major pieces of this shift will occur in January of 2007 when the cap or freeze on retail

rates will be lifted .

vi

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We have found the following :

1. Illinois is one of the first states to begin the process to become a deregulated state

for electric power, but restructuring is not yet complete in Illinois, with the freeze

on rates being lifted January 2007. As a result of this market restructuring, most

coal-fired power plants in the state now are owned by independent power

producers, which are not affiliated with Illinois utilities or by non-utility

generation affiliates of Illinois utilities .

2. At the same time as Illinois is going through restructuring, regional transmission

organizations have been formed through which power generators are more easily

and efficiently able to sell their power across state lines. As a result, Illinois'

power generators now compete with generators in several nearby states that have

not deregulated their electricity markets

.

3. Most of the available information on the impact of emission reductions on

electricity costs is based on U .S. EPA's assessment of the Bush Administration's

proposed Clear Skies Act, and U.S. EPA's proposed Clean Air Interstate Rule

(CAIR). U.S. EPA concluded that the costs of its CAIR program to Illinois and

the MAIN (Mid-America Interconnection Network) would increase rates 2 .5%-

3.5% over those that would occur if no additional pollution controls were

implemented .

4. Estimated impacts on electricity rates are based on the assumption of a national

approach to emission reductions applied to all power producers in all 29 affected

states and the District of Columbia . Imposing more stringent rules in just one state

could create further significant upward pressure on rates . However, for Illinois,

this assumes that there is a competitive wholesale market for electricity due to

deregulation. This competition in wholesale markets has not materialized to any

significant degree, such that 2006 power purchase agreements assume no increase

in competition in wholesale market that could also impact rates

.

5. In most states, the cost of complying with Clear Skies, CAR or other national

proposals to reduce power plant emissions would undoubtedly be passed onto

ratepayers by the utilities, whether they still own their power plants or purchase

power through wholesale energy markets .

The Illinois EPA has not been able to determine the following

:

1. We do not know how the costs of these multi-pollutant proposals will affect

competition and consumer rates in a state that is entering full deregulation

.

However, we do know that compliance costs will ultimately be reflected in

electric rates and, very likely, natural gas rates to the extent that coal-fired

generation is replaced by natural gas-fired generation

.

2. Concern exists that if competition among suppliers of electricity is not robust,

then power prices will not remain at reasonable levels . A contributing factor

involving California's experience in 2000 and 2001 was the fact that competition

vii

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among electric suppliers had yet to take hold. One result was significant price

spikes and upheaval in the state's economy

.

3. Whether robust competition occurs in 2007 in Illinois will depend on the degree

to which competitive forces create an effectively functioning wholesale and retail

supply market. If Illinois generators must comply with state-specific regulations

that their out-of-state competitors do not, these generators will incur additional

costs that cannot be recovered from utility ratepayers and will face a disadvantage

in competitive regional power markets

.

4. An increase in electric and gas rates may drive greater interest and

implementation of renewable energy and energy efficiency projects, but the

degree to which Illinois is poised to increase its production of renewable energy

and at what cost is not known.

5. The impacts on competition and on rates through a state-specific program have

not been evaluated, and must be as part of the overall review of Illinois'

deregulated market post-2006 . Failure to do so could mean higher rates for

consumers .

Impact on Jobs in Illinois

Information on the effects of a state-specific multi-pollution strategy on jobs and the coal

industry is lacking. At no time in its history, however, has the Illinois coal industry

confronted so many threats to its survival as it now does . Low-priced, lower-sulfur coals,

primarily from the Powder River Basin of Wyoming (known as western coal) continue to

make inroads in Midwestern and eastern power plant markets .

At the end of 2003, coal production in Illinois totaled 31 .1 million tons, down more than

2.3 million tons from 2002. The loss of coal mines and coal mining jobs has negatively

impacted the economic structure of southern Illinois. Although mining salaries doubled

between 1980 and 2003, from $22,000 a year to $45,500 a year, the total economic

payroll of the mining industry in the State of Illinois decreased by 60 percent during the

same time period. Moreover, the regulatory climate concerning Illinois coal remained

uncertain with mixed signals from the federal government over proposed controversial

mercury reduction standards that would serve to benefit western coal, again at the

expense of coal mined here in Illinois

.

According to industry estimates, there are approximately 4,100 jobs directly involved in

running Illinois power plants. In addition, approximately 6,000 more jobs provide skilled

contractual labor and miscellaneous support. These jobs produce a combined payroll and

benefits that amount to over $700 million a year for employees . There are also another

5,500 retirees whose health insurance could be impacted by the financial viability of the

power plants .

Furthermore, the approximate value of goods and services purchased

locally related to these jobs is over $300 million . Illinois' coal-fired power plants pay

nearly $21 million a year in property taxes to local taxing bodies, the majority of which

goes to support local school systems

.

---

Understanding the impact on the economy - especially the risk of job losses

- is critical

in the process used to analyze new emission standards. It is impossible to determine the

actual effect of new emission standards in the Illinois economy without knowing what the

national standards will ultimately be. It is also worth noting that the potential growth in

the renewable energy industry could provide an economic benefit as well, though it is

very unclear how significant that impact could be compared to what the coal industry

could potentially face. Illinois EPA will work with the Department of Commerce and

Economic Opportunity to retain the experts that can work with us to analyze the impacts

of any further regulation on the economy of Illinois and Illinois jobs once the national

direction is clear.

Other Findings

•

For mercury, the Illinois EPA believes that U .S. EPA should move forward in

March 2005, pursuant to its Consent Decree, and promulgate national mercury

standards for power plants that would not place Illinois at a competitive

disadvantage

.

Although Illinois EPA strongly supports trading programs,

mercury reduction cap and trade programs must be carefully designed so as not to

create hot spots of elevated mercury

.

•

The environmental and health benefits from greater use of energy efficient

technologies and renewable energy, such as wind power, are also recognized . The

pursuit of energy efficient technologies and the use of renewable energy could

result in significant economic benefits for Illinois

.

•

Lastly, a national greenhouse gas registration and trading program under a federal

mandate is the most effective strategy to address climate change, and state

voluntary efforts should continue to be encouraged .

Recommendations:

It is clear that power plants are a considerable source of air pollution and that reducing

emissions will benefit public health .

However, moving forward with a state-specific

regulatory or legislation strategy without fully understanding all of the critical impacts on

jobs and Illinois' economy overall as well as consumer utility rates and reliability of the

power grid would be irresponsible .

Illinois EPA recommends that the Governor continue demanding that the federal

government act nationally to reduce power plant emissions

.

Further, Illinois EPA

recommends that the Governor and General Assembly insist that the competing issues of

health, jobs, electric service reliability and affordable consumer rates be fully and

completely reconciled in light of the many unanswered questions presented in this report

.

While this work is already underway - and will continue - it can ultimately only be

completed once the national emission reduction strategy solidifies and the timing and

features of a national program are known .

ix

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Chapter 1

Electric Generating Units in Illinois and Their Emissions of Concern

In

2001,

the Illinois General Assembly passed legislation regarding fossil fuel-fired

electric generating plants. This legislation, found at Section 9.10 of the Illinois

Environmental Protection Act and referred within this report as "Section

9.10,"

requires

the Illinois EPA to issue to the House and Senate Committees on Environment and

Energy findings that address the potential need for control or reduction of emissions from

fossil fuel-fired electric generating units or EGUs . This report presents Illinois EPA's

findings to date and recommendations on this very complex mater

.

In the State of Illinois, the electric generating units (referred to within this report as

"EGUs" or "power plants") that are the subject of this report are those powered by fossil

fuel, which includes coal, oil and natural gas. Illinois currently has

214

power plant

units,

61

of which are coal-fired boilers .

The General Assembly asked that Illinois EPA focus on sulfur dioxide (SO2), nitrogen

oxides (NO r), particulate matter (PM), mercury, and carbon dioxide. Table 1-1 provides

a categorical summary of Illinois' EGUs. Included in the table is total electric generating

megawatt capacity, along with NOR ,

SO2,

mercury and carbon dioxide emissions for

2002 .

Detailed unit-by-unit data is provided in Appendix A . Although there are greater

numbers of the smaller natural gas units in the State, it is important to note that coal-fired

units constitute the greatest power output and heat input, expressed as pounds per million

British thermal units or lbs/mmBtu.

Table 1-1

Annual 2002 Summa

Data for Coal Gas and Oil-f

As indicated by Table 1-1 above, coal-fired boilers account for about 51 percent of the

non-nuclear electric generating capacity,

92.6

percent of total heat input and

99 .8

percent

of total SO2 emissions from all EGUs. In addition,

98.2

percent of total NO, emissions

and

95.6

percent of total carbon dioxide emissions come from coal-fired boilers

.

1

Unit

Category

No .

Units

Capacity

MW

Heat Input

mmBtu

S02

Tons

NO

Tons

C02

Tons

Hg

Tons

S0

2

Ibs/mmBtu

NO,

Ibs/mmBtu

Coal-fired

61

16,905

931,038,484

352,994 170,99795,505,331

3.7

0.758

0.367

N.Gas-

fired

97

6,284

7,576,638

0

315

450,097

0

0

0.083

N.Gas/Oil-

Fired

47

8,877

65,824,805

481

2,756

3,925,223

0.4

0.015

0.084

Oil-Fired

Units

9

685

611,239

163

107

49,502

0.2

0.534

0.350

Total

214

32,751

1,005,051,166353,638 174,17009,931,884

4.3

1.307

0.884

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Chapter 2

Human Health Implications from Air Pollution

The General Assembly asked that Illinois EPA focus on the EGU's emissions of the

following pollutants: S02, NOR , PM, mercury, and carbon dioxide. This Chapter

describes what we currently know about the health implications associated with these

emissions. It should be noted that NO, and SO 2 emissions from power plants are not a

concern as direct emissions since Illinois currently meets the national air quality

standards for these pollutants . Rather, the concern is the contribution of these emissions

to the formation of fine particulate matter and ozone, for which there are federal health-

based air quality standards, known as National Ambient Air Quality Standards or

NAAQS .

This Chapter briefly explains the pollutants of concern and examines the health

implications based on various assumptions projected by U.S. EPA and ABT Associates

.

Ground-Level Ozone

Ground-level ozone is formed when NO, and volatile organic material (VOMs) from

cars, trucks, power plants and other sources react in the atmosphere in the presence of

sunlight. Ozone levels are highest during the summer months, especially on hot, sunny

days with little wind. Ozone is a major component of smog in our cities and in other

areas of the country . Naturally occurring ozone in the upper atmosphere protects us from

the sun's ultraviolet radiation, while the ozone that we breathe at ground-level can

contribute to respiratory illnesses and other health and environmental problems

.

Some people are more likely to be adversely affected by ground-level ozone air pollution

than others. They include individuals with lung diseases, especially if they are elderly or

children, individuals with respiratory illnesses, and children and people who work

outdoors .

U.S. EPA has adopted health-based air quality standards for ozone, including standards

for 1-hour and 8-hour averages. U.S. EPA has identified metropolitan Chicago and St

.

Louis/Metro-East as areas that do not meet these standards. Illinois is required to meet

the health-based standard for 1-hour ozone by 2007, and the 8-hour ozone standard by

2010 .

In Illinois, EGUs are responsible for 27 percent of NO, emissions and 0 .5 percent of

VOM emissions. NO, from power plants and other sources can contribute to ozone

formation across a large area extending hundreds of miles downwind .

2

---

Particulate Matter

Particulate matter in the atmosphere consists of solids, liquids and liquids-solids in

combination. Suspended particulate matter generally refers to particles less than 100

microns (or micrometers) in diameter. Note that human hair is typically 100 microns

thick. Particles larger than 100 microns will settle out of the air under the influence of

gravity in a short period of time

.

A number of scientific studies have linked particulate matter to adverse human health

effects. In testimony provided by the U .S. EPA to Congress in 2003 regarding the Clear

Skies Initiative, Administrator Whitman stated : "Hundreds of studies in the peer-

reviewed literature have found that

.

.. exposure to fine [PM] is associated with premature

death, as well as asthma attacks, chronic bronchitis, decreased lung function and

respiratory disease . Exposure is also associated with aggravation of heart and lung

disease, leading to increased hospitalizations, emergency room and doctor visits, and use

of medication."

I

U .S. EPA has adopted health-based standards for fine particulate matter that is 2.5

microns in diameter or less (PM2

.5), and has identified metropolitan Chicago and St

.

Louis/Metro-East as areas that do not meet these standards. Illinois is now required to

develop plans to ensure that the PM2.5 standards are met in these areas by 2010.

EGUs emit particulate matter directly into the air, and they release SO2 and NO, that are

converted into sulfate and nitrate particulate matter in the atmosphere through complex

chemical reactions. These emissions can be transported for hundreds of miles from

Illinois and into Illinois . In Illinois, EGUs are responsible for 21 percent of particulate

matter emissions, 27 percent of the NO, emissions, and 68 percent of SO 2 emissions .

Mercury

Mercury (Hg) is a naturally occurring trace contaminant found in the soil, and it is a

chemical that is emitted by man-made industrial processes. Although mercury is not a

criteria pollutant for which a National Ambient Air Quality Standard exists, it is

considered a hazardous air pollutant that can cause adverse health impacts

.

Human exposure by direct inhalation of mercury in the air is not the predominant public

health concern for this metal. However, the mercury in ambient air eventually can be re-

deposited on land surfaces or directly into rivers, lakes and oceans. More than 50 percent

of the mercury input to many bodies of water, including Lake Michigan, comes from the

air .

Mercury that enters bodies of water by direct deposition from the air or runoff from land

surfaces ultimately is transformed by biological processes into a toxic form of mercury

(methyl mercury) that concentrates in fish and other organisms living in these waters. A

study by the National Academy of Sciences concluded that human exposure to methyl

3

---

mercury from eating contaminated fish and seafood is associated with adverse health

effects related to neurological and developmental damage . Mercury exposure is of

particular concern for children, pregnant women and women of childbearing age. Other

populations at risk include those who consume a substantial amount of fish

.

The severity of these health effects from mercury varies depending on the concentrations

of mercury in the ingested food .2

Mercury contamination is widespread in Illinois'

waters, and fish consumption advisories have been issued for every body of water in the

State .

In 1999, coal-fired power plants were estimated to have emitted 48 tons of mercury

nationally (approximately 37 percent of the manmade total) .

Carbon Dioxide

Carbon dioxide is not listed as a "pollutant" under the Clean Air Act, as the concern with

carbon dioxide emissions is the relative increase in the so-called greenhouse gases that

impact global climate change

.

National and State Projections

The remainder of this Chapter discusses two studies on the health implications based on

multi-pollutant emission reduction assumptions

.

Table 2-1 below summarizes U.S. EPA's estimates of human health benefits for several

multi-pollutant emission reduction strategies, including U .S. EPA's Clean Air Interstate

Rule (CAIR) and the three leading Congressional legislative proposals for reducing

power plant emissions. (These proposals are discussed in more detail in Chapter 4

.)

While there is not complete agreement on the exact numbers within these tables, there is

agreement that reducing air pollution levels will result in health benefits

.

4

---

Table 2-1

Number of Annual Adverse Health Events Avoided* Through Reductions in

Particulate Matter and Ozone

*Benefits are in addition to reductions required by existing Clean Air Act programs. The benefits of

mercury, carbon dioxide or nitrogen load (water, land) reductions are not included

.

Attempts to determine the health related benefits resulting from a state-specific approach

to power plant emission reductions have produced several competing studies and

differing results. However, the data clearly support the contention that a well-designed

national approach conveys the greatest health benefits due to the significant impacts of

the interstate transport of pollutants

.

ABT Associates published a study that provided an estimate of the health-related benefits

in Illinois from reducing power plant emissions nationally. A summary of the estimated

health benefits is presented in Table 2-2

.

Table 2-2

Health Effects of Power Plant Particulate Matter Pollution in Illinois Cases/Year 3

These estimates are based on particulate matter air pollution from all power plants,

including those located outside Illinois. Therefore, the ABT study does not estimate the

health effects that are due to air pollution from Illinois power plants exclusively . Due to

5

Mortality

Total

Hospitalisations

Asthma

ER

Visits

Chronic

Bronchitis

Asthma

Attacks

Lost

Work

Days

Restricted

Activity

Days

Health

1,700

1,350

391

1,020

33,100

283,000

1,450,000

Effects

Avoided

Effects

with a

75%

981

635

222

589

19,000

164,000

848,000

reduction

Health Effect

Clear Skies

(S.485)

EPA

CAIR

Carper

(S.834)

Jeffords

(S.366)

2010

2020

2015

2010

2020

2010

2020

Premature Deaths

7,800

14,100

13,000

9,000

17,000

13,000

18,000

Chronic Bronchitis

5,400

8,800

6,900

Non-fatal heart

attacks

13,100

23,000

18,000

Hospitalizations/ ER

visits for

cardiovascular &

respiratory symptoms

16,900

30,000

22,500

Asthma attacks

70,000

180,000

240,000

Total Health Benefits

(in billions)

$55

$110

$82

$70

$140

$90

$140

---

interstate transport of pollutants, a portion of these estimated health benefits would be

due to emissions reductions from out-of-state power plants. Other studies have looked at

human health impacts from specific power plants located in Illinois

.

(See

Appendix D .)

Table 2-3 provides a summary of U .S. EPA's estimate of health benefits from the

implementation of a regional (28 states and the District of Columbia) program to reduce

emissions from power plants under the Bush Administration's Clear Skies Act (discussed

in Chapter 4) that would occur in Illinois

.

Table 2-3

Estimated Annual Human Health Benefits for Illinois from Reductions of

Particulate Matter and Ozone (Number of Health Effects Avoided) :

Clear Skies Act S. 485

4

* In comparison to reductions and benefits required by existing Clean Air Act programs. Does

not include health or economic benefits of mercury, carbon dioxide or nitrogen load (water,

land) reductions

.

Additional sources consulted but not cited in endnotes are listed in Appendix D . Illinois

EPA found the sources to be useful and encourages those with an interest in this subject

to consult them

.

6

Health Effect

2020

Premature Deaths

800 avoided

Chronic Bronchitis

500 avoided

Non-fatal heart attacks

1,300 avoided

Hospitalizations/ ER visits for

cardiovascular and respiratory symptoms

2,000 avoided

Total Health Benefits

$5.9 billion

---

Chapter 3

Air Pollution Control Technologies For Reducing Power Plant Emissions

Air pollution reduction and control technologies have advanced substantially over the

past 25 years. Many EGUs across the country already employ these technologies to meet

existing regulatory requirements. Additionally, under federal and state preconstruction

permitting programs, any new EGU is required to employ Best Available Control

Technology or BACT before the new unit or units can be constructed

.

The control of mercury and other hazardous air pollutants or HAPs from EGUs has only

recently become a focus for regulators and the regulated community . While in some

instances the control technologies installed for the other pollutants will also help reduce

mercury emissions, mercury is generally more difficult to control directly. A number of

government and industry-sponsored research projects to improve the technologies needed

for mercury reduction from EGUs are under way and Illinois EPA continues to push for

advancements

.

Applicable emission limits are discussed in this Chapter along with the control

technologies available to reduce emissions from EGUs for the pollutants S0 2 ,NON, PM,

and mercury. Several reference documents are noted for those desiring additional

information .

Also, at the end of this Chapter we provide a brief discussion on U.S. EPA's repository of

the most effective air pollution control technologies and methods, and further discussion

of Integrated Gasification Combined-Cycle. Although this latter technology is not an air

pollution control technology, it is a developing combustion process that is cleaner than

traditional coal combustion technologies and holds great promise

.

Sulfur Dioxide(SO;)Controls

The emissions of SO 2 from fuel combustion sources are regulated in Illinois under 35

Ill.

Adm. Code

Part 214. The S02 emissions limits for existing sources vary, depending on

the type of fuel and geographical location of the emission sources. Emission limits range

from 0.3 pounds of SO2 per million British thermal units (a measure of heat input

expressed as lbs/mmBtu) for distillate oil to 6.8 lbs/mmBtu for coal combustion sources

in rural areas. All EGUs located in the urbanized areas and burning solid fuels (e .g.,

coal) are limited to 1 .8 lbs/mmBtu. In 1990, the Clean Air Act's Acid Rain Program

(Title IV of the Clean Air Act, 42

U.S.C.

7651.) imposed much tighter limits. These

limits outlined in 63

Fed. Reg.

51705 (September 1998) are currently in effect .

U.S. EPA published

"Control Techniques for Sulfur Oxide Emissions from Stationary

Sources"

in April 1981, which describes in detail the various control technologies

available to reduce sulfur dioxide emissions from EGUs and from other sources

.'

The

Mega Symposium, SO2 Control Technologies and Continuous Emission Monitors

(August

1997) prepared for a symposium sponsored by the U.S. EPA, the U.S. Department of

7

---

Energy, and the Electric Power Research Institute, is a good reference on the various

approaches .6 Techniques used by the industry for achieving compliance with SO 2

emissions limitations include the following :

•

Physical coal cleaning to remove pyrites (inorganic sulfur compounds) ;

•

Chemical coal cleaning to remove pyrites and organic sulfur present in coal;

•

Switching to either natural gas or to a low sulfur western coal ;

•

Limestone sorbent injections, or blending coal with limestone before combustion ;

•

Dry scrubbing with limestone or lime slurry; and

•

Flue gas desulfurization, also commonly referred to as scrubbers

.

Table 3-1 provides a summary of various SO 2 reduction technologies and the

SO2

reduction potential of each. Illinois' EGUs have employed some of these technologies to

reduce SO2 emissions. Dry scrubber control technology has not been employed on any

existing Illinois units thus far, but there is a potential that it will be used on small coal-

fired boilers in the future . Blending coal or coal waste with limestone has not yet been

used on any existing Illinois source, but permit applications have been received for two

new boilers to use this technology. In the absence of regulatory requirements beyond the

Acid Rain program that would require the use of these control technologies, sources will

not install these technologies because the price of

SO2

allowances is well below the cost

of installing these technologies .

We also note that two types of wet scrubber control technologies have been employed in

Illinois on coal-fired utility boilers subject to the New Source Performance Standard

(NSPS) for Fossil Fuel-Fired Steam Generators, 40 CFR 60, Subpart D. A limestone

scrubber system has been employed at Marion 4, Duck Creek and Dallman Units 1, 2 and

3. A double-alkali scrubber was employed at Newton Units 1 and 2, but due to its higher

operating cost compared to limestone scrubber technology, this scrubber system is no

longer in operation .

The technologies listed in Table 3-1 have been proven to be effective in the removal of

SO2, and some are widely used by the industry . The type or types of SO2 control

appropriate for any individual EGU is dependent upon the type of boiler, type of fuel, and

the types and staging of other air pollution control devices . In summary, emissions

reduction technologies for SO2 are available and are effective in reducing SO2 from the

gas stream of EGUs

.

8

---

Table 3-1

SO2 Reduction Potential of Various Control Technolo ies

Nitrogen Oxides (NOd Controls

Nitrogen oxides (NO,) emissions from EGUs are regulated in Illinois under the NSPS,

the federal Acid Rain program and under the NO x SIP Call in 35

Ill.

