BEFORE THE ILLINOIS POLLUTION CONTROL BOARD

IN THE MATTER OF:

)

)

PROPOSED NEW CAIR SO

2

, CAIR NO

X

)

ANNUAL AND CAIR NO

X

OZONE SEASON

)

R06-26

TRADING PROGRAMS, 35 ILL. ADM.

)

(Rulemaking- Air)

CODE 225, CONTROL OF EMISSIONS

)

FROM LARGE COMBUSTION SOURCES,

)

SUBPARTS A, C, D and E

)

NOTICE

TO: Dorothy Gunn, Clerk

Illinois Pollution Control Board

James R. Thompson Center

100 West Randolph, Suite 11-500

Chicago, Illinois 60601-3218

SEE ATTACHED SERVICE LIST

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

Board a POST-HEARING COMMENTS OF THE ILLINOIS ENVIRONMENAL

PROTECTION AGENCY, a copy of which is herewith served upon you.

ILLINOIS ENVIRONMENTAL

PROTECTION AGENCY

By: ______________________

John J. Kim

Managing Attorney

Air Regulatory Unit

Division of Legal Counsel

DATED: January 5, 2007

1021 North Grand Avenue East

P.O. Box 19276

Springfield, Illinois 62794-9276

THIS FILING IS SUBMITTED

217.782.5544

ON RECYCLED PAPER

217.782.9143 (TDD)

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BEFORE THE ILLINOIS POLLUTION CONTROL BOARD

IN THE MATTER OF:

)

)

PROPOSED NEW CAIR SO

2

, CAIR NO

X

)

ANNUAL AND CAIR NO

X

OZONE SEASON ) R06-26

TRADING PROGRAMS, 35 ILL. ADM.

) (Rulemaking- Air)

CODE 225, CONTROL OF EMISSIONS

)

FROM LARGE COMBUSTION SOURCES, )

SUBPARTS A, C, D and E

)

POST-HEARING COMMENTS OF ILLINOIS ENVIRONMENTAL

PROTECTION AGENCY

NOW COMES the ILLINOIS ENVIRONMENTAL PROTECTION AGENCY (Illinois

EPA), by its attorneys, and hereby submits post-hearing comments in the above rulemaking

proceeding. Illinois EPA appreciates the efforts of the Illinois Pollution Control Board (Board)

in this rulemaking regarding Illinois EPA’s proposed new Part 225, Subparts A, C, D and E to

the Board’s air pollution control regulations (35 Ill. Adm. Code 225). The purpose of this

proposal is to reduce intra- and interstate transport of sulfur dioxide (SO

2

) and nitrogen oxides

(NO

x

) emissions from fossil fuel-fired electric generating units (affected units), on an annual

basis (January 1 though December 31) and on an ozone season basis (May 1 through September

30) of each calendar year, through the adoption of the Clean Air Interstate Rule (CAIR) SO

2

trading program, the CAIR NO

x

Annual trading program and the CAIR NO

x

Ozone Season

trading program that establish retirement ratios for SO

2

allowances established under the CAIR

and specific allocations for NO

x

allowances.

Illinois EPA engaged in extensive outreach on this proposal and held regular meetings

with representatives of the affected sources and public interest groups during the months of

January and February 2006. The proposal is intended to satisfy Illinois’ obligations under the

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United States Environmental Protection Agency’s (USEPA) Rule to Reduce Interstate Transport

of Fine Particulate Matter and Ozone; Revisions to Acid Rain Program; Revisions to the NO

x

SIP Call (CAIR), 70

Fed. Reg.

25162 (May 12, 2005).

See

, Exhibit A of Illinois EPA’s

rulemaking proposal. The proposed new part also is intended to address, in part, Illinois EPA’s

obligation to meet certain requirements under the federal Clean Air Act, 42 U.S.C. § 7401

et seq

.