Adm. Code

Part 217 .

Under Phase I of the Acid Rain program, NO, limits are respectively set at 0 .45 and 0.50

lbs/mmBtu for certain existing tangential-fired and wall-fired utility boilers burning coal

.

Under Phase II of the Acid Rain program, NO, limits are respectively set at 0 .40 and 0.46

lbs/mmBtu for the remaining existing tangential-fired and wall-fired units. Some Phase

II EGUs opted into the early compliance provisions of the Acid Rain program and are

subject to the Phase I limit of the Acid Rain program

.

For the cyclone-fired utility boilers at a capacity greater than 155 megawatts, the limit is

set at 0.86 lbs/mmBtu. There is no limit set for cyclone-fired boilers smaller than 155

megawatts. There is also no limit set for oil- and gas-fired utility boilers

.

New sources must meet Best Available Control Technology or BACT requirements for

NON. (BACT requirements are discussed in more detail later in this Chapter) . U.S .

EPA's "Alternative Control Techniques Document -NOOEmissions from Utility Boilers "

discusses in detail various control technologies available to reduce emissions of NO,

from EGUs

.7 Control Technologies for NO, include the following

:

•

Combustion tuning (CT) ;

•

Burner-out-of-service (BOOS) ;

9

SO2 Control Technology

SO2 Reduction Potential

Coal Cleaning to Remove Sulfur Compounds

Physical Coal Cleaning

10-40%

Chemical Coal Cleaning

50-75%

Fuel Substitution by a Cleaner Fuel

Switch to Low Sulfur Coal

50-80%

Switch to Distillate Oil

75-90%

Switch to Natural Gas

98-100%

Dry SO2 Removal Processes

Combustion of Fuel, Limestone Mixture

-80%

Spray Drying (Dry FGD)

60-85%

Coal + Limestone Mixture + Spray Drying

90-98%

Wet SO2 Removal Processes

Limestone Flue Gas Desulfurization (FGD)

90-98%

Wellman-Lord Dual-Alkali FGD

90-95%

Magnesium-Enhanced Lime FGD

90-98%

---

•

Overfire air (OFA) ;

•

Low NO, burners (LNB) ;

•

Switching to low nitrogen coal;

•

Switching to natural gas

;

•

Flue gas reburn ;

•

Selective non-catalytic reduction (SNCR) with ammonia or urea ; and

•

Selective catalytic reduction (SCR) with ammonia

.

In 2001, Illinois adopted NO, regulations consistent with requirements of the NO, SIP

Call,8 which are more stringent than the current Acid Rain regulations. The NO, SIP Call

regulations have an initial NO, emissions budget based on an emission rate of 0

.15

lbs/mmBtu. The rule has provisions for the trading of NO, emissions among sources in

the participating states affected by the NO, SIP Call . To comply with the NO, emissions

trading rule, many sources have installed or plan to install add-on controls or plan to meet

the requirement with a combination of the above-mentioned combustion controls

.

The NO, SIP Call was promulgated to address the impacts of NO, emissions from power

plants and other large industrial boilers on ozone . Ozone is seasonal in nature. It is

formed by a chemical reaction with other pollution in the presence of sunlight and during

warm weather. As a result, the emission reductions are only required during the period

May 1 through September 30. However, power plants in many states have installed and

are installing control equipment to meet NO, SIP Call standards. Most facilities do not

intend to operate the equipment year-round, especially where they employ selective non-

catalytic reduction (SNCR) technology and selective catalytic reduction (SCR)

technology for NO, removal. In fact, to eliminate the cost of operating the equipment

other than during the ozone season, some companies are installing equipment to bypass

the flue gases before they enter into control equipment . However, annual operation of the

control equipment may only add incrementally to the total cost of controlling NO, .

Some of the NO, control technologies and their NO, reduction potentials for coal-fired

boilers are provided in Table 3-2 . As with SO2, effective control technologies are readily

available and are being widely used by the industry

.

10

---

Table 3-2

NO, Reduction Potential for Various T es of Boilers9" o,ii

Particulate Matter (PM) Controls

Depending on the type of boiler, uncontrolled primary total particulate emissions from

coal combustion range from 0 .8 to 4.0 lbs/mmBtu, with PM10 emissions of 0.1 to

1 .0 lbs/mmBtu and PM2

.5 emissions of up to 0.6 lbs/mmBtu. Oil combustion generates

primary particulate emissions of approximately 0 .05 to 0.1 lbs/mmBtu, depending on the

quality of oil and its sulfur level, with PM 1

0

emissions of 0.03 to 0.08 lbs/mmBtu and

PM2.5 emissions of 0.025 to 0.06 lbs/mmBtu. Particulate matter emissions from gas

combustion, all of which are PM2

.5, are below 0.01 lbs/mmBtu

.

Electrostatic precipitators and fabric filters are commonly used for high-efficiency

control of coal-fired boiler particulate emissions . These technologies can provide greater

than 99.9 percent control of primary particulates to below 0 .03 lbs/mmBtu. They also

provide over 99 percent control of PM10 and over 95 percent control of PM2.5 . Most

EGUs have installed substantial particulate controls, and the average PM emissions from

coal-fired units is 0.043 lbs/mmBtu. Upgrades of existing controls to levels below the

NSPS limits of 0.03 lbs/mmBtu, and often to 0.01 lbs/mmBtu or less, are possible

through precipitator rebuilding or replacement, augmentation or replacement of

precipitators with new fabric filters, or with the use of technologies such as flue gas

conditioning. The State and Territorial Air Pollution Program Administrators and

Association of Local Air Pollution Control Officials (STAPPA/ALAPCO) has published

a document,

"Controlling Particulate Matter Under the Clean Air Act : A Menu of

Options" (July

1996), that describes in detail the available control options to reduce

particulate matter emissions

. 12

11

Control Technology

NO, Reduction Potential,

Wall-Fired

Tangential-

Fired

Cyclone-Fired

Combustion Tuning (CT)

10-40

10-40

10-40

Burner-Out-Of-Service (BOOS)

10-20

10-20

NA

Overfire Air (OFA)

10-25

10-30

NA

Low NO, Burner (LNB)

40-50

20-25

NA

LNB+OFA

50-70

30-50

NA

Reburn

50-60

50-60

50-60

Advanced Reburn

70+

70+

70+

Selective Catalytic Reduction (SCR)

80-95

80-95

80-95

Selective Non-Catalytic Reduction

(SNCR)

30-60

30-60

30-60

Fuel-Switching (FS)

40-75

40-75

50-75

Repowering

90+

90+

90+

---

Mercury Controls

The removal of mercury from coal combustion sources has become a focus in recent

years. Only in the last 10 years has the removal process been aggressively studied and

advanced technology developed

.

Mercury removal itself is made somewhat more complex because of the different forms

of mercury present in coal. Mercury is present in coal in elemental (Hg°), oxidized

(Hg` `) and organic forms. Relative concentrations of each type of mercury depend on the

kind of coal and its constituents. The elemental form is more prevalent in sub-

bituminous coals (typically called "western" coal) and the oxidized form is more

prevalent in bituminous coals (Illinois and eastern coal) . Mean concentrations of

mercury in bituminous coal and sub-bituminous coals used by electric generators are 0 .12

and 0.07 parts per million (ppm), respectively. Typically, mercury is 25 percent

elemental mercury and 75 percent oxidized mercury in bituminous coals, and it is 75

percent elemental mercury and 25 percent oxidized mercury in sub-bituminous coal

.

Physical coal cleaning processes used for the removal of pyrites can remove an average

of 21 percent of mercury present in bituminous coals . The process removes a much

smaller amount of mercury from sub-bituminous coals

.

The mercury concentration in flue gases is normally 5 to 30 micrograms per dry standard

cubic meter (expressed as ug/dscm), the norm being about 10 ug/dscm . Mercury

concentration in the flue gases from municipal solid waste boilers is about 200 to 1,000

ug/dscm. The presence of S02, moisture, chlorine, hydrogen chloride, and unburned

carbon in the flue gases influences conversion of elemental mercury to oxidized mercury

.

The greater the porosity of fly ash, the higher the adsorption of mercury by the fly ash .

Calcium aids the adsorption of mercury by fly ash. Iron compounds in the coal influence

melting and solidification temperatures of fly ash and hence influence its porosity

.

Hydrogen and oxygen present in coal make it bum faster and make fly ash more porous .

Unburned carbon present in the fly ash adsorbs both oxidized and elemental forms of

mercury. Cooler temperatures cause better adsorption of mercury by fly ash, carbon,

calcium and other materials .

A number of technologies for the removal of mercury are under investigation at the

laboratory and pilot-plant stages . Some of these technologies are being tested at full-

scale plants . These technologies include the following

:

•

Adsorption of mercury by treated and untreated activated carbons ;

•

Oxidation of elemental mercury to oxidized mercury by the use of oxidizing

agents such as chlorine, SO? , aqueous hypochlorite or hydrogen chloride ;

•

Catalytic oxidation of elemental mercury to oxidized mercury by palladium or

iron and with or without the injection of S0 2, NO, and hydrochloric acid ;

12

---

•

•

Removal of elemental mercury and oxidized mercury by various types of

calcium-based and fly ash sorbents ;

•

Adsorption of elemental mercury by a noble metal such as gold ;

•

Capture of elemental mercury by in-situ generated titanium particles in

conjunction with ultraviolet irradiation; and

•

Addition of activated carbon or fly ash and agglomeration of dust in a circulating

fluidized bed .

Activated carbon injected into the flue gas stream is the most commonly studied control

technology for removal of elemental mercury and oxidized mercury and, in many cases,

has been found to be quite cost effective. Effectiveness of some of these control

technologies, as found during the laboratory and pilot-plant studies, is provided in Table

3-3. These levels of effectiveness do not necessarily represent the removal efficiencies

that would be guaranteed by vendors to occur in full-scale plant operations . Illinois EPA

continues to explore ways to address this challenge

.

Table 3-3

Mercu

Removal Efficienc

for Emer in Mercu

Control Technolo ies 13

AC=Activated carbon, FF= Fabric Filter, TiO 2

=

Titanium oxide

.

* Water spray is used to cool the gases and allow agglomeration of particles that help mercury removal

.

It should be noted that mercury removal is not only boiler specific, but also depends on

the type of coal and controls used for removal of PM, SO 2 , and NOR .

A cold electrostatic

precipitator can remove about 36 percent of mercury while a hot electrostatic precipitator

can remove only about nine percent of mercury in a pulverized coal boiler

. The

document,

"Final Technical Report of September 1, 1996, through August 31, 1997"

(ICCI Project Number 96-1/1 .4A-2), provided a correlation of scrubber parameters with

mercury removal and mercury species in flue gas

.

14

13

Control

Technology

Pollutants

Removed

Mercury Removal

Efficiency

Activated Carbon (AC)

Lignite AC (FGD Carbon)

Hg°, Hg"

Hg° = 80% Hg"=85%

Lignite AC + 175 ppm SO2 Gas

Hg°, Hg"

Hg° = 75% Hg"=88%

Lime Based Sorbents

Advacate Lime + no SO2 injection

Hg°, Hg"

Hg° = 3% Hg"=5%

Advacate Lime +175 ppm SO2 Gas injection

Hg°, Hg"

Hg° = 40% Hg+ =20%

Gold

Packed Bed, Monolith, or Filter Bag

Hg°, Hg"

Hg° = 95% Hg"= 95%

UV Irradiation + In-Situ Sorbent

Ti02 Sorbent + FF for Collection

Hg°

84.4-96.1%

Circulating Fluidized-Bed

Activated Carbon + Water Spray*

Hg°

99%+

Fly Ash + Iodine Impregnated AC + Spray*

Hg°

99%+

Fly Ash + Water Spray*

Hg°

50%+

---

In summary, technologies do exist to reduce mercury emissions from EGUs . While the

control of mercury emissions is more complex than S02 or NO, control, emerging

technologies are expected to be effective.

Best Available Control Technology(BACT) for Coal-Fired Boilers

Under the federal and state rules, proposed new and modified EGUs that exceed

particular pollutant threshold emissions values for NO, and SO2 set forth in the

regulations must demonstrate that they will use BACT to minimize the emissions of those

pollutants. BACT generally represents the lowest emission rate achieved in practice by a

similar or comparable unit, taking into account energy impacts, costs, and other

environmental impacts

.

As new units are planned and air quality permits are applied for, the control technologies

proposed for an EGU must be compared to other plants recently constructed or proposed

throughout

the country to determine BACT requirements . In addition to setting a

standard for new plants, a review of these sources can provide useful insight as to the

extent to which Illinois' existing units can and should be controlled in the future

.

The U.S. EPA's RACT/BACT/LAER Clearinghouse (BACT Clearinghouse) is a

repository of the control technology determinations (e .g., BACT for SO2 emissions from

a pulverized coal boiler) including projects that triggered the requirements of PSD around

the country. For recently constructed coal-fired boilers, all of which were new rather

than retrofitted units, the BACT limits for NO, and SO2 are provided in Appendix B,

Tables B-1 and B-2

.

Control of mercury has only recently been examined on coal-fired units, so the BACT

Clearinghouse has rather incomplete information on the types of technologies that have

been used cost effectively to control mercury . Generally, techniques using various forms

of activated carbon injection are the accepted technology to reduce mercury. Research is

still needed as mercury control technologies are still in their experimental stages, as

discussed earlier in this chapter .

Clean Coal Technology. Integrated Gasification Combined-Cycle (IGCC)

Unlike conventional coal-fired boilers, IGCC, sometimes referred to simply as coal

gasification, is a relatively new technology as applied to the power generation industry

.

While Eastman Chemical has most notably and successfully used IGCC in industrial

processes, its use for power generation purposes continues to be studied and tested. To

provide a reliable alternative to traditional boilers, it must undergo further technical

improvement in its operations and reliability

.

Coal gasification takes place in the presence of a controlled "shortage" of air/oxygen,

thus maintaining reducing conditions . The process is carried out in an enclosed

14

---

pressurized reactor, and the product is a mixture of carbon monoxide and hydrogen

(called synthetic gas, syngas or fuel gas) . The product gas is cleaned and then burned

with either oxygen or air, generating combustion products at high temperature and

pressure .

IGCC utilizes a combined-cycle format with a gas turbine driven by the combusted

syngas, while the exhaust gases are heat exchanged with water/steam to generate

superheated steam to drive a steam turbine . With an IGCC system typically 60-70

percent of the power is generated by the gas turbine, compared to about 20 percent power

generation using a typical fluidized bed combustion system .

Differences in the IGCC demonstration plants are discussed in the

"IEA Coal Research

Report OECD Coal-Fired Power Generation - Trends in the 1990s,"

IEAPER/33 . Every

IGCC plant is required to have a series of large heat exchangers that become major

components of the system . In such exchangers, solids deposition, fouling and corrosion

may take place. Currently, cooling the syngas to below 100°C is required for

conventional cleaning, and it is subsequently reheated before combustion . Substantial

heat exchange vessels are required.

There are several technical challenges to operating a successful IGCC unit. Highly

integrated plants tend to have long start-up times (compared to pulverized coal

combustion units) and hence may only be suitable for base-load operation

.

With pressurized gasification (as with fluidized bed combustion units), the supply of coal

into the system is considerably more complex than with pulverized coal combustion

units. Some gasifiers use bulky and costly lock hopper systems to inject the coal, while

others have the coal fed in as a water-based slurry. Similarly, by-product streams have to

be depressurized, while heat exchangers and gas cleaning units for the intermediate

product syngas must themselves be pressurized

.

A number of IGCC power plant demonstration units, mainly around 250 megawatts

capacity, are being operated in Europe and the U .S. A 235 megawatt unit at Buggenum

in the Netherlands began operation in 1993. The largest unit being evaluated is at

Puertollano in Spain, with a capacity of 330 megawatts . In theU.S., there are only two

operational plants - Wabash River in Indiana and Polk Power near Tampa, Florida

.

All of the current coal-fueled demonstration plants are subsidized. The European plants

are part of the Thermie programme . The U.S. Department of Energy is funding the

design, construction, and the operating costs for the first few years of the U .S . plants .

Some plants are repowering projects, but

as far as demonstrating the viability of various

systems, they are effectively new plants, even though they are tied to an existing steam

turbine .

As gasifiers are pressure vessels, they cannot be fabricated on-site in the same way that

pulverized coal combustor boilers can . Large gasifiers are difficult to transport, simply

because of their weight and sheer size .

15

---

The primary incentive for IGCC development has been that units may be able to achieve

higher thermal efficiencies than pulverized coal combustion plants and are able to match

the environmental performance of gas-fired plants. During the developmental phase, the

thermal efficiencies of new pulverized coal combustion plants using superheated steam

have also increased.

When these IGCC units come into general operation, their emissions of particulates, NO,

and SO2 are expected to meet, and most likely exceed, all current emission standards .

Indeed, a major power generator recently pledged to build an IGCC plant within the next

decade. Other IGCC proposals continue to be discussed. This is promising technology,

and its further development must be encouraged .

Currently, there are only two IGCC plants producing electricity in the U .S. Neither of

these plants specifically control mercury emissions . The document

"The Cost of Mercury

Removed in an IGCC Plant, Final Report, September 2002 "

prepared for the U.S .

Department of Energy provides cost estimates for removal of mercury from the IGCC's

syngas

.

' 5

16

---

Chapter 4

Overview of National Power Plant Emission Reduction Proposals

and Their Estimated Emission Reductions

One of the most prominent national environmental issues during the last two years has

been defining appropriate requirements to regulate multiple air pollutants from electric

power plants. The desire for improved air quality, while providing a degree of regulatory

certainty for the electric power industry, has led to a series of proposals in the U .S .

Congress and two related proposals by U .S. EPA. This chapter will provide a brief

overview of these proposals, four of which are Congressional legislative proposals and

two of which are U .S. EPA proposed rulemakings. This chapter will also discuss the

emission reductions expected to be achieved by these proposals

.

National Multi-Pollutant Legislation

The Bush Administration and several members of Congress have proposed various

versions of "multi-pollutant" legislation for the electric power plant industry. The bills

are consistent in the respect that they address requirements for several pollutants

simultaneously. All include a requirement for setting a national "cap" on emissions of

each pollutant and then add provisions to allow for emissions trading of SO 2 and NO.

allowances between regulated sources . The ability to trade mercury allowances varies

among proposals. The proposals typically differ in the number of pollutants regulated,

the level of the proposed "cap," and the timeframe for implementation . Depending on

each bill's focus, such legislation typically addresses three or four pollutants

.

The 3-pollutant bills would set standards for SO 2 , NO and mercury. The 4-pollutant

bills also include requirements to regulate carbon dioxide . The multi-pollutant legislative

proposals, whether in 3- or 4-pollutant form, are intended to reduce emissions and to

encourage investment in new plants by providing a degree of certainty regarding future

regulatory requirements. Some of the these proposals would replace existing regulatory

programs, including New Source Review (NSR), New Source Performance Standards

(NSPS), Prevention of Significant Deterioration (PSD) of air quality, Lowest Achievable

Emission Rate (LAER) standards, Best Available Retrofit Technology (BART), and

regulations currently under development to control mercury emissions from electric

power plants

.

Bush Administration's Clear Skies Act of 2003

In February 2002, President Bush announced a multi-pollutant strategy called the lear

Skies Initiative. The strategy was put forth as multi-pollutant legislation that was

submitted to the U.S. House of Representatives on July 26, 2002, and to the U.S. Senate

two days later. The Administration reintroduced the legislation to the 108 th Congress on

February 27, 2003, as H.R. 999 and S . 485

.

17

---

Differences between the 2002 and the 2003 proposals were minimal, inasmuch as the

pollutants regulated, the emissions limits and the time frame to implement the proposed

requirements, remained the same. However, the bill's name was changed to the Clear

Skies Act.

The Clear Skies Act proposes to establish federally enforceable emission limits (caps) for

SO2, NO, and mercury. The NO, and S02 requirements would apply to all fossil fuel-

fired electric generators that sell electricity. The mercury requirements affect only the

subset of these units that are coal-fired

.

The Clear Skies Act of 2003 would establish new annual caps on total SO2 emissions and

new allocation procedures that would begin January 1, 2010, for power plants in the

eastern half of the United States and in 2018 (or later) for power plants in the western

U.S. Annual SO2 emissions for affected power plants would be capped at 4 .5 million

tons starting in 2010 and 3 .0 million tons starting in 2018. During the first year of the

program, 99 percent of the total allowances would be allocated to existing regulated units

with a national auction being held for the remaining one percent . In each of the next 20

years, an additional one percent of the allowances will be auctioned . An additional 2 .5

percent thereafter will be auctioned annually until eventually all the allowances are

auctioned. Allowances will be allocated based on each unit's baseline heat input

multiplied by standard emission rates that vary depending on the fuel combusted by the

units. Standard emission rates are established for three categories of units--coal-fired,

oil-fired, and other units .

The Clear Skies Act proposes a separate SO2 emission limitation and cap-and-trade

program for the states in the Western Regional Air Partnership (WRAP) planning

organization .16 The trading program will go into effect if the WRAP states are unable to

meet the sulfur dioxide cap (271,000 tons) by 2018 . If the 2018 emission cap is

exceeded, the back-stop trading program goes into effect three years after 2018 . This

program is independent of the nationwide cap-and-trade program, and affected emission

units would be subject to both .

The proposal also contains new annual caps for NO, and new allocation procedures

starting January 1, 2008. The Clear Skies Act would retain the NO, requirements in the

existing Acid Rain Program and would also retain the requirements in the NO, SIP Call

through December 31, 2007 . The new NO, trading program would apply to the same

units in the U.S. and its territories as the new SO2 trading program, but there would be

separate cap-and-trade systems established for Zone 1 (eastern and central U .S. states

including the eastern half of Texas) and Zone 2 (western states including the western half

of Texas) .

The annual NO, emissions for affected units in Zone I are capped at 1.562 million tons

starting in 2008 and 1 .162 million tons starting in 2018. Zone 2 annual NO, emissions

are capped at 538,000 tons. Each year, the percentages of allowances allocated and

auctioned are the same as under the new SO2 trading program. The Clear Skies Act

specifies that sources covered by the new SO 2 ,NO., or mercury trading programs would

18

---

no longer be subject to NO, SIP Call requirements, including a seasonal emissions cap,

beginning in 2008 .

The Clear Skies Act also contains annual caps on total mercury emissions . The

allocation of mercury allowances would begin January 1, 2010 . The annual mercury

emissions would be capped at 34 tons starting in 2010 and 15 tons starting in 2018 . The

percentage of allowances allocated and auctioned are the same as that proposed for the

SO2 and NO, trading programs . The allocations will be set on a one-time basis and

therefore will remain the same each year. Allowances will be allocated based on the

units' baseline heat input, which for units with an operating history is adjusted by a

standard factor to reflect the types of coal that were combusted

.

The Clear Skies Act also contains a "safety valve" provision . Under the safety valve

mechanism, the price of allowances is capped, meaning that if the allowance price

exceeds the "safety valve," EPA will borrow allowances from the following year's

auction to make more allowances available at that price . The Clear Skies Act "safety

valve" provisions for NO. and SO2 are $4,000 a ton and $35,000 per pound for mercury .