(CAA). These requirements include Part D, Subpart 1 of the CAA, adoption of control strategies

necessary to demonstrate attainment of the fine particulate matter (PM

2.5

) and 8-hour ozone

National Ambient Air Quality Standards (NAAQS) in the greater Chicago moderate

nonattainment area and the Metro East/St. Louis moderate nonattainment area; Part D, Subpart 2

of the CAA, adoption of control strategies necessary to demonstrate attainment of 8-hour ozone

NAAQS for the greater Chicago nonattainment area and Metro East/St. Louis nonattainment

area; Section 169A, the adoption an implementation plan addressing visibility; and Section

110(a)(2)(D) of the CAA, adoption of a State Implementation Plan (SIP) addressing interstate

transport of air pollution.

Although the testimony elicited and evidence submitted to date in this proceeding reflects

agreement of all parties on a number of issues, some of the regulated sources do not agree with

Illinois EPA’s approach for allocations based on gross electrical output or the amount of the set-

asides. Indeed, the representatives of the power plants do not necessarily agree amongst

themselves as to whether allowances should be allocated on heat input or gross electrical output

or the amount of the set-asides. Also, although the participating environmental interest groups

are generally supportive of the proposed rulemaking, they do not agree with the inclusion of the

fluidized bed boilers in the Clean Air Set-Aside (CASA).

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Illinois EPA witnesses testified and provided evidence in support of the proposed

rulemaking at the first hearing that was held in Springfield on October 10, 2006 through October

12, 2006. In addition, prior to the second hearing, Illinois EPA filed a motion to amend

rulemaking based on comments made at the first hearing and discussions with USEPA. At the

second hearing that was held in Chicago on November 28 through November 30, 2006,

opponents and supporters of the proposal had an opportunity to present testimony. Only five

witnesses testified and they offered few specific suggestions for amendment to the proposal.

After the second hearing, Dynegy Midwest Generation, Inc., Midwest Generation, LLC, and

Southern Illinois Power Cooperative filed a motion to dismiss Illinois EPA’s proposal. As stated

in Illinois EPA’s response, the motion attacking the Board’s jurisdiction was untimely and

unsupported by provisions in the Illinois Environmental Protection Act. Illinois EPA urges the

Board to deny the motion and proceed to First Notice on this proposal.

In addition, Illinois EPA and Midwest Generation, LLC (Midwest Generation) are jointly

submitting a comment that describes and proposes the Combined Pollutant Standards (CPS) that

provides compliance flexibility for the mercury emissions reduction requirements in R06-25 (35

Ill. Adm. Code 225 Subpart B) in exchange for significant reductions in NO

x

and SO

2

emissions.

The CPS, like the multi-pollutant standard (MPS) included in R06-25, are voluntary provisions

that allow for additional compliance flexibility. The Board may revise proposed regulations

before going to First Notice upon its own motion or in response to suggestions made at hearing

and written comments made prior to second notice. 35 Ill. Adm. Code 102.600. Further, as

these provisions are similar in scope to those provided for other affected entities, Illinois EPA

urges the Board to move forward without scheduling a third hearing and include in the First

Notice the amendatory language changes filed in Illinois EPA’s Motion to Amend Rulemaking,

3

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Illinois EPA’s Reply to Response to Motion to Amend Rulemaking, its post-hearing comments,

and the joint comment regarding proposed amendatory CPS provisions.

The post-hearing comments of Illinois EPA are two-fold: the comments summarize the

hearing testimony and address issues raised by the Board and interested parties in pleadings. The

areas of coverage are: fuel weighting, CASA, fluidized bed boilers, and air quality monitoring.

The comments also address some questions asked on the record and some comments made by

USEPA. Attached to these comments are suggested amendments to Illinois EPA’s regulatory

proposal that incorporate the above changes.

Fuel Weighting

Illinois EPA maintains its position that fuel-weighting as proposed is appropriate. As

testified to at hearing coal-fired units bear the greatest burden to achieve emission reductions

under CAIR. (Rory Davis testimony on October 11, 2006 pm at 127-129.) This is also the reason

stated by the USEPA for not employing a fuel neutral allocation methodology in the CAIR

model rule. The predominant sources of both NO

x

and SO

2

emissions in Illinois are from

Illinois’ large fleet of coal-fired power plants. These sources likewise have higher emission rates

for both pollutants, and, therefore, reductions at these sources will provide the greatest benefits.

The more feasible controlling these emissions are under the proposed rule, the more likely they

are to be controlled. Furthermore, Illinois EPA’s economic analysis that found its NO

x

policy to

be economically reasonable based upon the proposed fuel-weighting allocation methodology.