Other Federal Multi-Pollutant Lefislative Proposals: The Carper Bill, the Jeffords

Bill and the Waxman Bill

There are three primary legislative proposals in addition to the Clear Skies Act of 2003

for multi-pollutant legislation to regulate emissions from the electric power plants . The

three bills, introduced in the 108`h Congress, are The Clean Air Planning Act of 2003

(CAPA or the Carper Bill)," The Clean Power Act of 2003 (CPA or the Jeffords Bill), 1 s

and the Clean Smokestacks Act of 2003 (Waxman bill)

. 19 Figure 4-1 provides a brief

summary comparing the provisions of the various bills. A summary table comparing the

proposals' regulatory requirements is provided in Appendix C

.

While the bills have many elements in common, they also differ substantially . The

degrees to which reductions are needed in order to comply with the allowable levels vary

among these three bills. The bills would require reduction of NO, emissions to 1.5 or 1 .7

million tons per year (i.e., a 67 to 75 percent reduction from 2000 levels) and reduction of

SO2 emissions to 2.25 million tons per year (i.e., a 75 percent reduction from the Phase II

Acid Rain cap). The bills would require mercury reductions of 79 to 90 percent from

1999 levels of emissions (from 48 tons to 10 tons or 5 tons annually, depending on the

bill). Under both the Jeffords and the Waxman bills, these reductions would take place

by 2008 or 2009. When comparing the three bills with the Clear Skies Act, one striking

difference is that the three Congressional bills would establish caps on carbon dioxide

emissions, while the Clear Skies Act is silent on carbon dioxide . The Jeffords bill would

cap carbon dioxide emissions at 2.1 billion tons beginning in 2009. Senator Carper's bill

would cap carbon dioxide's emissions at the 2005 level by 2009 and then at the 2001

level by 2013. The Waxman bill would cap carbon dioxide at 1990 levels by 2009

.

19

---

Figure 4-1 : Emission Cap Levels and Timetables Associated with Federal Multi-

Pollutant Le islative Pro osals

U.S. EPA's Clean Air Interstate Rule (CAIR) Proposal

In addition to the Clear Skies Act, the Bush Administration has pursued a parallel

regulatory approach to power plant emissions. U.S. EPA published its

"Proposed Rule to

Reduce Interstate Transport of Fine Particulate Matter and Ozone"

in the

Federal

Register

on January

30, 2004 (69 Fed. Reg. 4566) .

This proposed rule was initially

referred to as the Interstate Air Quality Rule or IAQR, and addressed emissions of SO2

and NO, from fossil fuel-fired power plants. However, on May 18,

2004, U.S .

EPA

proposed additions to the rule's provisions and the regulatory text, and renamed the

proposal as the Clean Air Interstate Rule or CAIR

.

(69 Fed. Reg. 32684,

June

10, 2004,

"Supplemental Proposal for the Rule To Reduce Interstate Transport of Fine Particulate

20

Proposal

NO,

SO2

Mercury

CO2

Clear Skies Act

of 2003 (CSA)

2.1 million tons

-2008(59%

reduction from

2000 levels)

1.7 million tons-

2018

(67% reduction

from 2000

levels)

4.5 million tons- 2010

(50% reduction from

Phase II Acid Rain cap

3.0 million tons - 2018

(67% reduction from

Phase II Acid Rain cap

26 tons- 2010

(46% reduction

from 1999 levels)

Updated in 2003

to 34 tons in 2010

15 tons - 2018

(69% reduction

from 1999 levels)

No

mandatory

CO2

provisions

Clean Air

Planning Act of

2003 (CAPA-

Carper Bill)

1.87 million tons

-2009

(63% reduction

from 2000

levels)

1.7 million tons

-2013

(67% reduction

from 2000

levels)

4.5 million tons -

2009

(50% reduction from

Phase II Acid Rain cap)

3.5 million tons - 2013

(61% reduction from

Phase H Acid Rain cap)

2.25 million tons -

2016

(75% reduction from

Phase II Acid Rain cap)

24 tons -2009

(50% reduction

from 1999 levels)

10 tons- 2013

(79% reduction

from 1999 levels)

2005 levels

(2.6 billion

tons plus

flexibility) -

2009

2001 levels

(2.4 billion

tons plus

flexibility) -

2013

Clean Power

Act of 2003

(CPA-Jeffords

Bill)

1.5 million tons

-2009

(70% reduction

from 2000

levels)

2.25 million tons -

2009

(75% reduction from

Phase II Acid Rain cap)

5 tons-2008

(90% reduction

from 1999 levels)

2.1 billion

tons

- 2009

Clean

Smokestacks

Act of 2003

(Waxman Bill)

75% reduction

from 1997 levels

-2009

75% reduction from

Phase 11 Acid Rain cap

-2009

90% reduction

from 1999 levels

-2009

1990 levels -

2009

---

Matter and Ozone (Clean Air Interstate Rule) ")

.

One of the findings of this proposal is

that emissions of SO2 and NO, from power plants from the affected states significantly

contribute to a downwind state's inability to meet national air quality standards for fine

particle pollution (PM2

.5) and/or 8-hour ozone

.

As noted by U.S. EPA, as many as 175 metropolitan areas currently do not meet the 8-

hour ozone and/or PM2.5 standards, exposing almost 160 million people to unhealthful

levels of air pollution. U.S. EPA stated that

:

What has become increasingly clear is that it will take a significant regional effort

to ameliorate the health and environmental impacts from sources of pollution

contributing to these problems. A multi-state and multi-pollutant approach also

comports with the recommendations in a recent study by the National Academy of

Science, which notes that ozone, PM 2.5 and regional haze `share common

precursor emissions and common pathways for the generation of these pollutants

and are all to greater or lesser extents affected by long-range transport

.'

(U.S

. EPA

Fact Sheet on the Interstate Air Quality Rule,

January 30, 2004) .

The Clean Air Interstate Rule would require 29 eastern states and the District of

Columbia to significantly reduce and permanently cap emissions of

SO2

and/or NON,

depending on whether the power plant emissions from the state impact the ability of a

downwind state to attain the 8-hour ozone or PM 2 .5 standard .

Under the emission

reduction cap, in 2015, NO. emissions from the power sector would be 65 percent below

the base year levels. SO2 emissions from that sector would be 50 percent below base

year levels by 2010 and approximately 65 percent below base year levels when fully

implemented in 2015

.

U.S. EPA notes the following in support of its proposal

:

[SO2 and NO.] contribute to the formation of fine particles and ground-level

ozone, pollutants that, together, are associated with thousands of premature deaths

and illnesses each year. Reducing emissions of these pollutants will significantly

address these health issues, in addition to improving visibility and protecting

sensitive ecosystems . [U.S.) EPA's modeling predicts that when combined with

existing emissions reduction requirements, this rule would [enable] approximately

90 [percent] of "nonattainment areas" meet national air quality standards for

ozone and particle pollution . By addressing air pollutants from electric utilities in

a cost-effective fashion, EPA's Clean Air Interstate Rule proposal would protect

public health and the environment without interfering with the steady flow of

affordable energy for American consumers and businesses .

(See

U.S. EPA web site, http://www.epa.Qov/ interstateairquality/basic)

.

CAIR provides that the 30 affected states or jurisdictions (Alabama, Arkansas,

Connecticut (ozone only), Delaware, Florida (particle pollution only), Georgia, Illinois,

21

---

Indiana, Iowa, Kansas (particle pollution only), Kentucky, Louisiana, Maryland,

Massachusetts, Michigan, Minnesota (particle pollution only), Mississippi, Missouri,

New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee,

Texas (particle pollution only), Virginia, West Virginia, Wisconsin, District of Columbia)

would be required to submit a plan to U.S. EPA that demonstrates it will meet its

emissions budgets for statewide SO2 and NO R, as applicable. States would then be

permitted, but would not be required, to meet the emission caps through U .S. EPA's

federal cap-and-trade programs for power plants, or achieving reductions through other

state-designed emission control measures

.

U.S. EPA also proposed that the emissions reductions under CAIR would satisfy the best

available retrofit technology (BART) requirements of the Clean Air Act's Regional Haze

program for power plants as a "better than BART" alternative. U.S. EPA's justification

is that its SO2 and NOx model cap-and-trade programs are expected to achieve greater

emission reductions from power plants than would otherwise be achieved under BART

.

For Illinois power plants, CAIR would cap S02 emissions at 192,671 tons per year in

2010, and 134,869 tons per year in 2015. CAIR, as amended by U.S. EPA's "Notice of

Data Availability" (August 6, 2001), would cap NO, emissions at 69,623 tons per year in

2010, and 58,018 tons per year in 2015, for Illinois power plants . However, these caps

are not firm caps because U .S. EPA's proposal allows the affected sources to use banked

allowances from other programs, such as allowances from the federal Acid Rain Program

for compliance with the CAIR. Accordingly, because of banking, affected sources may

not have to meet their ultimate compliance deadlines until several years after U .S. EPA's

2015 overall deadline. Illinois EPA has expressed concern that this proposed approach

may be inconsistent with the deadline for attaining the 8-hour ozone standard

.

U.S.EPA's Mercury Reduction Proposals

In addition to U .S. EPA's CAIR proposal, section 112(n) of the Clean Air Act required

U.S. EPA to study the public health effects of air toxic emissions from fossil fuel-fired

power plants (coal, oil and natural gas) to determine whether it was necessary to regulate

those emissions. Air toxics, also known as hazardous air pollutants, are those pollutants

known or suspected to cause cancer or other serious health problems in humans, such as

birth defects or neurological effects. In late 1997 and early 1998, U.S. EPA published

two reports to Congress : "The Mercury Study Report to Congress," (December 1997),

and the "Study of Hazardous Air Pollutant Emissions from Electric Utility Stream

Generating Units-Final Report to Congress" (February 1998) .

Data presented within those reports identify coal-fired power plants are the largest source

of manmade or anthropogenic mercury emissions in the U.S. -- about 48 tons of mercury

each year -- and identify mercury as a toxic pollutant. As a result of these reports, U .S .

EPA also provided funding for the National Academy of Sciences in 1999 to review the

health effects data associated with methyl mercury and the Agency's "reference dose" for

mercury. A "reference dose" is the level at which most people could be exposed to

methyl mercury without the risk of health problems .

22

---

All of these studies and data gathered led U.S. EPA to develop a rulemaking proposal

that presented three alternatives for controlling emissions of mercury from coal-fired

power plants. The alternatives presented include

:

•

A proposed rule requiring power plants to install controls known as

"maximum achievable control technologies" (MACT) under section 112 of

the Clean Air Act ;

•

A proposed rule establishing "standards of performance" limiting mercury

emissions from new and existing power plants . This proposal, under section

111 of the Clean Air Act, would create a market based "cap-and-trade"

program that, if implemented, would reduce nationwide power plant

emissions of mercury in two distinct phases . In the first phase, due by 2010,

emissions will be reduced by taking advantage of "co-benefit" controls - that

is, mercury reductions achieved by reducing SO 2 and NO, emissions. The

expected mercury level would be 34 tons per year. When fully implemented

in 2018, mercury emissions will be reduced by 33 tons (69 percent), to a cap

of 15 tons per year; and

•

A proposal under section 112(n) of the Clean Air Act, which mimics the

proposal under section 111

.

Although U.S. EPA specifies a 15-ton final cap to be achieved in 2018, under the section

111 or 112(a) approach the agency acknowledges in its proposal that mercury emissions

could reach 22 tons (or only a 54 percent reduction) in 2020, when banking and trading

credits are utilized .

U.S. EPA makes it clear in its proposal that it does not favor the imposition of a MACT

standard. Illinois EPA believes, however, that U .S. EPA incorrectly applied the Clean

Air Act in setting the MACT standard in such a way as to penalize the use of eastern or

bituminous coal and to favor western coal or sub-bituminous coal . Illinois EPA has

challenged U.S. EPA on this approach and believes that U .S. EPA should establish a

MACT standard that reflects

at least

"the average emission limitation achieved by the

best performing 12 percent of the existing sources" or "the emission control that is

achieved in practice by the best controlled similar source ." We have stated that the same

reduction percentages should be applied to all types of coal, so that fuel switching or

blending is not encouraged in lieu of additional controls

.

Illinois EPA also expressed great concern that the deadlines in U .S. EPA's section 111

proposal are too extended. Illinois EPA acknowledges that the adoption of controls

across this source category may require more time than the traditional three-year

compliance time period for MACT sources. However, Illinois EPA believes that, if

needed, U.S. EPA can provide the extensions of time for compliance that are already

provided in section 112 of the Clean Air Act .

23

---

Illinois EPA strongly supports trading programs, but the Agency has commented that

there are concerns with the trading of mercury. While mercury emissions can travel great

distances, some mercury can also be deposited near its source . In fact, in November

2003, the State of Florida published a study entitled,

"Integrating Atmospheric Mercury

Deposition with Aquatic Cycling in South Florida ."

This study estimated how quickly

fish tissue levels respond to decreased regional mercury emissions

.

Thus, the Agency believes any mercury trading program would need to be carefully

designed to ensure that it does not have the unintended consequence of creating mercury

hot-spots .

Summary

The debate over a multi-pollutant approach to regulating air emissions from electric

power plants continues at both the national and state levels. The main differences in

competing federal proposals are the pollutants to regulate, the level of the proposed "cap"

and the timeframe for implementation . Of the four prominent proposals, the Clear Skies

Act is the only proposal that does not propose to cap carbon dioxide emissions

.

A well-designed national approach would be superior to a series of diverse individual

state rules because there would be more sources in the trading program and it would

provide consistency between the states

.

24

---

Chapter 5

Energy Issues :

Federal and State Policies and Programs and Energy Market Challenges

Over the past two years, several critical events have served as reminders that the United

States needs to reinforce its efforts to achieve energy independence, develop alternative

fuel sources, reduce emissions from fossil fuels and upgrade its aging electrical

distribution system. In addition to the extensive consequences of the terrorists' attacks of

September 11, we have the current conflict in Iraq, an unusually cold 2002-2003 winter,

the labor strike in Venezuela in December 2002, civil disturbances in Nigeria, and

particularly, the August 2003 blackout in the Northeast part of the United States to reveal

to us the vulnerabilities of the world energy markets to these wide ranging and disparate

pressures .

Illinois citizens are understandably concerned about matters of electric reliability as a

result of events such as the California energy crisis, and the dramatic collapse of Enron

.

The August 2003 electrical blackout that affected over 50 million people in the Northeast

was a wake-up call regarding the reliability of our power grid, and it clearly sounded the

alarm for change and renovation in our energy policies . In light of these events, policy

developments have occurred at both the state and national level, and Illinois has shown

its leadership by being proactive in policy-making to address the State's energy issues

.

At the national and state level, energy policies have been developed to guide efforts to

manage our energy resources and programs.

In this section, current government energy policies are briefly described .

The National Energy Policy

In his second week in office, President Bush established the National Energy Policy

Development (NEPD) Group, directing it to "develop a national energy policy designed

to help the private sector, and, as necessary and appropriate, to help State and local

governments to promote dependable, affordable and environmentally sound production

and distribution of energy for the future." This overview sets forth the NEPD Group's

findings and key recommendations for the National Energy Policy

.20

The NEPD Group identified the principal energy challenges facing America to be the

following: (1) promoting energy conservation ; (2) repairing and modernizing our energy

infrastructure; and (3) increasing our energy supplies in ways that protect and improve

the environment .

25

---

The NEPD Group developed several recommendations which included the following

:

•

Direct federal agencies to take appropriate actions to responsibly conserve energy

use at their facilities, especially during periods of peak demand in regions where

electricity shortages are possible, and to report to the President on actions taken

;

•

Provide a tax incentive and streamline permitting to accelerate the development of

clean combined heat and power technology

;

•

Create an income tax credit for the purchase of hybrid and fuel cell vehicles to

promote fuel-efficient vehicles ;

•

Extend the Department of Energy's ENERGY STAR® efficiency program to

include schools, retail buildings, health care facilities and homes, and extend the

ENERGY STAR® labeling program to additional products and appliances

;

•

Issue an Executive Order directing federal agencies to expedite permits and

coordinate federal, state, and local actions necessary for energy-related project

approvals on a national basis in an environmentally sound manner

;

•

Establish an interagency task force chaired by the Council on Environmental

Quality. The task force will ensure that federal agencies set up appropriate

mechanisms to coordinate federal, state and local permitting activity in particular

regions where increased activity is expected

;

•

Grant authority to obtain rights-of-way for electricity transmission lines with the

goal of creating a reliable national transmission grid ;

•

Enact comprehensive electricity legislation that promotes competition, encourages

new generation, protects consumers, enhances reliability and promotes renewable

energy ;

•

Implement administrative and regulatory changes to improve the reliability of the

interstate transmission system and enact legislation to provide for enforcement of

electricity reliability standards ; and

•

Expand the Energy Department's research and development on transmission

reliability and superconductivity

.

A stated goal of the Bush Administration's National Energy Policy is to add to the energy

supply from diverse sources, including domestic oil, gas and coal . It also included

evaluating hydropower and nuclear power, and making greater use of non-hydro

renewable sources that are now available . President Bush has directed all federal

agencies to include a detailed statement on the energy impact of any regulatory action

that could significantly and adversely affect energy supplies .

The Bush Administration's National Energy Policy has several elements, which they

believe could substantially impact the mix of electric energy sources in Illinois,

especially coal. We believe that the federal government must focus attention on efforts to

further promote clean coal technology to better use our valuable coal resources, to greatly

26

---

expand the use of renewable energy, and to make much needed improvements to the

vulnerable power grid

.

Illinois Energy Policy

The Illinois Energy Cabinet was created in January 2001 to review and coordinate energy

issues facing the State of Illinois and to develop a State energy policy . In March 2001,

the Energy Cabinet issued a white paper, "Preparing an Energy Policy for the State of

Illinois." In February 2002, the Energy Cabinet officially released the

"Illinois Energy

Policy"

that included 56 recommendations for energy policy improvements in the State of

Illinois

. 2 '

The recommendations addressed five major topics : (1) capitalizing on the rich natural

and human resources of Illinois and ensuring that they are used to benefit the State and its

citizens ; (2) ensuring adequate access to traditional sources of power and heat at a fair

price; (3) taking steps toward energy independence by moderating demand and increasing

the use of Illinois-based renewable resources ; (4) preserving, protecting and improving

our environment; and (5) providing that as a major energy consumer, Illinois state

government should lead by example

.

The recommendations also addressed the underlying economics - supply, demand,

affordability and environmental impacts for the energy markets as a whole. While

recognizing the inter-related nature of energy issues, the policy split the various energy

challenges into the following five separate groupings

:

•

Electricity Restructuring ;

•

Coping With Unstable Natural Gas Prices ;

•

Challenges in Transportation;

•

Environmental, Public Health and Safety Challenges ; and

•

Economic Development and Utilization of Illinois Resources

.

The resources of the State are being directed toward achieving the goals outlined in the

Illinois Energy Policy. Among those especially pertinent to this report are the efforts to

promote renewable energy and increase the use of Illinois' abundant coal resources . Both

of these components of the State Energy Policy are the subject of extensive efforts by the

Department of Commerce and Economic Opportunity. More information on these

programs can be found at www.commerce.state .il.us .

27

---

The Partnership for a New Economy

Governor Blagojevich's 2002 Partnership for a New Economy emphasizes

helping the economy and protecting the environment, while revitalizing the clean

coal industry in Illinois. Recognizing the availability and abundance of coal

resources in Illinois, the goal of the Governor's plan is to re-power power plants

and to promote mine mouth power generation .22

Ultimately, new plants could use new, environmentally friendly technologies such

as Integrated Gasification Combined-Cycle that dramatically reduce air pollution

at each plant. This clean coal burning technology also increases the efficiency at

which coal is burned, emitting 20 percent less carbon dioxide than regular coal-

fired plants .

Governor Blagojevich revised the State's $3 billion Clean Coal Bond Program to

meet his newly established goals

. The Governor's plan, signed into law in July

2003, authorizes a State-backed bonding authority to be created to leverage

financing for the upgrading of outdated coal powered plants with advanced coal

technology. The backing of the bonds by the State will make them more

attractive to financers than the bonding authority available now, giving companies

real incentives to build advanced technology power plants .

Governor's Special Task Force on the Condition and Future of the Illinois Energy

Infrastructure

As a result of the August 14, 2003 power outage affecting major portions of the

northeast United States and southeast Canada, Governor Blagojevich announced

the creation of a Special Task Force on the Condition and Future of the Illinois

Energy Infrastructure

. A committee was formed to analyze the State's existing

energy infrastructure, examine Illinois nuclear power plant safety, and to look at

ways to relieve pressure on the electric supply grid by promoting energy

efficiency and renewable energy

.

The Task Force was comprised of the Lieutenant Governor, the Director of the

Illinois Emergency Management Agency, the Director of the Illinois EPA, the

Governor's Office of Management and Budget, the Governor's Deputy Chief of

Staff for Public Safety, the Chairman of the Illinois Commerce Commission, the

Director of the DCEO, the General Counsel to the Governor, the Chairman of the

Illinois Toll Highway Authority, the Director of Central Management Services,

the Director of the Division of Nuclear Safety.

The results of this effort are presented in the final report of the Special Task

Force, published in June 2004, entitled "Blackout Solutions . " In brief, the

Special Task Force adopted 32 recommendations to improve system reliability,

ensure safety of Illinois' power plants and increase the diversity of Illinois'

28

---

energy portfolio. While the report focused principally on the immediate need of

ensuring protection from power outages, it also includes findings that stress the

theme of promoting reliability, efficiency, and safety. The report of the Task

Force has helped guide the preparation of this report and helped identify critical

issues .

Energy Market Challenges

The remainder of this Chapter provides an overview of the energy market challenges

Illinois currently faces

.

Restructuring Illinois' Electricity Markets

During the period since restructuring began, Illinois consumers have benefited

from rate reductions and rate freezes, and electricity reliability has been improved

significantly since major problems occurred in the Chicago-area in the late 1990s

.

Generation owners have had to invest shareholder dollars in pollution control

enhancements required to comply with federal Clean Air Act programs

implemented at the state level, most significantly the NO, SIP Call. Another

significant development has been the expansion of regional power transmission

organizations through which generation owners are more easily and efficiently

able to sell their power across state lines. As a result, owners of Illinois

generation facilities are now able to compete with generators in several

surrounding and nearby states and generators located outside of Illinois are more

capable of providing power to Illinois' consumers . These competitors typically

are utilities in states, which have not yet restructured their markets as Illinois has

done .

Utility-owned generation outside Illinois can continue to recover the costs of

environmental controls through rates paid by consumers . However, non-utility

Illinois generators do not have this cost-recovery mechanism. Therefore, if

Illinois businesses are encumbered with state-specific regulations that their out-

of-state competitors do not face, Illinois businesses will incur additional costs that

cannot be recovered directly from utility ratepayers and will face a competitive

disadvantage in regional power transmission organizations

.