Deviation from this allocation methodology would correspondingly impact the economic

analysis performed and relied upon for the proposed rule. The fuel weighting factors in the

Illinois proposal are identical to the CAIR model rule and reflect different burdens to control

emissions (Exhibit A, Final Rule 05/12/05 – p.25231 & 25280).

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Jason Goodwin testified on behalf of Zion Energy LLC (Zion) that the proposed

regulation be amended to employ a fuel neutral allocation methodology for CAIR NO

x

allowances. Mr. Goodwin stated that “turbine units will barely receive enough allowances to

cover expected emissions.” (Goodwin at 7 of pre-filed testimony.) His testimony indicates that

compliance costs for turbine units in CAIR will be zero or very low. At hearing, Mr. Goodwin

agreed with Ms. Bugel that additional allowances for Zion units would only provide “an

additional surplus” of allowances for those units. (Goodwin testimony on November 28, 2006

at 91.) However, he indicated that in future years with higher output more allowance may be

needed, but also admitted that in the proposed output-based allocation methodology, greater

output from the Zion units would result in the units receiving a greater number of allowances

proportional to the increased output.

Mr. Goodwin’s concern stems from his analysis that should a unit need a greater number

of allowances, Zion gas turbines do not have a cost-effective option for installation of additional

emission controls. His testimony provided an analysis of why selective catalytic reduction

(SCR) is not a cost effective measure for NO

x

control on gas-fired turbines. Illinois EPA agrees

that SCR for many gas-fired turbines is not a reasonable approach for compliance with CAIR. As

stated above, and included in Mr. Goodwin’s testimony, an analysis found that the gas-fired

turbines generally will not require SCR to comply with CAIR. This is supported by Mr.

Goodwin’s assessment that Zion’s turbines would not require further NO

x

reductions, and that

these units should be compliant with CAIR as it is proposed without the purchase of additional

allowances.

CASA

1.

Pro-rata allocation of allowances from the CASA

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During drafting of the rule, Illinois EPA explored a number of allocation schemes with

key goals of equality for applicants as well as ease of implementation for Illinois EPA. Pro rata

allocation was ultimately felt to best serve those purposes by proportionately sharing among all

eligible. Additionally, fixed portion schemes would be particularly problematic for Illinois EPA

to implement because Illinois’ CASA allocation scheme is specifically based on the number of

electricity hours generated or conserved, which will vary each and every year. Therefore, the

rule could not simply offer a fixed number of allowances.

Dr. Gregory Kunkel, representing the interests of Christian County Generation, stated in

his pre-filed testimony that he “generally supports Illinois EPA's judgment in the CAIR

framework to allocate NO

x

allowances in a way that benefits the people of Illinois.” (Kunkel at

4 of pre-filed testimony.) While being generally supportive, Dr. Kunkel suggests an alteration to

the proposed rule that would “eliminate pro-rata reduction of CASA allocations for early

adopters.” (Kunkel at 6 of pre-filed testimony.) He explains that the major reason for this

change would be to reduce the uncertainty in allocations introduced by a pro-rata allotment.

A question was posed to Dr. Kunkel about what alternative method he suggested, to

which he responded that “...it might be on a first come first serve basis...” (Kunkel testimony on

November 28, 2006 at 156.) That scheme is viewed by Illinois EPA as unfair, and was also

recognized by Dr. Kunkel’s own testimony that “It would be a benefit to the earliest and less

beneficial to later entries.” (Kunkel testimony on November 28, 2006 at 157.)

While Illinois EPA greatly appreciates Dr. Kunkel’s concern from a business point of

view, the lack of an acceptable alternative requires Illinois EPA to advise the Board to adopt

those relevant portions of the rule as currently drafted. Illinois EPA views the current scheme as

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a middle ground approach which will indiscriminately allow a portion of the CASA to all those

eligible, and at the same time is able to be implemented by Illinois EPA’s limited resources.

2.

Size of the CASA

The 30% set-aside issue has been discussed at length numerous times throughout this rule

making. Ultimately, USEPA left the authority to the individual States to distribute their

allocations as necessary to meet their own State’s individual goals. Illinois has chosen to carve a

set-aside away from the main pool to provide incentive to various other areas to promote Illinois’

interests (e.g., pollution control upgrades for cleaner air, integrated gasification combined cycle

(IGCC) for cleaner generation, energy efficiency/renewable energy (EE/RE) efforts for zero

emission generation, and a small pool to undertake these projects early on) whose individual

contributions benefit the environment. Additionally, each of those project categories assists

Illinois EPA in their duty to attain the National Ambient Air Quality Standards (NAAQS).

Lastly, Illinois EPA hired outside consultants to perform a financial analysis of the impact, under

the worst-case scenario that the 30% set-aside was effectively retired. (TSD at 7.1 and TSD.

Ref. 33.) The results showed that relying solely on a 70% main pool, the reliability of the grid

was intact and residential and commercial electric rates would not be greatly impacted,

especially in light of all the other benefits this program could provide. Considering the many

positive impacts for Illinois with no concomitant detriment posed by Illinois EPA’s choice for a

30% set-aside, Illinois EPA advises the Board to adopt those relevant portions of the rule as

currently drafted.

C.J.. Saladino, representing the interests of Kincaid Generation, testified that a 30% set-

aside is too great and that the proposal penalizes Kincaid station for having already installed the

best available technology (i.e., SCR). (Saladino at 13 of pre-filed testimony.)

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Illinois EPA believes that the CAIR proposal does not penalize the Kincaid station for

already installing SCRs and that Mr. Saladino’s conclusion is unfounded for several reasons:

1)

With regards to the Pollution Control Upgrade category, it was Illinois EPA’s

goal in drafting and proposing the rule to reasonably maximize the impact for

future emissions reductions here in Illinois, not to create a program to reward

those entities that would already be utilizing emission controls that they had

already installed. To provide incentives for controls already installed would

greatly diminish the incentive for new controls across the State.

2)

Kincaid is not the only facility in the State that has already installed controls for

various reasons that are now ineligible for CASA allowances. There are 14 units

controlled by SCR/selective non-catalytic reduction (SNCR), one unit controlled

by baghouse, and five units controlled by flue gas desulfurization (FGD) that are

ineligible for CASA. Again, as discussed above, the goal was to provide as large

an incentive possible to attract new controls by subsidizing the large installation

costs and not the much smaller operational costs. (Saladino at 52 of the

transcript.)

3)

As discussed in Mr. Saladino’s pre-filed testimony, the installation of the SCRs in

2002 “...was certainly a business decision...” (Saladino at 7 of pre-filed

testimony.) This decision was a voluntary choice that Kincaid utilized for

compliance with the NOx SIP Call, done without the benefit of knowing that one

day CASA allowances may be available. In fact, the program at the time

provided its own set of incentives to install controls. Mr. Saladino briefly

discusses that point in his pre-filed testimony as well, stating that the installation

of the SCRs was “brought about in part by the incentives presented by the early

reduction credits available under Part 217.770 of the Subpart W rules.” Kincaid

has already received credit to assist in recovering installation costs for their SCRs,

therefore no further benefit is required. Fortuitously, the installation of the SCRs

places Kincaid in a very comfortable position for compliance. Other units will

have to perform their own analysis to determine their best paths forward; Illinois

EPA hopes they will consider control as an option due to the available CASA

incentives.

4)

The notion, as mentioned in Mr. Saladino’s testimony, that Kincaid is penalized

for already installing SCR controls is without basis. The reality is that there are

an innumerable number of projects Kincaid may choose to sponsor or participate

in to earn allowances. (Saladino at 13 of pre-filed testimony.) By design, the

CASA was structured such that an existing electric generating unit (EGU) could

participate in every CASA category. Thus, the fact that Kincaid, as well as

numerous other units, have already installed controls is no penalty at all.

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On the other hand, Charles Kubert’s recommended that Illinois EPA increase their

RE/EE set-asides for the purpose of “being consistent with the policy goals and policy targets”

set forth in the Governor Blagojevich’s Sustainable Energy Plan. (Transcript on November 29,

2006, at 138.) According to Mr. Kubert, who testified on behalf of the Environmental Law and

Policy Center, increasing the Illinois CAIR RE/EE set-aside from 12 percent to15.4 percent

would provide enough allowances to reach the Governor’s Sustainable Energy Plan goal of

having eight percent of the electricity provided to Illinois consumers come from renewable

energy sources by 2012. (See generally, Kubert testimony and pre-filed testimony.)