The critical date for the electric restructuring process is January 1, 2007, when the

current cap on electricity prices for many Illinois retail customers expires . While

the transmission and distribution components will continue to be subject to

government regulation, beginning with the above date, prices for the power and

electricity portions are expected to be set by the supply and demand conditions of

the generation supply market. Restructuring seeks to ensure a low-cost and

reliable supply of electricity by injecting competition among suppliers into what

has been a highly regulated and vertically integrated industry .

29

---

If competition among suppliers of electricity is robust, power prices may remain

at reasonable levels . As California's experience in 2000 and 2001 has shown, if

competition among electricity suppliers fails to take hold, the price rise could be

significant. Whether robust competition occurs in Illinois in 2007 will depend on

the degree to which competitive forces create an effectively functioning wholesale

and retail supply markets . Retail competition among electricity suppliers has

achieved mixed results to date in Illinois

.

There have been some encouraging signs of retail market competition in the State

.

However, there was little or no competition among retail suppliers of electricity in

the service territories outside of northern Illinois .

Transmission constraints have a direct impact on the amount of competition

among wholesale and retail suppliers. Owners of the transmission system may be

reticent to construct transmission lines that would disadvantage their unregulated

generation affiliate. Regulatory siting requirements, zoning requirements and

resident opposition also act as deterrents in the initiation of transmission

improvement projects, making it difficult to eliminate constraints . Uncertainty

due to state and federal jurisdiction disputes and shifting federal transmission

policy has suppressed investment in new transmission . Recent actions by the

Federal Energy Regulatory Commission are recognized as an attempt to cut

through the thicket of uncertainty. The task for Illinois legislators, regulators and

industry participants is to ensure that the promises of electricity restructuring are

fulfilled

Challenges to Reliability

The issue of the reliability of the power system is a major issue throughout the

nation, and no less so in Illinois. Ample evidence of the fragility of the grid was

especially prominent after the August 2003 blackout. In the Agency's review and

discussions, we found that transmission constraints represent a major challenge to

electric reliability. Since electricity cannot be stored, the transmission system

must permit unimpeded movement of electricity from suppliers to consumers at

all times, but especially when demand for electricity is at or near its peak .

Likewise, the reliability of the transmission system depends upon critical voltage

support and resource capability at key locations in the grid . Actions that lead to

reductions in these critical factors can ultimately cause widespread service

interruptions or exacerbate a failure of the grid, as witnessed in the northern

portion of the U.S. and parts of Canada during August 2003 . Following the

August 2003 blackout, the grid was not completely restored for days to weeks

depending on the affected area. The economic loss and public impact has

amounted to approximately $6.4 billion dollars covering eight affected states

.24

As part of the Eastern Interconnect (the regional transmission interconnection),

Illinois faces the same electric reliability issues that were highlighted by the

power outage .

30

---

Grid congestion problems can become particularly acute where the operation of

certain generating plants is needed because their operation is essential to

maintaining grid reliability. Those older power plants would need to remain

operating to maintain grid reliability so they could supply needed voltage support

.

Their loss, without other units to replace them, could have serious impacts on the

reliability of the electric grid. Yet, these same plants may have difficulty meeting

new more stringent standards so this factor must be considered in the

development and implementation of any new pollution control strategy .

Although several state-sponsored initiatives were launched between 1999 and

2002 to promote new power plants, no additional base-load generating capacity is

under construction. Although construction permits were issued for two projects,

one has delayed the start of construction and the construction permit for the other

project has been challenged by a number of environmental groups and the permit

is stayed . No significant construction is planned to address transmission grid

reliability issues within the State or within the MAIN (Mid-America

Interconnected Network) electric transmission region of which most of Illinois is

a part .

Illinois EPA does not yet have adequate information about how a state-specific

program would impact plant closures and electric reliability. It can be generalized

that if out-of-state generators are not required to meet the same emission

standards as Illinois generators, and thus avoid the costs of air pollution control,

they could offer their product more competitively, and presumably, Illinois could

very well lose generation capacity within the State . A resource and transmission

planning model that would include detailed production cost information for

Illinois and the surrounding interconnect is needed to determine with reasonable

certainty which specific Illinois generation plants might be closed due to the costs

of more stringent pollution controls and the effect such closures might have on

electric reliability .

Summary

The National Energy Policy and the Illinois Energy Policy identified the challenges and

opportunities that exist in formulating a comprehensive and coordinated approach to

developing and safeguarding our energy resources . These policies help map the

strategies that will guide and harmonize all of our efforts to collectively contribute to the

achievement of the policy's critical objectives . Even with these efforts, it is plain to see

that our energy future faces significant challenges that are difficult to control or which

require long-term and difficult solutions. Any number of events can impede progress or

confound the best plans to manage our energy resources . This is the situation the Illinois

EPA confronts in its effort to evaluate the benefits of further pollution controls on the

power industry in light of the impacts such controls might have on the continued ability

of the State's electric energy system to provide safe, sufficient, reliable, and affordable

electricity. The Illinois EPA's review of the key issues presented in this Chapter has led

to the conclusion that we do not possess sufficient answers to key questions. Without the

31

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answers to those key questions, the Illinois EPA cannot be sure that a state-specific

approach will not result in unacceptable disruptions in the reliability of electricity in

Illinois and that the costs of the plan will not make electricity unaffordable for some. A

comprehensive sensitivity analysis must be conducted to estimate the response of Illinois'

electric power system to various State-specific pollution control scenarios. This would

provide reasonable assurance that all consequences of any proposal could be identified

and evaluated in order to avoid unmanageable problems

.

32

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Chapter 6

Opportunities Presented Through Renewable Energy

and Energy Efficiency

There is an increased level of interest and activity in Illinois in the expanded use of

renewable energy sources and energy efficiency, in order to reduce the electrical

demands on the existing power generation system and lessen air emissions. More and

more emphasis is being focused on utilizing alternative energy sources, combined heat

and power, distributed generation, energy conservation, and voluntary initiatives to save

energy. The benefits of using these alternatives in Illinois are the production of electric

power from non-polluting energy sources, increased operating efficiency of existing

power generating equipment, and reduction in current and future demands of

conventional fossil fuel-fired electric generating units. While current alternative energy

sources and activities account for a minimal portion of the State's electrical power output,

Illinois' aggressive approach to creating markets for renewable energy sources could

have a substantial impact on the State's energy production

.

In their 2004 "Annual Energy Outlook, " the U.S. Department of Energy's (U.S

. DOE)

Energy Information Administration (EIA) forecasts that the national growth rate of

energy generation from all renewable energy sources for the 2002 - 2025 timeframe will

be approximately 1 .8 percent per year

.25 Compounding this annual growth rate from a

base year of 2003 equates to a 13 percent increase by 2010, a 35 percent increase by

2020, and a 48 percent increase by 2025 for energy generation from renewable sources

.

Because Illinois is one of the more progressive states in developing and implementing

renewable energy, the growth rate for Illinois is expected to exceed the EIA national

growth rate and these growth projections. The current renewable energy sources in

Illinois include wind, solar, hydropower, and bioenergy .

Illinois citizens and businesses enjoy many benefits from increased utilization of clean

and local energy options, including renewable energy, "recycled energy" (such as

Combined Heat and Power or CHP), and energy efficiency . The potential economic and

environmental benefits associated with these energy options include

:

•

New income streams for farmers and rural areas through the production of

new renewable "energy crops" such as wind and biogas

;

•

Retention of manufacturing jobs in Illinois both by reducing energy costs

(through energy efficiency or recycled energy) and by the creation of new

markets for renewable energy generation in Illinois

;

•

Reduced cost of doing business for all business classes by expanding

customer choice to include distributed energy and energy efficiency ;

•

Hedging the state's risk against volatile and higher prices for traditional

energy sources, especially natural gas ;

33

---

•

Increased electric reliability through cost-effective measures to reduce electric

grid congestion during periods of peak usage (through increased reliance on

distributed generation and energy efficiency) ;

•

Improved public health and environmental quality by reducing energy waste

and stimulating clean energy development ; and

•

Retention of Illinois dollars in the local economy (instead of exporting dollars

while importing coal or natural gas from out-of-state or foreign sources)

.

This chapter will discuss these energy options and briefly discuss potential policy tools to

increase the utilization of these resources

.

Renewable Energy Resources

The current renewable energy sources in Illinois with significant potential for growth

include wind, solar, and bioenergy. In the following section, each of these various

renewable energy sources is discussed

.

Wind Energy

Illinois' wind energy resource is found to be the most promising renewable

energy resource in the State and can be used to produce electricity at lower cost

than new natural gas-fired power plants. The U.S. Department of Energy's

National Renewable Energy Laboratory (NREL) in 2001, estimates over 9,000

megawatts of commercial wind energy potential in the State

.

(See, "The 2001

Illinois Wind Resource Map, "

prepared by the National Renewable Energy

Laboratory, atwww.eere.energy.gov/windpoweringameiica/.) Wind technology

has improved dramatically over the last twenty years, with costs dropping from

over 20 cents per kilowatt-hour at that time to generally under 4 cents per

kilowatt-hour today. Modem wind generation investments, at current prices, can

be competitive with more traditional sources of new electric generation and

therefore a valuable hedge against higher electric costs that may result from

over-reliance on any of the traditional resources. To date, about 100 megawatts

of wind energy capacity has been developed in the state

.

This first 100 megawatts of wind energy capacity in Illinois, on an average annual

basis, will generate approximately enough power for 30,000 typical homes or

approximately 80,000 residents. Based on information from wind energy

developers available to the Illinois Department of Commerce and Economic

Opportunity (DCEO), approximately 1,500 megawatts of additional wind projects

are under active development around the state . If all of this new wind energy

capacity were to be built, rural landowners could gain up to $4 to $5 million per

year in additional income from wind land-leases and royalty payments, rural

communities could benefit from millions of dollars of property tax revenues, and

34

---

the wind projects could potentially generate enough power annually for over one

million residents

.

The wind industry indicates that until the federal production tax credit (PTC),

currently valued at 1.8 cents per kilowatt-hour, is renewed for an extended period

of time, sustained growth in wind energy will not occur. Rather, growth in the

industry is likely to experience interval periods of rapid growth and stagnation

.

The current federal PTC, recently renewed through December 2005, creates an

incentive for state policymakers, electric distribution utilities, wind energy

developers, and financial supporters such as the Illinois Clean Energy Community

Foundation, to cooperate on a wind energy strategy that can bring projects to

completion by the end of 2005

.

Solar Energy

Illinois has a significant solar energy resource and is using increasingly diverse

technologies to capture and utilize the resource. The three technologies

experiencing significant market growth in Illinois today include : passive solar

daylighting; photovoltaic (PV) electric generation ; and solar thermal collectors

(both traditional flat-plate collectors as well as compound parabolic collectors)

.

Illinois has been a leader in the Midwest in the development of its solar resource,

and with the partnership of the City of Chicago is the only state in the nation to

host two solar panel production facilities: Spire Solar Chicago and Solargenix .

Spire Solar Chicago, a manufacturer and turnkey provider for PV systems,

provides systems with clear reliability benefits that generate power at periods of

peak summer demand, and has enjoyed considerable success as a supplier for

public and not-for-profit institutions in the City of Chicago, including installations

on the DuSable Museum of African American History, the Reilly School, and the

Chicago Center for Green Technology. Spire is now expanding its product line to

private sector markets

.

Solargenix, a manufacturer and turnkey provider for compound parabolic solar

thermal panels, opened its new production facility in Chicago in 2004 .

Solargenix's products can supply hot water at both traditional domestic hot water

temperature ranges and higher temperature ranges suitable for absorption chilling

and other applications. The broadening range of solar thermal applications

demonstrates its ability to supplement both traditional natural gas loads (domestic

hot water) and electric loads (summer cooling through solar absorption chilling)

.

Illinois is also home to the Midwest's leading retail installer of flat-plate solar

thermal collectors, Solar Service of Niles. Solar Service is a 20-year supplier of

solar thermal applications for homes (domestic hot water), small businesses (such

as commercial laundries), and public facilities (such as heated swimming pools

and other applications) .

35

---

The solar industry in Illinois has demonstrated the environmental benefits and

economic development potential of the solar industry in Illinois, but continued

financial support will be key to the further stable development of the industry in

Illinois.

Bioenergy

Bioenergy, also called biomass, may have the largest long-term energy potential

in Illinois. Although much of that resource is, for the near-term, highly

cost-constrained, landfill-gas-to-energy systems are cost-effective in Illinois, and

"anaerobic digesters" (which produce and capture natural gas from the

decomposition of municipal wastewater and livestock operations) are

experiencing improving economics . Livestock waste digesters, popularly known

as "cow power" systems, have near-term growth potential in Illinois, and offer

strong parallel environmental benefits such as odor control, local water quality

protection, greenhouse gas capture, and pathogen elimination from the biosolid

residues.

Bioenergy can refer to a broad spectrum of organic material feedstocks including

agricultural crops and agricultural wastes, forest residues, livestock wastes,

municipal wastewater, and any other organic wastes (e .g ., those resulting from

food production and preparation)

.

Bioenergy typically enjoys lower air pollutant emissions (including emissions of

greenhouse gases) than fossil fuel based electricity . Since biomass absorbs

carbon dioxide as it grows, the entire biomass lifecycle of growing, converting to

electricity, and regrowing biomass can actually reduce carbon dioxide emissions

.

Through efficient utilization of biomass resources, through the use of residues and

co-products, and by accounting for greenhouse gas emissions avoided by landfills

and livestock operations, bioenergy systems can have a positive net impact on

Illinois' total greenhouse gas emissions profile

.

Biomass co-firing with coal is one option for large-scale use of biomass for

electric generation in Illinois . While such systems would likely create new

markets for farmers, and reduce pollution levels for all traditional power plant

pollutants, the economic feasibility of the systems, particularly in competition

with other renewable energy resources such as wind energy, will hinge on further

improvements that reduce the costs associated with the collection and delivery of

the feedstocks to the co-firing power plant .

Long-term, new technologies such as biomass gasification, the direct conversion

of biomass to hydrogen, or the conversion of cellulosic biomass feedstocks to

ethanol and then to hydrogen, all offer considerable electric generation

opportunities for Illinois' robust agricultural production capacities . While

adoption of a Renewable Portfolio Standard for Illinois would likely stimulate the

development of further bioenergy development in Illinois, continued financial

36

---

support, as well as research and development support through the Department of

Agriculture and Illinois' universities, will also play key roles in the stable further

development of bioenergy in Illinois .

Recycled Enemy

"Recycled Energy" refers to the process of recapturing energy that is typically lost in

manufacturing, electric generation, or gas pressure-dropping stations, and most typically

refers to Combined Heat and Power (CHP) applications. Because all energy associated

with the process is used more efficiently, operating efficiencies improve and operating

costs and fuel costs are reduced. This section will provide an overview of recycled

energy opportunities and challenges.

Combined Heat and Power (CHP)

CHP is the most significant and most common potential recycled energy resource

.

CHP utilizes the waste heat generated by electricity production to support heating,

cooling, dehumidifying, manufacturing thermal process loads, compressed air, or

mechanical power. Because the energy streams are produced on-site, electric line

losses are eliminated and transmission and distribution system upgrades can

frequently be avoided. Furthermore, while the national average efficiency of

power generation has remained around 30 to 35 percent for decades, CHP systems

can achieve overall energy efficiencies of 70 to 85 percent

.

According to the Midwest Combined Heat and Power Application Center, an

affiliate of the Energy Resource Center of the University of Illinois at Chicago

(Midwest CHP), 32 CHP systems producing approximately 170 megawatts are

currently known to be in operation in Illinois, and there are 2,400 megawatts to

7,500 megawatts of additional capacity that could be developed

.26'27

With rising concerns about electric reliability among industrial energy users, and

with long production shut-downs and high costs that can result from even brief

electrical outages or voltage reductions, interest in CHP as an electric reliability

enhancer is also on the rise . Key issues such as the availability of and appropriate

rates (or charges) for standby power, and the need for standardized

interconnection procedures for distributed generators, are key policy questions to

be addressed to realize the potential benefits that additional CHP systems can

bring to Illinois .

Energy Efliciencv Efforts

Energy efficiency investments in Illinois' economy brings strong and diverse

benefits, including: protecting consumers and businesses from higher energy

prices, improving electric reliability by reducing congestion on the electric grid,

supporting the retention of manufacturing jobs by reducing manufacturing energy

costs and supporting the manufacture of new high-efficiency products, hedging

37

---

risk against fuel price volatility, supporting public health and the environmental

quality by reducing energy waste, and helping to keep Illinois' energy dollars in

the local economy .

Illinois has enjoyed considerable success with energy efficiency programs for

residential, commercial, and industrial customer classes . This section will

provide a brief overview of the State's major energy efficiency programs for the

residential, commercial and industrial sectors, as well as the new commercial

building code .

•

Industrial and Manufacturing Energy Efficiency

Noting benefits of energy efficiency, and in particular the enormous

difficulties caused by the declining number of manufacturing jobs in the

State, Governor Blagojevich announced the creation of the new

Manufacturing Energy Efficiency Program . Administered by the Illinois

DCEO, the new program is charged with helping manufacturers manage

their energy costs by making cost-effective efficiency improvements . The

program involves key decision-makers in Illinois' manufacturing facilities

and focuses on measures that can bring high returns with modest

investments. The program helps firms identify best practices in energy

management that can be rapidly incorporated. The program then moves to

coaching services for the implementation of the new management

practices and to operation and maintenance (O&M) improvements

implementation, with the State supporting 50 percent of those costs

.

•

Commercial Sector Energy Efficiency

Again noting benefits of energy efficiency, in 2003 Governor Blagojevich

also announced the creation of a new Small Business $mart Energy

Program, administered by DCEO, to help commercial businesses reduce

their energy costs. The program, currently in a pilot stage, provides

"Design Assistance" to businesses planning on new construction or

considering end-of-life heating, ventilating and air conditioning (HVAC)

replacement for their facilities, and establishes a Building Operator

Certification Program to improve the energy efficiency O&M skills of

Illinois' large building operators .

New construction and reconstruction are key moments when a small

amount of incentive and direction can help businesses save on energy

costs for many years to come . Larger commercial buildings such as new

office buildings, new hotels, and many types of franchise chains that use

one template for most new buildings, provide key opportunities

.

Furthermore, with higher natural gas prices, efficient HVAC technologies

such as Geoexchange systems (or ground source heat pumps) are an

increasingly attractive ortion to control long-term energy costs . In the

38

---

Small Business $mart Energy pilot program, DCEO provides businesses

with Design Assistance services that include an analysis of the energy

costs of a traditional building design, as submitted by a business, as well

as recommended energy efficiency improvements and an analysis of the

return on investment of those improvements . To compliment the Design

Assistance program, DCEO is also supporting outreach to Illinois

architects, designers, engineers, and contractors, accelerating the market

penetration of more efficient design methods

.

In addition to Design Assistance, the Small Business $mart Energy

program also includes a Building Operator Certification program to

improve the energy efficiency O&M skills for Illinois' building operators

.

The program, in partnership with the Midwest Energy Efficiency Alliance

(MEEA), trains building operators at several different levels . Introductory

level courses focus on appropriate equipment operation in terms of energy

efficiency, air quality, health and safety, and other concerns . Higher-level

trainings are also offered to building operators to help them self-identify

efficiency improvements and look at the relationship between lighting,

HVAC, and the building envelope. DCEO and MEEA have offered the

program for several years to institutional building operators such as

hospitals and universities, and the program is now being offered to

businesses as well

.

•

Residential Energy Efficiency

Illinois' residential energy efficiency programs seek to reduce energy

costs for consumers by working to improve efficiency practices and

products in residential construction, lighting, and appliance markets . In

the case of lighting and appliance programs, which are focused simply on

reducing energy costs for consumers, the cost per kilowatt-hour saved can

be as low as one cent (relative to typical consumer energy costs in Illinois

of 8.5 cents per kilowatt-hour). These programs are funded through

DCEO's Energy Efficiency Trust Fund, which was established in the 1997

deregulation law and provides $3 million per year for residential energy

efficiency programs .

DCEO's residential efficiency programs have also demonstrated strong

parallel benefits in terms of both economic development and economic

assistance to low-income communities. For example, DCEO's Energy

Efficient Affordable Housing Construction Program, for example, provides

assistance to not-for-profit developers of low-income housing

developments. The program is not only a cost-effective energy efficiency

program (reducing energy consumption by over 50 percent in most cases

relative to standard code), but it is also a catalyst for further economic

development in low-income neighborhoods . Many projects are gut rehabs

in under-served neighborhoods and have led to additional private investment

39

---

in the adjacent properties. Because not-for-profit developers owning the

projects have an affordable housing mission, however, the projects do not

cause gentrification or a decline in the available affordable housing stock

.

Many of these projects occur in low-income neighborhoods across the state,

especially in Chicago and Rockford . The return on investment for the

efficiency improvements is immediate, as the increase in annual financing

costs due to the higher first-costs are less than the annual energy savings

from the first year.

Goals of the Energy Efficient Affordable Housing Construction Program

include using energy efficiency to create and maintain affordable housing

and educating developers, architects and builders on energy efficient

building measures and "green" building products so that they can begin

using these measures and products on all projects . In State Fiscal Years

2003 and 2004, the program supported 1,259 units of efficient affordable

housing, generated over six million dollars in lifetime savings for those

units, and cost just over two million dollars in total program costs

.

•

Energy Efficiency Building Code

On August 12, 2004, to reduce demand for energy in large commercial

buildings, to relieve future strain on the electric distribution grid and to

protect the environment, Governor Blagojevich signed into law the Energy

Efficient Commercial Building Act. The new law requires the State to

draft and enforce the first statewide energy efficient building code

.

Illinois had been the only major industrial state in the nation without a

statewide commercial energy efficiency building code

.

The Energy Efficient Commercial Building Act, requires the Capital

Development Board (CDB) and DCEO to write a statewide energy

efficiency code for all new commercial buildings and all commercial

buildings undergoing significant renovations, alterations, repairs or

construction of an addition . CDB will adopt the International Energy

Conservation Code (IECC) as the new statewide code for Illinois . The

IECC establishes minimum design and installation standards for a

building's lighting, windows, walls, roofs, insulation,

heating/cooling/ventilation and other building systems . DCEO will

provide energy code education programs for local government code

officials and for building designers, engineers, and contractors

.

MeansofPromotinz Energy Conservation

Recognizing that demonstration programs are only a step along the way, future efforts

should focus on harnessing the power of the marketplace, whether it is promoting energy

conservation and efficiency or encouraging renewable and recycled energy efforts

.

40

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Illinois has already adopted policies to promote clean power options, but more can be

done in this area

.

This section will describe the possible policy solutions to consider in addressing

constraints to the development of renewable energy and demand side management,

including green pricing programs and renewable portfolio standards .

Policy Consideration for Addressing Barriers

:

As outlined in

"Repowering the Midwest, "

a document published by the Environmental

Law and Policy Center in 2001, key policies for consideration include

:

•

Evaluate and update Illinois' efficiency standards and building codes

;

•

Establish or reinforce monitoring and enforcement practices

;

•

Establish an Illinois Renewable Portfolio Standard that requires all retail

electricity suppliers to provide five percent of their power from renewable

resources by 2010 and 15 percent by 2020 ;

•

Increase the Illinois Renewable Energy Investment Fund investment to 0 .1 ¢

per kilowatt-hour ;

•

Increase the Illinois Energy Efficiency Investment Fund by investing 0 .30 per

kilowatt-hour;

•

Ensure that transmission pricing policies and power pooling practices treat

renewable resources fairly and account for their intermittent nature, remote

locations, or smaller scale ;

•

Remove barriers to clean distributed generation by (1) expanding

Commonwealth Edison's net metering program to be offered statewide by all

utilities; (2) establishing standard business and interconnection terms ; (3)

establishing uniform safety and power quality standards to facilitate safe and

economic interconnection to the electricity system ; and (4) applying clean air

standards to small distributed generation sources, thereby promoting clean

power technologies and discouraging highly polluting ones ; and

•

Encourage markets for "NEGA" watts (an overall reduction in wattage) that

will promote energy efficiency within demand side management .

Green Pricing Programs

According to market research, some utility customers have expressed a

willingness to pay more for renewable energy. "Green pricing" is an option that

allows customers to support investment in renewable energy technologies

.

Participating customers typically agree to pay a premium on their electric bill to

cover the incremental increased cost associated with renewable energy

.

According to a report completed in 2001 by the National Renewable Energy

41

---

Laboratory, electric utilities in 29 states have implemented green pricing

programs. These green pricing programs were directly responsible for the

development of 110 megawatts of new renewable energy capacity to serve these

programs, with another 172 megawatts planned or already in development

.

Well-designed green pricing programs could also harness the marketplace and

accelerate the implementation of renewable energy in Illinois

.

Renewable Portfolio Standard Issues

Environmentalists and renewable energy developers recommend a mandated State

Renewable Portfolio Standard (RPS) of five percent by 2010 and 15 percent by

2020. Electric utilities indicate that since any cost differential for renewable

energy will have to be borne by utilities they must have the flexibility of a

voluntary approach until 2007, at which point the freeze on base chargeable rates

will be lifted. This issue and its resolution continue to be a point of discussion

among the related parties

.

Renewable Energy and Energy Efficiency Incentives

This section provides a very brief overview of other renewable energy and energy

efficient incentives

.

US. EPA's ENERGYSTAR®Program

in

Illinois

Throughout the nation, U .S. EPA's ENERGY STAR° programs establish energy

efficiency standards that material and equipment suppliers must meet to be

labeled and recognized as energy efficient practices . If merely five percent of the

energy efficiency opportunities in Illinois were annually and cumulatively

implemented, the American Council for an Energy Efficient Economy predicts

that, from 2000 to 2015, businesses could avoid $13.3 billion in utility costs and

reduce smog-forming NO, emissions by about 15 percent

.28

Relating these

savings to the electric generating community in Illinois means that if electricity

costs $0.07 per kilowatt-hour, approximately 1,450 megawatts less generating

capacity would be needed at the five percent implementation level, 2,900

megawatts for a 10 percent implementation level, and 5,800 megawatts for a 20

percent implementation level .

Clean Air Counts and Other Voluntary Initiatives

Voluntary energy conservation programs, such as Clean Air Counts (CAC), also

address the demand side of the energy equation. The Clean Air Counts initiative

was born in 1999 as a result of the Regional Dialogue Forum, to address the

ozone problem in the six county Chicago metropolitan area . The charter of Clean

Air Counts aims to identify and implement voluntary measures that not only

reduce emissions of volatile organic material (VOM), but also NO, emissions

42

---

while also promoting economic development for the Chicago area. Energy

savings is a secondary benefit of this initiative, that to date has gone

unemphasized

.

Although pollution reduction was the primary goal of Clean Air Counts, energy

savings of 1 .10 million megawatt hours per year by 2007 was also identified in

setting goals of reducing VOM emissions by 5.0 tons per day and NO, by 10.9

tons per day. This energy savings equates to a reduction of nearly 127 megawatts

in demand capacity. When setting this initial goal in 1999, Clean Air Counts also

recognized the potential to be 6.1 million megawatts hours per year, which

translates into approximately 700 megawatts of demand side savings

.29

Energy E

f

ciencv Programs

Many of the mechanisms necessary to expand the use of renewable and recycled

energy, as well as demand side management, have been in place for several years

in Illinois. Through various State actions and programs, funds have been made

available to enable demonstrations of these new technologies, thereby establishing

their feasibility and reliability. The following is a list of some of the existing

State energy efficiency and renewable programs currently available in Illinois .

Illinois Clean Energy Development Fund

The Illinois Clean Energy Community Foundation was created as a result of a

one-time payment of $225 million by Commonwealth Edison as a public

interest environmental condition of its proposed coal plant sale and as part of

legislation approved by the Illinois General Assembly in 1999 . The

Foundation was given $225 million of assets to further its mission of

improving energy efficiency, developing renewable energy resources and

certain other specified environmental measures

.

City of Chicago Clean Energy Development Fund

The City of Chicago Environmental Fund was also created as a result of the

settlement of the city's claims against Commonwealth Edison relating to the

franchise agreement. This fund had $25 million per year for each of four

years beginning in 2000. About half of the funds are devoted to energy

efficiency and the other half to renewables

.

Energy Efficiency Investment Fund

The Illinois Energy Efficiency Trust Fund was enacted by the Illinois General

Assembly and is supported by utility and energy supplier payments that

provide $3 million per year for each of 10 years beginning in 1997 . The

DCEO manages this fund .

43

---

Renewable Energy Investment Fund

The Illinois General Assembly enacted the Illinois Renewable Energy

Resources Fund in 1997. It has $5 million per year for each of 10 years for

renewable energy development projects, and it is supported by (1) residential

and small commercial customers payment of a flat monthly fee of $0.50, and

(2) by large commercial customers, who have a peak electric demand greater

than 10 megawatts and used more than four million therms of gas in the

previous calendar year, payments of a flat monthly fee of $37 .50 .

Commonwealth Edison Renewable Energy Fund

Commonwealth Edison's Renewables Program, also resulting from the

settlement of the City of Chicago's claims against Edison relating to the

franchise agreement, has $3 million per year for each of four years beginning

in 1998. The principal use is for development of solar photovoltaics

.

State Grants

State grants of $60,000 to $1 million are available for any renewable energy

technology capital projects . Funding is not available for residential projects

.

Tax Relief

Property tax assessment for solar energy systems is not to exceed the value of

conventional energy systems .

Benefits Prom Renewable Energy and Energv Efficiency

This section provides an overview of an analysis conducted by the Regional Economics

Applications Laboratory (REAL) of the potential economic benefits of renewable energy

and energy efficiency in Illinois

.

The REAL study applied the assumptions outlined for Illinois in the Environmental Law

and Policy Center's "Repowering the Midwest, " and found energy efficiency

improvements and renewable energy are expected to produce 35,000 net new jobs and

$3.6 billion in increased economic output by 2010 . By 2020, their study forecasts the

creation of 57,000 net new jobs and $6 .2 billion in increased economic output These

estimates were based on 3,649 megawatts and 8,358 megawatts of new clean energy in

2010 and 2020, respectively

. 30

Table 6-1 shows REAL's predicted economic impacts

from clean energy in Illinois .

44

---

Regional Economics Applications Laboratory forecast based on the Environmental Law and

Policy

Center's

"Repowering the Midwest . "

According to REAL, these investments in cost-effective energy efficient technologies

will produce an estimated one billion dollars in net electricity cost savings for both

business and residential consumers .

Summary

The pursuit of energy efficiency and development of clean renewable energy can result in

new jobs and economic benefits for Illinois cities and farming communities . These

economic gains could be disseminated to businesses engaged in manufacturing, firms

installing and servicing renewable and clean energy equipment, farmers leasing their land

for wind turbines or growing and harvesting bioenergy crops, businesses engaged in

related marketing and research activities and communities with renewable and clean

energy projects. Most importantly, these technologies bring with them the potential for

significant environmental and public health benefits

.

Table 6-1

Estimated Economic Im acts from Clean Ener in Illinois

45

2010

2020

Forecast of New Clean

Electrical

Net New

Additional Electrical

Net New

Additional

Energy Generation in

Generation

EOuput

Generation

Economic Output

Illinois

MW

)

Jobs

Output

(MW)

Jobs

(Billion)

(Billion)

REAL Estimates'

3,649

35,000

$3 .6

8,358

57,000

$6.2

---

Chapter 7

Greenhouse Gas Emissions :

National, and Nongovernmental Policies and Program, and Challenges

The General Assembly has also asked Illinois EPA to consider the need to establish a

system to certify credits for voluntary greenhouse gas reductions . Efforts by the federal

government to provide credit for early action on climate change have been considered

inadequate by many. In addition to several state actions, President Bush has ordered the

Secretary of Energy to improve the existing voluntary national registry for greenhouse

gas emission reductions . Based upon these efforts, Illinois has a range of options

including adopting one of the approaches worked out by other states or non-governmental

organizations, developing its own system, referring entities seeking to certify reductions

to one of these other systems, or waiting for and relying on an improved federal system

of emission credits. The following sections describe the main greenhouse gas programs

that are currently active and evaluates them for potential use by the State of Illinois

.

The Federal Energy Policy Act

Section 1605(b) of the Energy Policy Act of 1992 mandated that the U .S. Department of

Energy create a Voluntary Reporting of Greenhouse Gases Program to enable any

company, organization or individual to establish a public record of their greenhouse gas

emissions, reductions or sequestration in a national database . The purpose was to

encourage voluntary reductions in greenhouse gases by providing recognition for those

reporting reductions . Since a major debate on rewarding "early actors" had just occurred

during passage of the Clean Air Act Amendments of 1990, Section 1605(b) was also

intended to track early action on climate issues . A program such as the Department of

Energy's greenhouse gas registry is important for a variety of reasons, including the

following :

•

Encourages greenhouse gas emission reductions

;

•

Ensures credit for those that have made previous reductions if a mandatory

program is imposed ;

•

Provides positive publicity for early participants ;

•

Raises public awareness of potential climate change

;

•

Improves the competitive position of companies who participate

;

•

Provides entities with technical guidance in making and measuring reductions

;

•

Initiates an infrastructure in the states to carry out a future policy such as cap-and-

trade; and

46

---

•

Facilitates early trading in greenhouse gas credits

.

According to the U.S. Department of Energy, in 2001 a total of 228 entities reported to

the Energy Information Association that they had voluntarily undertaken 1,705 projects

that reduced greenhouse gas emissions by 316 million tons

.

(See

U.S. DOE's web page

at : http://www.eia.doe.gov/oiaf/1605/vrrpt/) Despite this apparent success, the U. S .

Department of Energy's voluntary system was widely criticized for its lack of rigor . The

"quality" of the reductions reported varied dramatically . There was a lack of consistency

in the methods used to measure the reductions, little or no verification that the reductions

actually occurred, and no assurance that emissions reduced in one part of a company

were not replaced by increases elsewhere. In response to the current federal

Administration's call to improve the existing voluntary national registry, the U .S .

Department of Energy has held several public workshops in conjunction with the U .S .

Department of Commerce, U .S. EPA and the U.S. Department of Agriculture to obtain

input on proposed improvements. On December 5, 2003, the U.S. Department of Energy

officially released the proposed revision to the voluntary greenhouse gas reporting

system. The public comment period on the revised guidelines remained open until mid-

February 2004. The U. S. Department of Energy is planning to simultaneously release a

further revision of the greenhouse gas reporting system for public comment and the

Technical Guidelines sometime in 2004 .

Other

Congressional Actions

On the legislative front, numerous bills (nearly 70 bills in 2003) have been introduced in

Congress that would either create a national greenhouse gas registry or directly regulate

greenhouse gases

.

The most notable bill was the Climate Stewardship Act of 2003 (S . 139). U.S. Senators

John McCain (R-AZ) and Joseph Lieberman (D-CT) introduced the bill in January 2003

(which was last co-sponsored by seven other senators, including Senator Dick Durbin of

Illinois). The bill was last debated in the Senate on October 30, 2003, and then referred

again to the Senate Committee on Environment and Public Works, where it currently

resides. The Bush Administration has noted that it "strongly opposes" this bill and

general opinion suggests that it is unlikely to pass in its current form. However, if it were

to be passed in its current state, the bill would mandate the following climate change

actions :

•

U.S. EPA would be mandated to create regulations that limit greenhouse gas

emissions from a number of greenhouse gas source sectors . These sectors

account for 85 percent of the year 2000 greenhouse gas emissions from the United

States. Agricultural and residential sectors would be excluded, as would other

specific sectors where it is deemed too difficult to reduce greenhouse gas

emissions.

•

One of two possible emissions targets would be enacted (and could be applied

according to standard international methodologies)

:

47

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- By 2010, U.S. emissions will be reduced to year 2000 emission levels

- By 2016, U.S. emissions will be reduced to year 1990 emission levels

•

All entities that emit greater than 10,000 metric tons of greenhouse gas per year

would be part of the program .

•

Trading Units would be issued for each metric ton of greenhouse gas, with an

exception for the transportation sector, particularly petroleum refiners and

importers. These areas would have units that represent a unit of petroleum

product sold per metric ton of emissions produced. At the end of the trading

period, companies would be required to turn in allowances equal to the tons of

emissions they put out

.

•

Some allowances would be awarded to companies, while others would be

auctioned off. Proceeds from the auctioning of these allowances may be used to

offset any possible increase in energy cost to consumers

.

•

A form of Intersector Trading would be allowed in that companies may satisfy up

to 15 percent of their required reduction (reduced to 10 percent after 2016) by

sequestration, taking credit for reductions by somebody not in the program, or

using tradable allowances from another country's greenhouse gas market system

.

In addition, credits earned under the Corporate Average Fuel Economy program

for passenger vehicles and trucks would be tradable within this system

.

•

Any company that did not provide enough allowances to meet its emissions would

be fined at three times the value of each missing allowance

.

•

The trading aspect would incorporate the Department of Energy's greenhouse gas

registry, discussed above . However, due to the problems already noted, changes

would need to be made and any reductions would need to be verified .

•

Companies could borrow credits against fixture expected reductions, up to five

years in the future, but with a 10 percent "interest rate" attached to it

.

•

The bill would also create certain research programs . Most notably, it would :

- Establish a scholarship program at the National Science Foundation for

students who wish to do research in climate change ;

Require that the Department of Commerce prepare a report on Technology

Transfer and establish an "Abrupt" Climate Change program

;

Require that the Secretary of Commerce submit a report on the effect the

Kyoto Protocol would have on U. S. industries' ability to remain

competitive, and cooperate with worldwide climate efforts;

Alter the structure of the U .S. Global Change Research program ; and

Require that the National Institute of Standards and Technology create a

branch that studies measurement technologies and standards as they relate

to climate change

.

48

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The Senate vote on the McCain-Lieberman bill marked the first time ever that a bill

capping U.S. greenhouse gas emissions and establishing a national greenhouse trading

system had been considered. The sponsors intend to put it up for a vote again

.

U.S. EPA's Climate Leaders Program

In addition to the Department of Energy registry, the U .S. EPA has created a voluntary

industry-government partnership to encourage companies to develop long-term

comprehensive strategies to reduce greenhouse gas emissions. The program, called

"Climate Leaders," forms partnerships with companies, who then set corporate-wide

greenhouse gas reduction goals and inventory their emissions to measure progress. They

report this data to the U .S. EPA and thereby create a record of their emissions reductions .

As of this writing, 56 companies covering a wide variety of industries have joined

Climate Leaders. Some of the companies in Climate Leaders have also joined the

Chicago Climate Exchange with the self-determined industry limits being the same for

those who belong to both groups

.

(See

the Climate Leaders website at

http://www.epa.gov/climateleaders/ for more information .)

Greenhouse Gas Effortsin Other States

A few states have decided to undertake climate change action at the state level, with

varying approaches. Specifically, some states have emphasized reduction "projects,"

while others have focused on corporate or company level emissions at a state, national, or

even international level. Some state actions include

:

California :

California's registry is the most well developed state program in the country . California's

Climate Action Registry was launched in October 2002 with the purpose to help companies

and organizations with operations in California to measure their greenhouse gas emissions

and establish baselines against which any future greenhouse gas emissions reduction

requirements may be applied . The registry requires entity-level reporting of emissions

from all facilities in the state, but participants may elect to report all national emissions

.

Entity-level reporting means that a company cannot pick and choose specific operations to

report, but instead must report at the corporate level . General reporting requirements and

certification protocols have been completed . Reporters must verify that they have met all

the general reporting requirements

.

The registry system is managed almost entirely through the web ; reporters use an online

reporting tool known as Climate Action Registry Reporting Online Tool (CARROT)

.

California is offering its system to other states, including its reporting protocols,

certification process, online reporting tools, even its server (for a small cost) - which cost

several hundred thousand dollars to develop and implement. New England states have

49

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been working with California to look at the possibility of using or linking to CARROT

.

Additionally, Washington and Oregon have also looked at using CARROT

.

California has also passed a law capping automobile emissions of greenhouse gases

.

However, the law must withstand a court challenge from auto manufacturers, who claim

only the federal government can make laws governing fuel economy and this is

effectively what the California law does .

New Hampshire

:

New Hampshire has adopted rules on a greenhouse gas registry . The state allows

reporting at the corporate, facility or project level. Verification by a third party or state

government is required. New Hampshire also passed a four-pollutant bill. However,

indications are that affected companies are already at or below the carbon dioxide

requirement and thus no trading will be required. There is also a power-related "tag"

system where every megawatt of power has environmental attributes associated with it,

and those certificates can be traded . Thus, a company could buy certificates to show that

it effectively used only wind power. The program is estimated to cost less than a penny

per month for the average home .

Wisconsin :

Wisconsin finalized rules for its registry and started accepting registrants in January

2003 . Entities that emit more than 100,000 tons of carbon dioxide annually, of which

there are only a few, are mandated to report their carbon dioxide emissions . Verification

is encouraged but not required . Reductions can be reported at an entity, facility or project

level .

Massachusetts

:

Massachusetts has adopted a cap on 1997-1999 utility emissions and emission rates

.

Offsite emissions offsets and sequestration are allowed . The rule only applies to the six

largest power plants in the state .

Oregon :

Oregon limits carbon dioxide emissions for new or expanded power plants to a level that

is approximately 17 percent below the most efficient natural gas fired plant in the U .S .

Power plants are thereby required to otherwise obtain offsets, for example by giving

money to the Climate Trust or engaging in other projects. To date all have chosen to give

to the Climate Trust at a specific rate based on the amount of power they will be

producing. The Climate Trust then uses that money to purchase greenhouse gas offsets

elsewhere. Also, Oregon has promulgated a law regarding forestry registration and

reforestry. Oregon's Department of Forestry sells credits under this program, but at last

notification the program was on hold

.

50

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Non-Governmental Greenhouse Gas Efforts

Chicago Climate Exchange :

The Chicago Climate Exchange is a voluntary greenhouse gas trading program led by

CEO and Chairman Dr. Richard L. Sander, who previously helped design the Acid Rain

Program and developed the concept of trading financial futures . Companies who join

Chicago Climate Exchange commit to reducing their greenhouse gas emissions by four

percent below their baseline (an average of 1998-2001 emissions) by 2006, which is the

final planned year of the pilot program

.

The gases specifically covered by the Chicago Climate Exchange are carbon dioxide,

methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride

.

These emissions will be converted to carbon dioxide-equivalents using the 100-year

Global Warming Potential values established by the Intergovernmental Panel on Climate

Change. The unit of emissions measurement, reporting, price quotation and trading in the

Chicago Climate Exchange will be metric tons carbon dioxide-equivalent, with each

trading unit representing 100 metric tons of the carbon dioxide equivalent . The first

auction of these trading units was held in September 2003 . The majority of the

allowances were bought by American Electric Power Company for slightly under a dollar

per metric ton. Continuous trading of greenhouse gas emission allowances commenced

on December 12, 2003 . Through April 2004, trading of Carbon Financial Instruments

had increased each month and volumes exceeded expectations . In April, the price per

metric ton of carbon dioxide was approximately $0.80-$0.85 .

Like the SO2 trading program and Illinois' trading program for volatile organic material,

the Emissions Reduction Market System (ERMS) program (discussed in Chapter 8), the

Chicago Climate Exchange expects to operate under a form of cap-and-trade

.

Participants can reduce their emissions beyond their target levels and sell the extra

reductions. Others can avoid having to make reductions at their own facilities by

purchasing credits

.

Offset projects include some that directly reduce greenhouse gas emissions, such as the

capture and use of landfill gas (methane), or that use renewable energy systems like wind

and solar power. Other types of projects keep such gases out of the atmosphere through

projects like forest expansion or no-till agriculture . Thus, a greenhouse gas trading

program would not only provide incentives for industry to reduce emissions, but could

provide a secondary income stream for farmers who adopt conservation methods

.

There are numerous pros and cons involved in such a voluntary program . Dr. Sander has

indicated that companies will be motivated to join the Chicago Climate Exchange

because shareholders and consumers expect them to be more environmentally friendly

.

Also, he believes that companies will join a voluntary program to reduce the chance of a

mandatory one being imposed on them . Currently, several issues are being considered

and addressed as the pilot continues.

51

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Other Greenhouse Gas Efforts

The previously discussed federal, state, and private initiatives are the leading greenhouse

gas efforts thus far. On a smaller scale, several other states are considering whether to

create their own registries and the northeastern states and eastern Canadian provinces

have agreed to reduce greenhouse gas emissions on a regional basis, though reports

indicate that the New England states are already lagging behind .

(See, Air Daily

September 8, 2003.) Other private trading efforts exist as well. Eight companies,

including Alcan, BP, DuPont, Entergy, Ontario Power, Pechiney, Shell and Suncor have

set a goal of reducing greenhouse gas emissions by 80 million tons by 2010 and intend to

establish a trading system amongst themselves . Shell and BP have already established

internal trading programs .

In addition, ten northeastern states (Connecticut, Delaware, Maine, Massachusetts, New

Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont) have

agreed to engage in a regional trading program for carbon dioxide emissions from power

plants. They hope to have a final agreement in place by April 2005 . No details have yet

been released on how trading might work

.

(See, Daily Environment Report,

September

26, 2003)

.

Internationally, Denmark and Britain have begun some modest greenhouse gas emission

trading. Under the Kyoto Protocol "joint implementation" and the "clean-development

mechanism" are two programs to test efforts to create reductions or offsets. Several U.S .

states and companies have participated in such projects, but such activity has come to a

halt since the Bush Administration's clear rejection of Kyoto . Back in the early 1990s

when Illinois still had a sister-state relationship with Liaoning Province in China, the

State of Illinois and Illinois Power Company outlined several potential joint

implementation projects that never came to fruition .