Both the Governor’s Sustainable Energy Plan and the allocation methodology proposed

in the Illinois CAIR encourage renewable energy and energy efficiency; however, they are

mutually exclusive programs. It was never the intent of Illinois EPA to set its RE/EE allocations

predicated on the policy goals of the Governor’s Sustainable Energy Plan. Illinois EPA agrees

with Mr. Kubert’s statement that “both the set-aside allowances and other legislation, such as

RPS [Renewable Portfolio Standard], are complimentary to one another and both further the

same goal.” However, Illinois EPA is not the agency responsible for implementing the

renewable portfolio standard of the Governor’s plan, which was clarified in testimony and

acknowledged by Mr. Kubert. (Kubert testimony on November 29, 2006 at 189 and 191.)

It should also be recognized that because of the scheme for allocating allowances from

the CASA, allowances approaching the 15.4 percent that Mr. Kubert is recommending may, in

fact, be available if there is under-subscription in other CASA categories. The unused allocations

in these under-subscribed categories may become eligible for approved RE/EE projects, thereby

exceeding the 12 percent initial design value.

3.

Over-Fired Air

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Illinois EPA continues to take the position that over-fired air (OFA) projects should be

excluded from receiving allowances from the CASA. The primary purpose of the CASA, with

respect to the pollution control upgrade category, was to defray costs and thereby reduce the

main barrier (i.e., the typically large capital cost) in order to promote a few selected project types

that are comparatively much more expensive than OFA and advanced OFA. The main reason

cited by many companies for not installing controls is the large capital costs, and to a lesser

degree the generally smaller ongoing operating and maintenance costs. Illinois EPA also took

into account that the more costly controls generally result in the greatest reductions in emissions.

Careful consideration was given to which project types would be eligible for CASA

allowances during the regulatory development phase. It was determined that neither standard

OFA nor advanced OFA should be an eligible project for the CASA for several reasons,

including:

1)

Standard OFA was expected to be a common NO

x

control employed by sources

under the model CAIR trading program due to its low costs. There is no evidence

that advanced OFA would result in significantly higher costs than standard OFA,

therefore it is likely that many units would be installing that control technology

even without CASA incentives. Therefore, there is no need to provide any further

incentive through the CASA since the normal aspects of the trading program,

which already provides an appropriate incentive for these controls, should result

in widespread use of OFA and advanced OFA. Furthermore, allocating CASA

allowances to low cost NO

x

controls such as OFA could simply result in the

company receiving allowances worth more than the costs of the controls

themselves and thus such allowances could then be sold for a profit. Illinois EPA

believes that the emissions reductions would likely not be as large as those

achieved if more costly controls were instead installed. In addition, because the

advanced OFA control would likely have been installed without CASA

incentives, the net effect to the trading program would be that fewer allowances

are available for the intended purpose of the CASA.

2)

Allowing OFA or advanced OFA to be considered for allowances from the CASA

could greatly reduce the available CASA allowances, and hence incentive, for

sources to install the significantly more costly and typically more effective NO

x

controls (i.e., SNCR and SCR). Ameren provided testimony stating that “…even

advanced OFA has capital costs substantially less than an SNCR system.”

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(Menne pre-filed testimony at 5.) Note that SNCR has the lower capital costs

among the eligible controls, namely SNCR, SCR, baghouses and scrubbers,

whose costs can be tens of millions of dollars more than OFA controls. Any

CASA allowances allocated to OFA or advanced OFA would be allowances that

could not be allocated to offset much more costly controls and therefore reduce

the likelihood of such controls being installed.