In more recent international actions, in January 2004, 10 companies announced the start

of a Global Greenhouse Gas Registry. Announced at the World Economic Forum Annual

meeting, these globally active companies made the commitment to disclose their

greenhouse gas emissions from their worldwide operations . Alcoa, Hewlett Packard, the

German Utility RWE and Scottish Power are a few of the companies signing on . The 10

companies combined account for approximately 800 million tons of carbon dioxide

equivalent annually. This registry was developed with the assistance of a number of

environmental and business organizations, most notably the Pew Center on Global

Climate Change, Deloitte Touche Tohmatsu and the World Energy Council . The

technical infrastructure of the system is modeled after the California Climate Action

Registry. The stakeholders of the Registry hope the registry encourages more corporate

climate change actions by creating a global standard for disclosure of greenhouse gas

emissions and reduction goals . Public access to the emissions information is expected to

be available by summer 2004 .

52

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Specific Challenges of Greenhouse Gas Trading

Notably, 12 states, three cities, and several environmental groups sued in an attempt to

force U.S. EPA to regulate greenhouse gases . U.S. EPA ruled that they do not have the

authority to regulate carbon dioxide and other greenhouse gases . However, the lawsuit

contends that this ruling contradicts previous statements and testimony from that agency

under the Clinton Administration

.

If any mandatory program were to be developed in the future, it would likely be a

national cap-and-trade program (see Chapter 8 for more information on cap-and-trade

programs and emissions trading in general). However, a cap-and-trade program is not as

simple with carbon dioxide as it is with pollutants such as volatile organic material

(VOM) and NON . As such, any cap-and-trade system would probably differ from Illinois

EPA's VOM trading program (see Chapter 8) in that it would likely have trading units

with an unlimited lifespan. While ozone is a seasonal problem that occurs in specific

areas, greenhouse gas issues are a global problem that occur over the course of years or

decades. Thus, it is not as important to worry about a single-year "spike" in emissions if

everybody should save up all of their credits to use at once. The idea would be to reduce

greenhouse gas emissions over a long period of time

.

One reason for the difficulty in applying a cap-and-trade to greenhouse gases relates to

the difficulty of the possible double counting of emission reductions . One method of

accounting for greenhouse gas emissions would be the imposition of a "carbon tax"

whereby the fuel producers themselves have the obligation for the carbon they produce

.

Authorizations or allowances would be sold or auctioned to producers of coal, oil, gas,

etc., and the cost would be passed down the line giving companies a monetary incentive

to reduce fuel usage and thus greenhouse gas emissions . In such a system, the revenues

from the carbon auction could be returned to taxpayers to make up for additional costs to

their own home energy bills. While the idea may be workable from a theoretical

standpoint, it is unlikely to succeed due to political factors . This is especially true in

Illinois, as coal would need a higher cost than other fuels due to its higher greenhouse gas

emission potential .

Recommendation for Illinois

Illinois has several options of how to focus its efforts in addressing greenhouse gas

emissions. A revised Section 1605(b) registry under the National Energy Policy Act

should be up and running soon. While the existing voluntary reporting program contains

many tons of reductions from questionable projects that may not deserve to receive early

action credit, the improved reporting program should, in theory, be better able to

guarantee credit for projects or reductions that are registered . Companies interested in

participating in the emissions credit markets can also be directed toward the Chicago

Climate Exchange. Finally, for a company wanting to establish their baseline for

emissions in preparation for future mandatory programs, they could report their emissions

to the California registry or even the newly formed Global Greenhouse Gas Registry

.

53

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Alternatively, Illinois could create its own system for reporting emissions on an entity

basis. The State could create a voluntary system similar to that being developed by

California or perhaps one that could require mandatory emissions reporting for large

emitters. Given the existence of various pilot efforts around the country, Illinois should

monitor those efforts and learn accordingly.

A final option, which is the option we recommend, is to allow the various ongoing

projects to come to fruition before deciding to develop yet another system

.

Ultimately, a national trading program with a federal mandate appears to be the most

effective way to handle the greenhouse gas issue. While various states have their own

independent registry at this time, many do not mesh with each other and will probably be

superseded should a federal registry be developed . Thus, it is recommended that Illinois

delay development of its own independent registry or greenhouse gas trading program

and lend its support to a federal cap-and-trade system like the one proposed in the

Climate Stewardship Act of 2003 .

54

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Chapter 8

Overview of Emission Trading Programs

This Chapter provides an overview of the application and effectiveness of emission

trading programs. During the 1990s, as the need for further control measures became

clear, the concept of allowing sources to trade with one another in order to achieve the

needed emissions reductions was conceived . Traditionally, however, air pollution control

rules and regulations have been written as "command and control" requirements . These

rules typically require that every operating unit comply with the applicable rule at all

times .

One of the first successful emissions trading programs was part of an air pollution control

strategy for the emissions of SO 2 and NO, from power plants, known as the Acid Rain

Program, and implemented by the U .S. EPA pursuant to Title IV of the Clean Air Act

.

The Illinois trading program for volatile organic materials, known as the Emissions

Reduction Market System (referred to as Illinois EPA's VOM trading program), and the

federal NO. SIP Call trading program followed the Acid Rain Program

.

This Chapter will describe the types of emissions trading, the benefits of cap-and-trade

programs, an overview of Illinois' VOM Trading Program, the Acid Rain Program, the

federal NOx Trading Program, and a very brief description of the trading programs in

other states .

Types ofEmission Trading

There are three primary types of emissions trading that have been used or considered by

those interested in providing industry more flexibility in complying with regulatory

requirements . They are Open Market, Cap-and-Trade, and Offset Trading.

Open Market trading, which is the least rigorous of the three, not only allows companies

to trade in order to meet a reduced emissions cap, but also allows them to trade in order

to avoid compliance with existing air pollution control regulations . U.S. EPA and most

environmental groups have opposed the use of open market trading . Therefore, it is not

generally seen as a viable trading option for a multi-pollutant strategy

.

Cap-and-trade programs set a cap on emissions for a defined region or set of emitters

.

This cap is a number that represents reductions from previous emission levels, thus

reducing overall emissions from the participants . Participants must either reduce their

emissions or purchase allowances to meet the overall goal

.

Offset Trading was developed as part of U.S. EPA's New Source Review program in the

late 1990s. Under such programs, new sources or sources with major modifications must,

in addition to installing stringent controls, also obtain offsets at increasing levels of

multipliers in the form of permanent emission reductions from other sources in the area at

55

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set ratios (e.g., 1 .1 to 1 .0 , 1 .2 to 1 .0, etc.). While offset trading has been useful in the

preconstruction permitting programs for nonattainment areas, it would not be beneficial

for a multi-pollutant control program .

Benefits of Cap-and-Trade Programs

A substantial amount of emissions are already controlled nationally and in Illinois by

technology-based rules. Further reductions in emissions using such "command and

control" measures are potentially very costly to impose on individual industrial sources .

Cap-and-trade programs place a limit on the amount that each facility can emit and allow

each individual facility to determine how to best achieve those limits . Some companies

will modify their processes, some may add control devices, and others will simply keep

their operations the same but purchase credits . In this way, the overall emissions to the

air from the area are reduced while providing a variety of mechanisms for sources to use

in achieving their individual reductions, presumably at the most cost-effective level . This

type of source-by-source flexibility is the major benefit for using cap-and-trade programs

rather than command and control rulemaking

.

The emissions trading program operates by giving each participating source a baseline

consistent with their actual emissions in previous years, adjusted for the source's

compliance or noncompliance with existing rules . That baseline is then reduced to the

necessary level, and a cap is placed on source-wide emissions. The program allows

trading (buying and selling) among participating sources in order to meet that cap on their

emissions .

Unlike the situation in some open market trading systems, a cap-and-trade system

requires that sources still adhere to all other state and federal emission limitations

.

Illinois' VOM Trading Program

Illinois EPA's VOM cap-and-trade program allows major sources of VOM in the

Chicago ozone nonattainment area to trade "allotment trading units" to ensure that they

meet their specified emissions levels

.

Illinois EPA's VOM trading program contains a number of features that distinguish it

from traditional command and control programs and other market systems

:

•

Since ozone is a problem in Illinois only during the summer season, Illinois

EPA's VOM trading program is seasonal, restricting emissions from May 1

through September 30 when the ground-level ozone problem exists ;

•

Illinois EPA's VOM trading program puts a cap on sources based on their actual

emissions, which provides certainty that it will reduce VOM in the nonattainment

area ;

56

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•

Illinois EPA's VOM trading program goes beyond "Reasonably Available

Control Technology" (RACT). Unlike other emissions trading systems across the

country, Illinois does not allow sources to avoid other emission limits by

participating in the trading program . Sources must comply with the trading

program rule and all other applicable limits ;

•

Some trading programs have created trading units with an unlimited life, which

allow them to be accumulated for long periods of time. Illinois EPA's VOM

trading program rule provides that allowances have a limited two-year lifespan

.

This helps to ensure a robust market, allows some saving for companies, but

prevents excessive accumulation of active trading units with unlimited life ;

•

Because Illinois EPA's VOM trading program rule is associated with Illinois'

Title V permitting program for major sources, known as the Clean Air Act Permit

Program (CAAPP), monitoring and record keeping provisions are linked to avoid

duplicative efforts for companies and to ensure the use of standardized methods

for determining emissions ;

•

Illinois has created a specific reduction requirement in the VOM trading program

rule, requiring most units to reduce VOM emissions by at least 12 percent . This

provides Illinois with a specific, creditable VOM reduction in the Chicago ozone

nonattainment area; and

•

Sources that fail to reduce their emissions or obtain the proper number of

allowances are held accountable for their actions as a part of the VOM trading

program rule itself. Indeed, such sources are penalized at a higher rate for

repeated failure to hold the required allowances. This discourages noncompliance

on the part of participating sources and provides Illinois with some certainty that

the VOM reductions will be achieved

.

Illinois EPA's VOM trading program has achieved and exceeded the desired emissions

reductions. In 2002, there was a reduction of 9 .7 percent in the allotment compared to

the baseline. There was a further reduction of 48 .1 percent in emissions compared to

what the allotments would have allowed .

More information about the trading program can be found in the 2002 Illinois Emissions

Reduction Market System Annual Performance Review Report

.

Federal Acid Rain Prozram

The Acid Rain Program created a national emissions trading program for SO

2 emissions

and required reductions in NOx emission rates from power plants pursuant to Title IV of

the 1990 Clean Air Act Amendments . In their report, "Latest Findings on National Air

Quality: 2002 Status and Trends, " the U.S. EPA states that acid rain data demonstrate the

Acid Rain Program's success in reducing harmful SO2 and NO, emissions from power

plants. According to the data, SO2 emissions from power plants were 10.2 million tons in

57

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2002, nine percent lower than in 2000 and 41 percent lower than in 1980. NO, emissions

from power plants also continued downward, measuring 4.5 million tons in 2002, a 13

percent reduction from 2000 and a 33 percent reduction from 1990 .

According to the U.S. EPA, the Acid Rain Program is on the way to achieving its goal of

a 50 percent reduction from 1980 SO 2 emission levels. They note that trading under the

program has created financial incentives for electricity generators to look for new and

low-cost ways to reduce emissions. The level of compliance under the program

continues to be extremely high, with U .S. EPA estimating the level to be over 99 percent,

and allowance prices have generally been much lower than originally anticipated . Refer

to http://www.epa.gov/airmarkets/arp/ for additional information on the Acid Rain

Program and allowances .

NO,, Trading Program

To allow for use of the most cost-effective emission reduction alternatives, an emission

budget trading program is an important component of the federal NO, SIP Call, which

was issued by U.S. EPA on October 27, 1998 (63 Fed.Reg.57356) (See endnote 8). Each

of the states subject to the NO, SIP Call are encouraged to participate in the NO . Budget

Trading Program, thereby providing a mechanism for sources to achieve cost-effective

NO, reductions. The trading unit, a NO, allowance, is equal to one ton of emitted NO .

.

Under the NO, Budget Trading Program that began full implementation in May 2004,

each of the participating states determines how its ozone season state trading program

budget is allocated among its sources . Each source is given a certain quantity of NO,

allowances. As with other cap-and-trade programs, if a source's actual NO, emissions

exceed its allocated NO, allowances, the source may purchase additional allowances

.

Conversely, if a source's actual NOx emissions are below its allocated NO, allowances, it

may sell the additional NO x allowances. Such a program creates a competitive market

for NO, allowances and encourages use of the most cost effective and efficient means for

reducing NO, emissions. Trading may occur among any of the sources within the entire

NO, SIP Call region

.

Programs in Other States

Illinois EPA's VOM trading program is the first successful cap-and-trade system in the

United States for VOM and is currently the only existing U .S. EPA-approved cap-and-

trade VOM reduction program in the country . However, there have been several other

attempts made at trading programs by other states

:

Michigan currently has a voluntary open market statewide emissions trading

program that covers VOM, NO, and carbon monoxide. As of the end of 2001, the

Michigan Department of Environmental Quality indicated that creation of

allowances had far outpaced their use, which would be expected in a voluntary

program .

58

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The South Coast Air Quality Management District (SCAQMD) of California

began NO, trading in the "RECLAIM" program in 1994 . It covers all sources in

the area with emissions greater than four tons per year . Starting in 1994,

allocations reduced gradually each year until 2003 . Future allocations are

expected to remain stable at the 2003 level. As the number of allocations has

been reduced, the price of allowances has increased

. RECLAIM does not allow

banking and has several complicating features due to the local geography and

weather patterns .

The Houston/Galveston area of Texas has a year-round NO, cap-and-trade

program for all sources in the eight-county area that emit 10 or more tons of NO,

per year. The program is similar to Illinois EPA's VOM trading program in that

allocations were based on previous years of operation, new sources receive no

allocations and allowances can be banked for one year if not used .

Summary

In general, cap-and-trade programs can be effective tools to meet air pollution

requirements if the programs are carefully designed and operated, while also providing

sources with an opportunity to seek the most cost-effective compliance option

. The

federal Acid Rain Program, the NO,, Trading Program and Illinois' VOM trading

program are all examples where cap-and-trade programs were well designed, and provide

sources with a market that allows for them to make the most cost-effective compliance

decisions .

59

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Chapter 9

Costs and Market Impacts of Power Plant Emission Reduction Proposals

The General Assembly made clear that the Agency must consider the effect of any state

action on costs - both from the compliance perspective as well as to the consumer. This

Chapter summarizes what we know today about the potential costs that Illinois power

generators could experience with several of the proposed national multi-pollutant

programs, as well as preliminary cost analyses of the proposed U .S. EPA Clean Air

Interstate Rule prepared on behalf of the Illinois Energy Association

.

This Chapter also briefly describes potential impacts of a state-specific proposal on

electric rates, Illinois' coal jobs, and power generator jobs in Illinois. Based on the

following information and analyses, we draw some conclusions and recommend a general

course of action to better understand these important potential impacts

.

National Multi-Pollutant Bill Proposals

As explained in Chapter 4, the primary national multi-pollutant bills before Congress are

the Bush Administration's Clear Skies Act, Senator James Jeffords' (I-VT) Clean Power

Act of 2003 (Jeffords Bill), and Senator Thomas Carper's (D-DE) Clean Air Planning

Act of 2003 (Carper Bill). As summarized in Table 9-1, the U .S. EPA has made

estimates of the national costs and benefits associated with each of these bills . The

Energy Information Agency (EIA) has also provided analyses of each bill's cost .

U .S. EPA's Clear Skies website outlines an extensive assessment of costs for their

proposal as noted in Table 9-1 below . For the cost analyses prepared by U .S. EPA of

both the Carper and Jeffords Bills, U.S. EPA used simplified approaches to provide

information comparing the different multi-pollutant scenarios . It is important to

emphasize these estimates are those of U .S. EPA. U.S. EPA clearly favors the proposal

introduced by its own Administration, the Clear Skies Proposal .

Table 9-1

Summar of the U .S . EPA's Cost Estimate of Various National Bills

*Significantly higher cost if power plants would have to directly reduce to meet carbon dioxide targets

.

60

Clear Skies

CAPA (Carper)

CPA (Jeffords)

Annual Costs

_

2010

$16.5 Billion

$4.3 Billion

$6.6 Billion

2015

_

-

$17.0 Billion

2020

$6.3 Billion

$9.9 Billion

-

Cumulative Costs

2005-2030

$52.5 Billion _ $82 .7 Billion

"Greater"

Electricity Price Increase

2010

"Small"

_

4%*

39%

2015

"Small"

_

50%

2020

-

3%*

---

According to U.S. EPA, the costs associated with the proposals are very different . U.S

.

EPA's analyses project that both the Carper and the Jeffords Bills would cost

significantly more than the Clear Skies Act .

Clear Skies is the only national bill for which U .S. EPA has made individual state

estimates of the cost and benefits . This assessment for Illinois is that Clear Skies will

cost $496 million per year beginning in 2020

Federal Clean Air Interstate Rule (CAIR)

U.S. EPA performed an economic and energy impact analysis of the proposed CAIR

discussed in Chapter 4. U.S. EPA used the Integrated Planning Model, developed by ICF

Consulting, to conduct their analyses

.

Because U.S. EPA started its economic analyses before it determined which states the

proposed CAIR affected, the final estimates covered a slightly different region than the

region actually covered by the rulemaking. The analysis covers the electric power

industry, which is a major source of SO 2 and NO, emissions nationwide, and the industry

that U.S. EPA proposes to control in the proposed CAR cap-and-trade program. Since

almost all of the SO2 emission reductions occur in the proposed region, the larger

modeling region still provides a very good estimate of the impacts the SO

2 reductions

will have on the smaller proposed region .

For NOx, the caps modeled for this region are very close to those proposed in the CAIR,

and U.S. EPA believes that this modeling provides a very good estimate of the impacts

the NO. reductions will have on the proposed region . For the proposed region, U .S. EPA

projects that the annual incremental costs of the proposed CAIR are $2.9 billion in 2010,

$3.7 billion in 2015 and $4 .9 billion in 2020. This represents a 4.5 percent increase in

production cost in 2010 and a 5 .1 percent increase in 2015 over the base case, which

assumes no further pollution requirements on the industry beyond what exists

as of

March 2002. The cost of electricity production represents roughly 1/3 to 1/2 of total

electricity costs with transmission and distribution costs representing the remaining

portion .

According to U.S. EPA, the proposed CAIR is projected to require the installation of an

additional 63 gigawatts of flue gas desulf irization (scrubbers) on existing capacity for

SO2 control and an additional 46 gigawatts of Selective Catalytic Reduction (SCR) on

existing capacity for NO, control by 2015 . The first phase of the proposed CAIR will

result in 49 gigawatts of additional scrubbers and 24 gigawatts of SCR by 2010 . Most of

the NO, reductions achieved in the first phase of the rule can be attributed to the large

pool of existing SCRs that are used during the ozone season in the NO, SIP Call region

that, for relatively little additional cost, can run year-round

.

Table 9-2 shows U.S. EPA's projected reductions in SO2 and NO, emissions by control

option and the associated costs of those reductions in 2015 . Some reductions are due to

61

---

switching to western coal; however, the reductions required by the proposed CAIR must

be achieved through the installation of significant pollution controls . For SO2 , most

reductions are achieved through new scrubbers, with a small amount of coal switching to

lower sulfur sub-bituminous coal or shifts in generation . For NO R , existing SCRs account

for a considerable portion of the reductions with most of the remaining reductions

achieved through new SCRs

.

Table 9-2

Approximate Regional Emissions Reductions and Incremental Costs by Control

0 tion for the Pro osed CAIR from the Base Case No Further Controls in 2015

The use of a scrubber and SCR to control emissions of SO 2 and NOR , respectively, can

lead to reductions in mercury emissions . Mercury emissions are projected to decrease to

34 tons in 2010, 22 tons in 2015 and 15 tons in 2020 as a result of the projected scrubber

and SCR controls installed on affected units

.

It is important to note that U.S. EPA31 determined that the $3.7 billion annual total social

cost to reduce SO2 and NO, beginning in 2015 is offset by the $83 .8 billion of annual

social benefits. Stated another way, there is over $22 of benefit for every $1 of cost

.

However, it is necessary to consider that the U .S. EPA clearly stated that they did not

quantify and monetize all benefits or disbenefits

.

U.S.EPA's Mercury Reduction Proposal

R

A similar cost analysis using the Integrated Planning Model was performed by the U .S .

EPA for the Proposed Rule for Fossil fuel-fired Electric Generating Unit (EGU)

Maximum Achievable Control Technology (MACT) Standard (EGU MACT

ulemaking)

.

(See

Chapter 4) This analysis is provided for review in Table

S -5 .

Mercury emissions from coal-fired power generators were estimated by U.S. EPA to be

48 tons in 1999. U.S. EPA has projected under its Base Case that mercury emissions

from the power generation sector will be further reduced in the coming years due to the

NOX SIP Call and Acid Rain Program . U.S. EPA projects that additional SCR (about 90

gigawatts by 2010) and scrubbers (about 14 gigawatts by 2010) will be installed to meet

these program requirements and these installations will also reduce mercury emissions

.

62

SO2

(thousand

tons)

NO,

(thousand

tons)

Cost

(million $1999)

New SCR

-

784

884

New Scrubber

2,958

-

2,370

Annual Use of Existing SCR

-

890

156

Fuel Switching and Generation

Shifts

713

39

332

Total

3,671

1,713

3,742

---

Total annual costs of the proposed MACT program, according to U .S. EPA, are projected

to be $1 .6 billion in 2010 and $1 .1 billion in 2020. These costs represent about a 1 .9

percent increase in 2010 and 1 .1 percent increase in 2020 of total annual electricity

production costs

.

The lower cost of the MACT program in 2020 stems from total fuel costs being lower

than those in the Base Case . As in 2010, coal use reflects a shift away from bituminous

and toward sub-bituminous and lignite coal, relative to the Base Case . In addition, there

is fuel switching among bituminous coals. Projections for 2010 and 2020 differ in the

sulfur content and cost of the bituminous coals that are being displaced . In 2020, the shift

is projected to be away from less-expensive, high-sulfur bituminous coals . By 2020, the

decrease in bituminous coal use is projected to be toward the more-expensive, lower

sulfur coals, which leads to a decrease in the overall fuel costs . Also, while the proposed

MACT rule is expected to result in a very slight increase in gas prices in 2010, by 2020

this effect is largely attenuated .

According to U.S. EPA's analysis, by 2020, nationwide retail electricity prices are

expected to be 0.2 percent higher with the mercury MACT proposal . In the region that

includes Illinois, electricity prices with the mercury MACT are projected to be 0.5

percent higher in 2020 .

Preliminary Draft of Economic Analysis of LAIR in Illinois

Included in this report in the following section are the preliminary draft results of an

economic analysis, prepared on behalf of the Illinois Energy Association, of the costs of

the U.S. EPA's CAIR proposal on Illinois' power plants and the costs of a state-specific

proposal that mimicked the emission reduction targets and timing of CAIR. Due to the

uncertainty that still exists at the federal level, the only cost analyses performed to

address these considerations to date are preliminary, and were commissioned by the

power generators .

This draft study predicts, for the national CAIR proposal, higher costs than CAIR for

Illinois' power generators, and significantly higher costs for a state-specific CAIR

approach. In most states, the cost of CAIR, Clear Skies or other proposals would likely

be passed onto ratepayers by the utility, which also owns the power plants. Although this

information is being included in this report, Illinois EPA must note again that this is not

its study. The information is being included to present one perspective, that of the power

industry, on possible economic impacts from CAIR and a state-specific application of

CAIR .

The economic assessment is being conducted by James Marchetti, Inc., on behalf of the

Illinois Energy Association, of the compliance costs of the U.S. EPA's proposed CAIR

rule and the mercury cap-and-trade rule for Illinois' power generators

.

(See

Chapter 4 for

more discussion on CAIR.) The stated purpose of this analysis is to determine the costs

for Illinois generators to comply with the U.S. EPA's CAIR rule and their proposed

mercury cap-and-trade requirements . A second analysis is being undertaken to determine

63

---

the costs for Illinois to comply with the limits of the CAIR rule entirely within Illinois,

without the benefit of a regional trading program

.

According to Marchetti, the initial modeling of the economic impacts to Illinois power

generators of CAIR and the mercury cap-and-trade rule under section 111(d) of the Clean

Air Act focused on determining the compliance costs to Illinois power generators of

meeting the targets and timetables of the U.S. EPA's proposed CAIR and the version of

the Mercury Reduction Rule that allows for a cap-and-trade regime to control mercury

.

Under the preliminary draft of this analysis shared with Illinois EPA, under this proposed

regulatory regime, Illinois power generators would be allowed to trade SO2 and NO,

allowances within a 28-state CAIR region and mercury allowances nationally. This

evaluation used the Emission-Economic Modeling System

(EEMS). EEMS

identifies a

combination of compliance options

(i.e., control technology or allowance trading) that

approximates the least cost solution for a given power generation facility system . The

EEMS database was updated for these analyses using Energy Information Association

data and data provided through interviews with power generators to reflect changes in

operation (e.g ., retire/repowering/fuel switching) and control technology deployments .

Illinois power generation facilities will have to reduce their current SO 2 , NO, and

mercury emissions by more than 60 percent to attain the reduction targets outlined in both

CAIR and the mercury cap-and-trade rule . The CAIR analysis indicates that states will

have a little more flexibility in the allocation of NO, allowances to units within their

borders. Under the current Illinois NO, rules, a "new" unit becomes classified as an

existing unit as control periods move forward . Illinois' NO, budget in the 28-State CAIR

region is 73,622 tons in 2010 through 2014, and 61,352 tons in 2015 and thereafter . The

mercury cap-and-trade rule specifies that the 2010 cap for mercury should be set at a

level that can be achieved through the installation of SCR controls and flue gas

desulfurization devices (scrubbers) needed to meet the 2010 NO, and SO2 caps for the

CAIR. The 2018 national mercury cap of 15 tons per year is the same as the Bush

Administration's Clear Skies proposal. The Base Case SO2 and NO, emission forecast

for all affected units was based on the assumptions that these units would have to comply

with both the federal Acid Rain Program requirements and the NO, SIP Call

requirements

.

The Marchetti simulation also took into account future technology deployment and fuel

switches planned by Illinois power generators to meet the above regulatory regimes

.

Assumptions defining the cost and performance of NO R , SO2 and mercury ce^trol

technologies were adopted by Marchetti that reflect experience from operating units as

well as those extracted from the public literature. Mercury compliance involved the

utilization of EEMS to achieve system-wide NO N , SO2 and mercury emission caps for the

years 2010 - 2020 at the least possible cost. The system caps were a summation of unit

allowances, based upon the allowance allocation system . Under both CAIR and the

mercury regulatory regime, power generators were allowed to trade allowances . In

addition, all banked Acid Rain Program SO2 allowances through 2009 could be carried

forward on a one-to-one basis to meet the reduction targets of the CAIR . By the end of

2003, Illinois power generators had 5 .4 gigawatts of SCR and 1 .0 gigawatt of scrubbers

64

---

operating on their coal-fired units. However, the model predicted that by 2009, 14.4

gigawatts or 84.1 percent of the State's current coal-fired capacity of 17 .0 gigawatts will

be burning low sulfur sub-bituminous coal, with SO2 emission rates of 0.7 lbs/mmBtu, or

less .

In order for Illinois power generators to meet the CAIR reduction targets for SO2 in 2010

and 2015, the Marchetti model indicated that they would have to install approximately

1.1 gigawatts of scrubbers, while no power generators would switch to a lower sulfur coal

for compliance. The preliminary Marchetti analysis identified three important factors

affecting compliance with CAIR in Illinois between 2010 and 2020

:

•

Sizeable carry-over of banked Acid Rain Program SO2 allowances (through

2009) that would defer technology deployment and/or allowance purchases ;

•

84.1 percent of the state's coal-fired capacity will be burning western, sub-

bituminous coal; and

•

The aging of some of Illinois' existing coal-fired capacity

.

More specifically, Marchetti found that Illinois power generators would carry forward

almost 890,300 Acid Rain Program SO2 allowances, which can be used to meet the CAIR

SO2 caps. To meet the NO, caps, Illinois power generators would have to install 75

megawatts of SCR and 280 megawatts of Selective Non-Catalytic Reduction Technology

(SNCR). However, the 5.4 gigawatts of existing SCR capacity would operate year round

in meeting the NO, reduction targets of CAIR. Unlike CAIR, where SO2 and NO.

compliance is heavily dependent on allowance purchases, Marchetti modeled compliance

under the mercury cap-and-trade program which will result in 10 gigawatts or almost 60

percent of the State's existing coal-fired capacity (17 .0 gigawatts) installing some kind of

mercury removal technology. To comply with CAIR and the mercury cap-and-trade

reduction targets, Marchetti's belief, based on preliminary results, is that Illinois power

generators will have to expend $4 .2 billion in compliance costs between 2010 and 2020,

inclusively. This will equate to an annual cost of approximately $382 million to comply

with CAIR and the mercury MACT .

The second economic analysis being conducted by Marchetti evaluated the implications

to Illinois power generators of meeting the same targets and timetables as the previous

analysis, but with emissions trading being restricted to within the State of Illinois .

Again, under this analysis CAIR/Mercury MACT compliance involved the utilization of

EEMS to evaluate the cost of achieving system-wide NON, SO2 and mercury emission

caps for the years 2010 - 2020 at the least possible cost. Under this regulatory regime,

power generators were allowed to trade allowances only within the State of Illinois . In

addition, all banked Acid Rain Program allowances through 2009 could be carried

forward on a one-to-one basis to meet the reduction targets of the CAIR . This simulation

evaluated a State-specific emission market .

65

---

The Marchetti model assumed that by the end of 2003, Illinois power generators had 5 .4

gigawatts of SCR and 1 .0 gigawatt of scrubbers operating on their coal-fired units . It

also assumed by 2009, 14 .4 gigawatts or 84.1 percent of the State's current coal-fired

capacity of 17.0 gigawatts will be burning low sulfur sub-bituminous coal with S02

emission rates of 0.7 lbs/mmBtu or less. In addition, Illinois power generators will have

almost 890,300 Acid Rain Program SO 2 allowances banked at the end of 2009, which can

be used to meet the CAIR reduction targets. For Illinois power generators to meet the

SO2

CAR reduction targets in 2010 and 2015, in which allowance trading is restricted to

Illinois-only, the model predicted they would have to install approximately 8 .6 gigawatts

of scrubbers, while 334 megawatts would switch to a lower sulfur coal for compliance .

Of this total incremental scrubber capacity, 6.3 gigawatts or 73.2 percent will not be

installed until 2014 or thereafter .

The primary factor that affects this deferred scrubber deployment, even under this

restrictive trading regime, according to Marchetti at this stage of the analysis, is the

sizeable Acid Rain Program bank, which does not begin to be significantly drawn down

until 2014. Under these same trading restrictions for NO R , Illinois power generators

would install 4.7 gigawatts of SCR technology and 6 .7 gigawatts of SNCR technology .

In addition, the 5.4 gigawatts of existing SCR technology capacity would operate year

round in meeting the NO, reduction targets of CAIR. Compliance under the mercury

MACT cap-and-trade capacity (17 .0 gigawatts) would be achieved by installing some

kind of mercury removal technology

.

According to the preliminary draft of this analysis, the level of coal-fired units requiring

major control technology retrofits increases significantly between the two regulatory

regimes. This increase is precipitated by the restrictive Illinois-only trading regime,

which forces power generators to install technology in order to meet the statewide caps

.

To comply with CAIR and mercury cap-and-trade reduction targets with Illinois-trading

only, Illinois power generators between 2010 and 2020, inclusively, will have to expend

$4.8 billion in compliance costs. This would equate to an annual cost of $480 million or

20 percent greater than the cost of complying with these rules as part of the regional

program for 28 states and District of Columbia .

Potential Impact to Jobs

Coal Mining Jobs

The state's coal producers and miners have struggled for survival despite a

complex series of events that have forestalled a long-awaited revival in the coal

fields of Illinois. At the end of 2003, coal production in Illinois totaled 31 .1

million tons, down more than 2.3 million tons from 2002. Twenty mines

continued to operate in an area stretching south nearly to the tip of Illinois from

Danville on the east and Logan and McDonough counties in central Illinois

.

However, the erosion of employment and tonnage, dating back to the Clean Air

Act Amendments of 1990, continued with the closing of the Rend Lake Mine in

66

---

Jefferson County (1,682,614 tons) and Illinois Fuels 1-1 Mine in Saline County

(529,982 tons)

.

The loss of coal mines and coal mining jobs negatively impacted the economic

structure of southern Illinois . Although mining salaries doubled between 1980

and 2003, from $22,000 per year to $45,500 per year, the total economic payroll

of the mining industry to the State of Illinois decreased by 60 percent during the

same time period (Table 9-3) .

Table 9-3

The Economic Im act of the Loss of Coal Minin Jobs in Illino

ource:

epartment of roes an

mera s

. Annual Slatistieal Report 2003

. Illinois Coal Association

. I!/mots Census 1980.

1990, and 2003

.

At no time in its history, however, has the Illinois coal industry confronted so

many threats to its survival . Lower priced, lower-sulfur coals, primarily from the

Powder River Basin (PRB) of Wyoming, continue to make inroads in midwestem

and eastern power plant markets . Two of Illinois' largest in-state coal burners -

the Edwards Power Station at Bartonville and the Duck Creek Power Station at

Canton -- have tested PRB coal and were leaning heavily toward a fuel switch

.

The cost could be two million tons of Illinois coal and the more than 200 jobs that

go with it. Moreover, the regulatory climate concerning Illinois coal remained

uncertain with the shelving of the proposed Federal Energy Bill and the mixed

signals sent by U.S. EPA's controversial mercury reduction standards that would

have served to benefit PRB coal, again at the expense of coal mined here in

Illinois

.

Power Industry Jobs

Although not specifically requested in Section 9.10, Illinois EPA believes a job

impacts analysis must be performed in light of the absence of information on the

effects of a state-specific multi-pollution strategy on the job market in Illinois

.

According to industry estimates, there are approximately 4,100 jobs directly

involved in running Illinois power plants. The payroll and benefits for these

employees amount to approximately $700 million a year . The service and skilled

67

1980

1990 ~~

2003

Mining Industry

Employment

18,284

10,129

3,534

Production

(million tons

62 .5

61.6 mil

31 .1

mined / year) _

Average Mining

Industry Yearly

$22,000

$35,000

$45,500

Salary

Total Payroll

$402,248,000

$354,515,000

$160,797,000

---

labor force associated with the power plants adds approximately 6,000 more jobs

.

The approximate value of goods and services purchased locally and related to

these jobs is over $300 million. Illinois' coal-fired power plants pay nearly $21

million a year in property taxes to local taxing bodies, the majority of which goes

to support local school systems. A further consideration is the impact that would

be felt by the 5,500 or so retirees from these plants whose benefits, including

healthcare, could be affected .

Stricter pollution control requirements will undoubtedly have a ripple effect on

jobs throughout the power industry and on those jobs that depend indirectly on the

viability of the industry. U.S. EPA determined that there would be a vast

improvement in the job market for boilermakers under their Clean Air Interstate

Rule. Likewise, suppliers of pollution control equipment and other related goods

and services will also see an increased demand for their products. The influence

on those jobs directly related to the operation of the power plant is less certain .

The major restructuring of the power industry in Illinois is having a negative

impact on the job market. A critical part of the power industry's response to

restructuring is to reduce the costs of producing electricity in order to allow the

companies to remain competitive in the regional and national power markets

.

This, of course, is part of the purpose of the competitive forces that deregulation

promotes. Already, some Illinois companies have reduced their workforce by 20

percent .

Illinois EPA will work with the Department of Commerce and Economic

Opportunity to retain the experts that can work with the Illinois EPA to analyze

the impacts of any further regulation on the economy of Illinois and Illinois jobs

once the national direction is clear

.

Impact on Electric Rates

The determination of the costs of pollution control programs on retail electric rates is a

difficult process that is made even more difficult by Illinois' transition to a deregulated

power market. The Illinois EPA reviewed the available information on the impact of the

various national proposals on electricity costs, most notably the work of U .S. EPA for the

Clear Skies and Clean Air Interstate Rule as discussed earlier in this Chapter

.

The effort to obtain reliable estimates of the future of rates is difficult even without

adding the complexity of additional pollution control programs . This effort has been

complicated by the state of flux in Illinois' electric supply market due to the shift from a

traditional, utility owned and operated, and highly regulated power generation system, to

an increasingly deregulated power generation market . One of the major pieces of this

shift will occur after December 31, 2006, when the cap or freeze on retail rates will be

lifted .

68

---

Illinois is undergoing the transition to become a deregulated state for electric power,

although restructuring is not yet complete. As a result of this market restructuring, most

coal-fired power plants in the State now are owned by independent power producers,

which are not affiliated with Illinois utilities or by non-utility, generation affiliates of

Illinois utilities. This deregulation has brought about the expansion of regional power

transmission organizations through which power generators are more easily and

efficiently able to sell their power across state lines . As a result, Illinois' power

generators now compete with generators in several surrounding and nearby states . The

competitors for Illinois generation are typically utilities in states that have not

restructured their markets .

Most of the available information on the impact of new pollution control strategies

electricity costs is based on U .S. EPA's assessment of the Bush Administration's

proposed Clear Skies Act, and U.S. EPA's proposed Clean Air Interstate Rule . U.S. EPA

concluded that the costs of its Clean Air Interstate Rule to Illinois and the MAIN power

region would increase 2010 rates by approximately 2.5 percent to 3.5 percent over the

inflation adjusted rates that would otherwise occur without further pollution controls

.

However, for Illinois, U.S. EPA assumed that there is a competitive wholesale market for

electricity due to deregulation. This competition in wholesale markets has not

materialized to any significant degree, such that 2006 power purchase agreements assume

no increase in competition in wholesale markets

.

Further work needs to be done in this vital area of costs and retail electric rates

.

Currently, how the costs of these multi-pollutant proposals will affect competition and

consumer rates in a state that is entering full deregulation are not known. But we know

that compliance costs will ultimately be reflected in electric and very likely natural gas

rates. Concern exists that if competition among suppliers of electricity is not robust,

power prices will not remain at reasonable levels . As California's experience in 2000

and 2001 has shown, if competition among electric suppliers fails to take hold, the price

rise could be significant .

Whether robust competition occurs in 2007 in Illinois will depend on the degree to which

competitive forces create an effectively functioning wholesale and retail supply market

.

If Illinois generators are encumbered with state-specific regulations that their out-of-state

competitors are not, these generators will incur additional costs that cannot be recovered

from utility ratepayers and these generators will face a competitive disadvantage in

regional power transmission organizations. An increase in electric and gas rates will

drive greater interest in and implementation of renewable energy and energy efficiency

projects. However, the degree to which Illinois is poised to increase its production of

renewable energy and the price points for power generation at which a significant

increase in renewable energy production will occur is not known

.

The impact on competition and on rates through a state-specific program has not been

evaluated. However, this analysis must be a part of the overall review of Illinois'

deregulated market post-2006 . Without a resource and transmission planning model that

would include detailed production cost information for Illinois and the surrounding

69

---

interconnect, we cannot determine which specific Illinois generation plants might be

closed due to the costs of more stringent pollution controls and how electric rates might

be affected

.

Conclusion

Illinois EPA believes that independent, full and complete economic assessments should

be performed on the full economic impacts in Illinois of the final CAIR proposal, the

Mercury Reduction Rule, the Carper and Jeffords Bills, and any others that surface in the

next several months. The impact to Illinois' coal jobs and power industry jobs must be

fully understood. Certainly, with the deregulated electricity market that exists in Illinois,

the cost impacts on generation and, ultimately, to Illinois citizens and businesses needs to

be fully understood. Such assessments can only be properly performed once certainty

exists at the federal level . These cost analyses will be vital in fully assessing the

appropriate timing and scope of additional emission reductions from power plants in

Illinois .

70

---

Table 1-1

Table 2-1

Table 2-2

Table 2-3

Table 3-1

Table 3-2

Table 3-3

Table 6-1

Table 9-1

Table 9-2

List of Appendices, Figures and Tables

Appendices

Appendix A - 2002 Annual Data For Fossil Fuel-Fired Illinois Electrical Generating

Units

Appendix B - Best Available Control TechnologyClearinghouse Results

Appendix C

- Multi-Pollutant Strategy, Legislation Comparison Chart

Appendix D - List of Health Studies Addressing Emissions from Power Plants

Tables

Amoral 2002 Summary Data for Coal, Gas, and Oil-fired EGUs Over 25

Megawatts

Number of Annual Adverse Health Events Avoided Through Reductions

in Particulate Matter and Ozone

Health Effects of Power Plant Particulate Matter Pollution In Illinois

(Cases/Year)

Estimated Annual Human Health Benefits for Illinois from Reductions of

Particulate Matter and Ozone (Number of Health Effects Avoided): Clear

Skies Act (S. 485)

SO2 Reduction Potential of Various Control Technologies

NO, Reduction Potential for Various Types of Boilers

Mercury Removal Efficiency for Emerging Mercury Control Technologies

Estimated Economic Impacts from Clean Energy in Illinois

Summary of the U.S. EPA's Cost Estimate Of Various National Bills

Approximate Regional Emissions Reductions and Incremental Costs by

Control Option for the Proposed CAIR from the Base Case (No Further

Controls) in 2015

Table 9-3

The Economic Impact of the Loss of Coal Mining Jobs in Illinois

71

---

Figures

Figure 4-1

Emission Cap Levels and Timetables Associated with Federal Multi-

Pollutant Legislative Proposals

72

---

BACT

BART

CAAPP

CHP

CO

CO2

EGU

EIA

ERMS

Hg

HAP

IGCC

Illinois EPA

kV/hr

LAER

MACT

mmBtu

MW

N2

NAAQS

NEPD

NESHAP

NO

NO2

NO,,

NSPS

NSR

PM2.5

PM !0

ppb

ppm

PSD

SNCR

SIP

SNR

SO2

TPD

U. S. DOE

U.S. EPA

VOM

Acronyms

Best Available Control Technology

Best Available Retrofit Technology

Clean Air Act Permit Program

Combined Heat and Power

Carbon Monoxide

Carbon Dioxide

Electric Generating Units

Energy Information Administration

Emissions Reduction Market System

Mercury

Hazardous Air Pollutant

Integrated Gasification Combined-Cycle

Illinois Environmental Protection Agency

Kilowatt-hour

Lowest Achievable Emission Rate

Maximum Achievable Control Technology

Million British Thermal Units

Megawatts

Nitrogen Gas

National Ambient Air Quality Standards

National Energy Policy Development

National Emission Standard for Hazardous Air Pollutants

Nitric Oxide

Nitrogen Dioxide

Nitrogen Oxides

New Source Performance Standard

New Source Review

Particulate Matter 2.5 microns in diameter

Particulate Matter 10 microns in diameter

Parts per billion

Parts per million

Prevention of Significant Deterioration

Selective non-catalytic reduction

State Implementation Plan

Selective non-catalytic reduction

Sulfur Dioxide

Tons Per Day

U.S. Department of Energy

United States Environmental Protection Agency

Volatile Organic Material

73

---

Christine Todd Whitman, testimony on the Clear Skies Act before the U .S. Senate

Environment and Public Works Committee . April 8, 2003 .

2

National Research Council. "Toxicological Effects of Methyl mercury". Committee on the Toxicological

Effects on Methyl mercury Board and National Academy Press, Washington, D .C ., 2000.

' ABT Associates, Inc . Particulate-Related Health Impacts of Eight Electric Utility Systems . April 2002 .

4U.S. EPA .

The Clear Skies Act of2003 . Illinois and Clear Skies

.

http://www.epa.gov/a r/clearskies/state/il.html .

5 U.S. EPA.

Control Techniques for Sulfur Oxide Emissions from Stationary Sources

(EPA-450/3-81-004)

.

Office of Air Quality Planning and Standards . April 1981 .

6Electric Power Research Institute, U.S> Dept. of Energy and U.S. EPA.

Combined Utility Air Pollutant

Control Symposium, The Mega Symposium SO, Control Technologies and Continuous Emission

Monitors

(TR-108683-V2). August 1997 .

U.S. EPA.

Alternative Control Techniques Document- Nat

Emissions from Utility Boilers

(EPA-453/R-94-023). Office of Air Quality Planning and

Standards. March 1994 .

s In October 1998, U.S. EPA issued a rulemaking that found that EGUs (in 22 states and the District of

Columbia) emit NO, in amounts that significantly contribute to nonattainment of the 1-hour ozone

standard in one or more downwind states, and issued a call for revisions to the state

implementation plans to address these contributions . As part of that rulemaking, U .S. EPA

developed a federal NO, Trading Program that applied to EGUs and certain large industrial boilers

in the affected states to allow for the most cost-effective compliance options to be utilized

.

(See

63

Fed. Reg.57356,

October 27, 1998)

.

STAPPA/ALAPCO Controlling Nitrogen Oxides Under the Clean Air Act : A Menu of Options . July

1994

.

10U.S. EPA.

Cost of Selective Catalytic Reduction (SCR) Application for Nat Control or Coal-Fired

Boilers

(EPA/600/R-01/087). Office of Research and Development. October 2001

.

General Electric Power Systems .

Combustion Modification -An Economic Alternative for Boiler

NOx Control

(GER-4192) .

12 STAPPA/ALAPCO. Controlling Particulate Matter Under the Clean Air Act: A Menu of Options . July

1996 .

Electric Power Research Institute, U.S. Dept. of Energy and U.S. EPA. Combined Utility Air Pollutant

Control Symposium, The Mega Symposium Particulates and Air Toxics (TR-108683-V3) . August

1997 .

14 Illinois Clean Coal Institute. Final Technical Report: Correlate Coal/Scrubber Parameters with Hg

Removal and Hg Species in Flue Gas/96-1/2 .UA-2) . September 1, 1996, through August 31,

1997 .

' Parsons Infrastructure and Technology Group, Inc . "The Cost of Mercury Removal in an IGCC Plant,

Final Report". September 2002

.

6 The WRAP states consist of Arizona, California, Colorado, Idaho, Nevada, New Mexico, Oregon, Utah

and Wyoming

.

n The Clean Planning Act of 2003 (CAPA) was introduced as S . 843 on April 9, 2003 by Senator Thomas

Carper (D-DE) and in the House as H .R. 3093 on September 19, 2003 by Congressman Charles

Bass (R-NH) .

'a The Clean Power Act of 2003 (CPA) was introduced as S . 366 on February 12, 2003 by Senator James

Jeffords (I-VT) .

"The Clean Smokestacks Act of 2003 was introduced as H .R. 2042 on May 8, 2003 by Congressman

Henry Waxman (D-CA) .

20 Report of the National Energy Policy Development Group

.

National Energy

Policy, U.S. Government

Printing Office (ISBN 0-16-050814-2), May 2001

.

httv ://www.whitehouse.gov/energv/National-Energy-Policv .pdf

21

Report of the Illinois Energy Cabinet

.

Illinois Energy Policy,

February 2002 .

httv://www.illinoisbiz.biz/coal/pdf/Illi oisEnergvPolicyReport-Feb02.ptif

74

---

22

Blagojevich, Rod. The Blagojevich Partnership For a New Economy. Document distributed during

gubernatorial campaign. 2001

.

23

State of Illinois, Office of the Lieutenant Governor.

Special Task

Force

on the Condition and Future of

the Illinois Energy Infrastructure Final

Report, Blackout Solutions. June 2004 .

24

Anderson, Patrick L .. Geckil, Ilhan, Anderson Economic Group .

Northeast Blackout Likely to Reduce

US Earnings by $6.4 Billion

(AEG Working Paper 2003-2) . August 19, 2003

.

2s

Energy Information Administration (EIA)

.

Annual Energy Outlook 2004,

DOE, 'r-IA-0383 (2004)

.

January 2004. h

:Hw_mvweia.doe,

;ov/oiat%ae~/aeoref tab.html .

26

Midwest CUP Application Center,

BCHP Baseline AnalIsis for

lllinors

Market

2002 UPDATE.

University of Illinois at Chicago Energy Resource Center,

Chicago. IL, August 2002

.

27

Environmental Law and Policy Center (ELPC),

Repowering the Midwest,

Chicago, IL, December 2001, www.tcppMtrmidwest .o_rg

2"

American Council for an Energy-Efficient Economy . Energy Efficiency and Economic Development in

Illinois. Report number E982. 1998 .

2~e

Clean Air Counts (CAC) . Clean the Air

.

The Regional Dialogue on Clean Air and Redevelopment

.

March 1999

.

30

Environmental Law and Policy Center . Repowering the Midwest

. 2001

.

kn

//wrvw.renmverrrtirlwestorg .

31

U .S. EPA .

Benefits of the

Proposed

Inter-State Air Quality Rule

(EPA-452/03-001). Office of Air

Quality Planning and Standards, January 2004

.

75

---

APPENDIX A

2002 Annual Data

For

Fossil Fuel-Fired

Electrical Generating Units

In Illinois

---

A-2

Sr

.

No

.

ORISPL

Plant Name

ID No

.

UNIT

ID

Unit

Capacity

MW

Fuel

Used

Heat Input

mmBtu

S02Tons

NOx

Tons

C02

Tons

NOx

lbs/

mmBtu

S02

lbs/

mmBtu

1

000889

Baldwin

157851AAA

1

623

Coal

43,883,642

9053

12119

4502460

0

.55

0

.41

2

000889

Baldwin

157851AAA

2

635

Coal

37,134,739

7283

7405

3810021

0.40

0

.39

3

000889

Baldwin

157851AAA

3

602

Coal

46,402,730

9931

2850

4760923

0

.12

0

.43

4

000861

Coffeen

135803AAA

01

389

Coal

18,569,744

14008

4745

1905255

0

.51

1.51

5

000861

Coffeen

135803AAA

02

616

Coal

37,545,026

28323

9594

3852118

0

.51

1.51

6

000867

Crawford

031600AFN

7

240

Coal

11,626,898

3142

1187

1192922

0

.20

0

.54

7

000867

Crawford

031600AfN

8

358

Coal

17,347,866

4453

1663

1779892

0

.19

0

.51

8

000963

Dallman

167120AAO

31

80

Coal

4,528,281

772

2498

464597

1.10

0.34

9

000963

Dallman

167120AAO

32

80

Coal

4,787,079

816

2640

491150

1.10

0.34

10

000963

Dallman

167120AAO

33

205

Coal

13,274,189

1831

2892

1361463

0.44

0

.28

11

006016

Duck Creek

057801AAA

1

416

Coal

22,635,088

11026

5328

2322122

0.47

0.97

13

000856

Edwards Station

143805AAG

1

136

Coal

6,416,602

11399

1306

651130

0

.41

3

.55

14

000856

Edwards Station

143805AAG

2

281

Coal

17,222,007

14666

3901

1771396

0

.45

1.70

12

000856

Edwards Station

143805AAG

3

364

Coal

15,971,436

9683

3639

1604354

0

.46

1.21

15

000886

Fisk

031600AMI

19

374

Coal

14,649,555

3843

2462

1503046

0

.34

0

.52

16

000891

Havana

125804AAB

9

429

Coal

28,513,578

12815

3901

2919450

0

.27

0

.90

000892

Hennepin

155010AAA

75

Coal

4,684,352

1008

762

480620

0

.33

0.43

18

000892

Hennepin

155010AAA

2

231

Coal

17,575,289

3784

2859

1803245

0

.33

0.43

19

000863

Hutsonville

033801AAA

05

78

Coal

3,160,847

7163

897

324303

0

.57

4.53

20

000863

Hutsonville

033801AAA

06

78

Coal

3,442,889

7792

902

353240

0

.52

4

.53

21

000384

Joliet 29

197809AAO

71

330

Coal

15,034,236

5264

879

1542510

0.12

0.70

22

000384

Joliet 29

197809AAO

72

330

Coal

13,824,017

4840

808

1418342

0

.12

0.70

23

000384

Joliet 29

197809AAO

81

330

Coal

15,585,483

5311

1067

1599072

0

.14

0

.68

24

000384

Joliet 29

197809AAO

82

330

Coal

15,403,146

5249

1055

1580364

0

.14

0

.68

25

000874

Joliet 9

197809AAO

5

360

Coal

14,368,937

4560

2562

1474252

0

.36

0

.63

26

000887

Joppa Steam

127855AAC

1

183

Coal

13,547,956

1

3446

874

1389886

0

.13

0

.51

27

000887

Joppa Steam

127855AAC

2

183

Coal

16,256,930

4135

1049

1667800

0.13

0

.51

28

000887

Joppa Steam

127855AAC

3

183

Coal

15,395,686

3975

1034

1578891

0.13

0

.52

29

000887

Joppa Steam

127855AAC

4

183

Coal

13,401,870

3460

900

1374417

0

.13

0

.52

30

000887

Joppa Steam

127855AAC

5

183

Coal

15,093,451

3930

939

1548600

0.12

0

.52

31

000887

Joppa Steam

127855AAC

6

183

Coal

16,062,809

4183

999

1648057

0

.12

0

.52

---

61

0008

Total Coal-Fired

Units

Wood River

119020AAE

5

387

16,905

Coal

17

,

611 221

5726

1903

1806910

1

0

.22

0.65

931,038,484

352,994 i 170,997

1`95,507,0

62

0

.37

0.76

Sr

.

ORISPL

No

.

---

Plant Name

ID No

.

UNIT

.

II)

1

Unit

Capacity

M

",

Fuel

Used

Heat Input

mmBtu

S02

NOx

C02

NOx

S02

Ibs/

lbs/

Tons

I

Tons

Tons

mmBtu mmBtu

32

000876

'

Kincaid

0? 814AAB

1

660

Cral

32,264,830

8836

10457

3310371

Oh5

1

0

.55

33

000876

Kincaid

021814AAB

2

660

1

Coal

32,238,113

8829

I

10448

I

3307630

0.65

1

1

0

.55

_34

000964

Lakeside

167120AAO

38

Coal

1,001,318

2783

469

102726

0

.94

5

.56

_

000964

3C

Lakeside

167120AA0

-

8

-

38Coal

j

1.593,064

1

4428

74h

.

i--

1634341 0u4

5.56

L

36

000976T

Marion

199856AAC

1

1

33

1

Coal

1.043

.046

2522

42

_

6_

1

100444

1

0

.82

-

4.84

i

37

000976

j

Marion

199856AAC

_j3

Loa]

_03

.,06

1

493

83

r

19617

0

.82

4.84

38

000976

Marion

199856AAC

3

33

Coal

1,420

.902

736

1

145029

4

.72

_

3354

_

1

39

000976

Marion

_

y

199856AAC

17_

3

C

oa

l

12,935,28°

2626

457

1

1364004

I

0

.84

0

.41

1

40

000864)

Meredosia

137805AAA

01

_

34

Coal

1,133,979_

2846

288

116346

I

0

.51

5,02

41

000864

Meredosia

137805AAA

02

34

Coal

1 336 982

3355

1

339

137174 0

.51

l

5

.02

2

000864

Meredosia

137805AAA

03

34

Coal

1,069,118

2683

271

109691

0

.51

I

5

.02

43

000864

Meredosia

137805AAA

04

34

1

Coal

1,406,308

3529

357

144287

1

0

.51

I

5

.02

44

000864

Meredosia

137805AAA

05

240

Coal

10,810,415

12639

2514

I

1109146

_

0

.47

2

.34

45

006017

Ne

on

079808AAA

1

617

1

Coal

1 40,631,096

9046

3037

168749

0

.15 0

.45

1

1

46

006017

Ne ton

079808AAA~

-

2

650

Coal

_

38,533,185

8823

2215

3953506

0.11

1

0

.46

j

47

I

000879

Powerton

179801AAA

51

447

±

Coal

0

.936,258

I

4487

_

7264

2148061

0

.69

~

0

.43

48

I

000879

Powerton_

179801AAA

52

447

Coal

21,136

.861

4530

7333

2168642

0

.69

i

0

.43

9

000879

Powerton

179801AAA

61

4

Coal

1

18,293,368

1

3921

6347

1876900

0

.69

0.43

50

000879

Powerton

179801AAA 1

62

j

447

Coal

18,087 823

3877

6276

1855811

0

.69

0.43

1

000897

Vermilion

183814AA

I

1

75

1

Coal

5,304,579

1

7277

977

I

544141

0

.37

1'

52

000897

Vermilion

1183814AAA

2

102

Coal

6,735,448

1

9240

1240

j

690919

0

.37

2.74

53 54

000883

000883

1

Waukegan

~

Waukegan

-

097190AAC

097190AAC

17 7

1

121326

1

Coal

Coal

7.502

.045

I 16,116,575

1642

2365

769710

0

.63

0

.44

3754

1092__ 165356_

0

.14

-

0

.47

55

000883

I

Waukegan

097190AAC

8

i

355

I

Coal

121950142

5385

1488

I

2252084

0

.14

~

0

.49

I

56

000884

Will County

197810AAK

1

188

Coal

9,398

.486

1969

4000

1

964284

0.85

-t

0.42

57

I

000884

Will County

1978 OAAK

2

184

Coal

8,292,831

1617

3310

1

850842

0

.80

0.39

.)8

1 000884

Will County

197810AAK 1

3

299

Coal

i 15

.559,101

3636

1300

1596358

1_

0_17

I

047

59

I 000884

Will County

197810AAK

4

598

Coal

27,584,774

6462

2009

I

2830196

0

.15

f 0

.47

60

000898

I

Wood River

1I902OAAE j

4

103

Coal

5.561,263

1

1536

521 ±570588

0

.19

0.55

---

A-4

Sr

.

No

.

ORISP

Plant Name

ID No

.

UNIT

ID

-- ---

-

Unit

Capacity

I

HAS

.

Fuel

Heat

Used

1

Input

mmBtu

I

S02

Tons

NOx

Tons

C02

I

Tons

I

NOx

Ibs/

mmB u

I

SO2

Ibs/

mmBtu

1

t

Calumet Energy

I

055296

Team

0316000HA

**1

153

N Gas

65,208

1.70

3875

0 05

0

.00

Calumet Energy

055296

']'earn

0316000HA

*_*2

t

153

N

.Gas

8.384

0

0.30

498

I

0.07

0.00

3

055253

Crete Energ y

Park"

197030AAO

GTI

I

89

N

.Gas

87,321

0

1.30

5189

---

0.03

0

.00

055253

Crete Enerov Park

197030AAO r

G1'2

89

N

.Gas

I

86,9

16

0

1.10

5166

0

.03

0

.00

5

055253

Crete Energy Park

197030AAO

GT3

89

N

.Gas

75,077

0

1.00

4462

0.03

0

.00

6

055253

Crete Ene

1

Park

197030AAO

GT4

89

N

.Gas

61 334

0

0

.80

3645

0

.03

0

.00

7

055236

Duke Energy Lee

F

103817AAH I

CTI

055236

Duke Energy Lee

1

103917AAH

CT2

83 83

N

.Gas

1

N

.Gas

'1,847

73,748

0

0

.90

4270

0

.0_

3

I

0

.00

1.00

4382

0

.03

0

.00

9

055236

Duke Energy Lee

1

103817AAH

I

CT3

83

N

.Gas

I

108,212

I

0

1

1.70

6431

0

.03

0

.00

0

055236

Du e Energy Lee

103817AAH

I

CT4

83

N

.Gas

111,819

0

1.90

6645

0

.03

0.00

I

I 1

055236

Duke Energ Lee

103817AAH

CT5

83

I

N

.Gas

71,008

I

0

1.10

4220

0

.03

0

.00

;2

j 055236 1

Duke

Energy

Lee

1103817AAH

CT6

1

83

N

.Gas

70,684

0

1.50

4201

1

0

.04

0.00

13

I

055236

1 Duke Energy Lee

1103817

.AAH

CT7

I

83

N

.Gas

j

60,681

0

1.10

1

3606

1

0

.04

I

0.00

14

055236 I

Duke Energy Lee

1103817AAH

CT8

83

N

.Gas

127,773

0

2.30

7593

0

.04

1

0.00

15

!

055438

Elgin

_

Energy Center

4

031438ABC

CT01

135

N

.Gas

I

2-076

0

0.10

I

123

0

.10

0.00

16

055201

1

Gibson City Power

'

053803AAL

GCTG 1

135

I

NGas

204 499

0

6

.90

12153

0.07

0.00

17

05520!

J

Gibson City Power

053803AAL

GCTG2

135

N

.Gas

185 068

0

5 80

11021

0.06

0.00

X

19

055204

Kinmundy Power PI

121803AAA KCTGI

250

N

.Gas

2 8 277

0

7

.90

12971

I

0

.07

0

.00

19

055204

Kinmundy Power PI 121803AAA

I

KCTG2 1

250

N

.Gas

208 278

1

0

6

.60

12378

0.06

0

.00

20

I

055222

I Lincoln Generating

197811 AAH

CTG-1

83

N

.Gas

206,000

0

2

.50

12242

0

.02

0

.00

21

055222

i Lincoln Generating

197811AAH

CTG-2

83

N

.Gas

1

NGas

204,224

(80,522

0

2

.10

r

-

0 T

.20

12137

10728

0

.020

.02

0

.00

0

.00

1

L22

j 055222

i Lincoln Generating

197811AAH

-CTG 3

-

--

83

23

055222

Lincoln Generating 1197811AAH

1

CTG-4

1

83

N

.Gas

160

.39L4 0

1.80

9532

0

.02

0

.00

't4

055" '

Lincoln Generating

197811A

.All

'

CTG-5

83

N Gas

165,500

0

2.40

I

9836

0_03

I

0

.00

2

5

055222 L Lincoln Generating

19781 IAAH

CTG-6

83

N

. Gas

111,782

0

1.40

6643

.

0

.03

0.00

16

27

055L2

I.mcclnGenerattne_19_781IAA~_CTG-7

_ 83

N

.Gas

'

8

.383

0

1.40

4956

0

.03

0.00

r 055222

Lincoln Gene ating

;

19781 IAAH

CTG-8

83

1

N

.Gas

1

84,453

0

1.20

5019

i

0

.03

0.00

28

055417 I

MEP Flora Power

02SS03AAD I CT-01

I

94

.5

N

.Gas

!

3,985

0

0

.10

237

0

.05

0.00

29

05541'

~AiEP Flora Power

025803AAD '

1

CT-02

94

.5

_

N

.Gas

3

.985

0

0

.10

-

237

0

.05

1

0.00

30

055417

MEP Flora Power

025803AAD ! CT 03

95

!

N

.Gas

I

3.985

0

!

0

.10

237

0

.05

0.00

3!

055417

MEP Flora Power 025803 AAD

_C'1-04

95

i

N

. Gas

3,985

0

.10

237

t

0

.0S

000

32

007858

MEPI G

-F Facility

1

127899AAA

1

,_ 72

j

N

.Gas

j

100,522

1

o

.60

5974

0

.13

0

.00

---

A-5

SrNo

..

Plant Name

ID No

.

UNIT

ID

Unit

Capacity

Fuel

Used

Heat Input

mmBtu

S02

Tons

NOx

Tons

C02

Tons

NOx

lbs/

mmBtu

S02

lbs/

mmBtu

33

007858

MEPI GT Facility

127899AAA

2

72

N

.Gas

94,976

0

6

.00

5645

0

.13

0

.00

34

007858

MEPI GT Facility

127899AAA

3

72

N

.Gas

95,813

0

6

.20

5694

0

.13

0

.00

35

007858

MEPI GT Facility

127899AAA

4

72

N

.Gas

46,778

0

2

.50

2781

0

.11

0

.00

36

007858

MEPI GT Facility

127899AAA

5

72

N

.Gas

43,368

0

2

.10

2578

0

.10

0

.00

37

055202

Pinckneyville Power

145842AAA

CT05

49

N

.Gas

64,026

0

1.20

3805

0

.04

0

.00

38

055202

Pinckneyville Power

145842AAA

CT06

49

N

.Gas

73,870

0

1.40

4391

0

.04

0

.00

39

055202

Pinckneyville Power

145842AAA

CT07

49

N

.Gas

69,816

0

1.30

4150

0

.04

0

.00

40

055202

Pinckneyville Power

145842AAA

CT08

49

N

.Gas

66,572

0

1.10

3956

0

.03

0

.00

41

055640

PPL University Park

197899AAC

CTOI

44

N

.Gas

16,484

0

0

.90

980

0

.11

0

.00

42

055640

PPL University Park

197899AAC

CT02

44

N

.Gas

13,854

0

0

.60

823

0

.09

0

.00

43

055640

PPL University Park

197899AAC

CT03

44

N

.Gas

13,663

0

1.60

812

0

.23

0

.00

44

055640

PPL University Park

197899AAC

CT04

44

N

.Gas

14,500

0

0

.70

862

0

.10

0

.00

45

055640

PPL University

Park

197899AAC

CT05

44

N

.Gas

33,685

0

0

.20

2002

0

.01

0

.00

46

055640

PPL University Park

197899AAC

CT06

44

N

.Gas

27,397

0

0

.20

1628

0

.01

0

.00

47

055640

PPL University Park

197899AAC

CT07

44

N

.Gas

29,699

0

1.20

1765

0

.08

0

.00

48

055640

PPL University Park

197899AAC

CT08

44

N

.Gas

26,111

0

1.60

1551

0

.12

0

.00

49

055640

PPL University Park

197899AAC

CT09

44

N

.Gas

18,221

0

0

.70

1083

0

.08

0

.00

50

055640

PPL University Park

197899AAC

CTI O

44

N

.Gas

15,744

0

0

.60

936

0

.08

0

.00

51

055640

PPL University Park

197899AAC

CT11

44

N

.Gas

10,763

0

1

.00

640

0

.19

0

.00

52

055640

PPL University Park

197899AAC

CT12

44

N

.Gas

12,614

0

0

.90

750

0

.14

0

.00

53

055279

Reliant Energy

-

Aurora

043407AAF

AGS05

45

N

.Gas

211,157

0

7

.70

12549

0

.07

0

.00

54

055279

Reliant Energy

-

Aurora

043407AAF

AGS06

45

N

.Gas

203,388

0

7

.80

12088

0

.08

0

.00

55

055279

Reliant Energy

-

Aurora

043407AAF

AGS07

45

N

.Gas

198,741

0

8

.10

11811

0

.08

0

.00

56

055279

Reliant Energy

-

Aurora

043407AAF

AGSIO

45

N

.Gas

209,367

0

8

.80

12441

0

.08

0

.00

57

055237

Reliant Energy

Shelby

173801AAA

SCEI

41

N

.Gas

134,636

0

5

.60

8001

0

.08

0

.00

58

055237

Reliant Energy

Shelby

173801AAA

SCE2

41

N

.Gas

147,174

0

6

.10

8746

0

.08

0

.00

59

055237

Reliant Energy

Shelby

173801AAA

SCE3

41

N

.Gas

156,480

0

6

.00

9300

j

0

.08

0

.00

---

A-6

Sr

.

No

.

ORISPL

Plant Name

ID No

.

UNIT

ID

Unit

Capacity

MW

Fuel

Used

Heat Input

mmBtu

S02

Tons

NOx

Tons

C02

Tons

NOx

Ibs/

mmBtu

S02

lbs/

mmBtu

60

055237

Reliant Energy

Shelby

173801AAA

SCE4

41

N

.Gas

148,595

0

6.20

8831

0

.08

0

.00

61

055237

Reliant Energy

Shelby

173801AAA

SCE5

41

N

.Gas

154,951

0

6

.50

9208

0

.08

0

.00

62

055237

Reliant Energy

Shelby

173801AAA

SCE6

41

N

.Gas

150,121

0

6

.10

8922

0

.08

0

.00

63

055237

Reliant Energy

Shelby

173801AAA

SCE7

41

N

.Gas

202,340

0

8

.20

12026

0

.08

0.00

64

055237

Reliant Energy

Shelby

173801AAA

SCE8

41

N

.Gas

192,091

0

7

.60

11416

0

.08

I

0.00

65

055109

Rocky Road Power

089425AAC

T2

121

N

.Gas

206,143

0

8.30

12251

0

.08

0.00

66

055109

Rocky Road Power

089425AAC

T3

35

N

.Gas

53,829

0

4.10

3199

0.15

0.00

67

055281

Southeast Chicago

Energy

0316000KE

CTGIO

44

N

.Gas

7,059

0

1.20

418

0.34

0.00

68

055281

Southeast Chicago

Energy

0316000KE

CTGII

44

N

.Gas

7,191

0

1.10

426

0

.31

0.00

69

055281

Southeast Chicago

Energy

0316000KE

CTG12

44

N

.Gas

3,885

0

0

.60

231

0

.31

0.00

70

055281

Southeast Chicago

Energy

0316000KE

CTGS

44

N

.Gas

6,890

0

1.10

407

0.32

0

.00

71

055281

Southeast Chicago

Energy

031600GKE

CTG6

44

N

.Gas

6,806

0

1.10

403

0.32

0

.00

72

055281

Southeast Chicago

Energy

0316000KE

CTG7

44

N

.Gas

7,011

0

1.10

415

0

.31

0

.00

73

055281

Southeast Chicago