3)

Enhancements to standard OFA can increase the control effectiveness and

associated costs of OFA to result in what Ameren considers advanced OFA. The

same argument can be made that enhancements to SNCR and SCR could be made

and result in advanced SNCR and SCR. For example, at an increased cost, SNCR

effectiveness can be increased by implementing Rich Reagent Injection (RRI) or

any other enhancement. In any circumstance where enhancements are made,

whether it be for standard OFA or SNCR, the associated costs would also

correspondingly increase. An argument stating that the costs and control

effectiveness of advanced OFA would increase into the range of a higher cost

control such as SNCR due to enhancements, would need to also consider the

increased costs and effectiveness of enhancements that could be applied to SNCR

from RRI. Advanced OFA cannot be considered in the same costs range or

control effectiveness as SNCR and SCR based on the limited amount of data

supplied by Ameren. In fact, the available information indicates that even

advanced OFA is relatively low in costs and therefore not in need of a CASA

incentive.

Fluidized Bed Combustion Boiler Policy

During the first hearing, Illinois EPA stated it was reviewing its policy on allowing

fluidized bed combustion (FBC) boilers to receive CASA allowances in the clean coal

technology category. After further review, Illinois EPA has concluded that it is appropriate to

continue to allow Illinois’ single existing FBC boiler to receive CASA allowances; however, it is

not appropriate to allow any future FBC boilers to receive CASA allowances. The rationale for

this determination is provided below.

There are currently 59 coal-fired boilers in Illinois affected by CAIR. Of these 59, only

one is an FBC boiler, namely the SIPCO 123 boiler in Marion, Illinois. This boiler was

constructed more recently in 2001 and began operation in 2003. At the time of construction,

FBC was considered a more current technology for utility boilers, while the 58 other boilers in

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Illinois are older units, some by as much as 50 years or more, and are all pulverized coal

combustion (PCC) boilers and cyclone-fired boilers (which burn crushed coal).

The SIPCO boiler 123 is approximately 120 MW in size, fires predominantly Illinois

coal, and is a circulating FBC boiler with limestone injection and add-on controls consisting of

an SNCR and baghouse. The SIPCO FBC boiler had an average annual (2003 to 2005) NO

x

emission rate of 0.10 lbs/mmbtu, which is lower than the system-wide NO

x

emission rates for

any of the other boilers in Illinois. It is believed that this NO

x

emission rate was achieved with

only part-time operation of the SNCR for NOx control. The NO

x

emission rate from SIPCO

boiler 123 has reached as low as 0.06 lbs/mmbtu during the 3

rd

quarter of 2005. For SO

2

, the

FBC boiler had an average annual (2003 to 2005) NO

x

emission rate of 0.47 lbs/mmbtu, which

likewise is lower than the system-wide SO

2

emission rates for any of the other boilers in Illinois.

These emission rates could be lower should SIPCO decide to more fully utilize the NO

x

controls

currently in place or install additional controls for NO

x

and SO

2

on the FBC boiler.

Allowing SIPCO to receive CASA allowances is believed to help accomplish several

environmentally beneficial goals, including the following:

1)

Recognize the lower NO

x

and SO

2

emissions that originate from this FBC boiler

as compared to other existing boilers.

2)

Provide an incentive for SIPCO to reduce NO

x

emissions as much as possible in

order to allow them to obtain as many CASA allowances as possible since the

amount of CASA allowances received is proportional to the amount of NO

x

emitted, i.e., the lower the NO

x

emissions the more CASA allowances they are

eligible to receive.

Note that the allowances will be available for the SIPCO boiler for as long as the boiler is

operating.

Illinois EPA believes that going forward the CASA clean coal technology category

should focus on the most promising technology, i.e., IGCC. IGCC facilities are capable of much

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lower emissions than FBC boilers. Therefore, Illinois EPA has determined that future FBC

boilers should not be allowed to receive CASA allowances. Of note is that only recently have

IGCC facilities been recognized and accepted as commercially viable. Such facilities were

considered less so during the decision making process that accompanied the installation of the

SIPCO 123 boiler and CAIR rule development process. Evidence of IGCC acceptability can be

found in an increase in the recent number of IGCC applications for permits nationwide.

1.

FBC Boiler Emissions

Uncontrolled emissions of both NO

x

and SO

2

from FBC boilers are lower than those from

other boilers. This is confirmed by a review of the preeminent source for emission factors,

USEPA AP-42 (Reference: USEPA AP-42, 9/98, Section 1.1 Bituminous and Subbituminous

Coal Combustion). (Agency Hearing Ex. 18.) The factor provided by AP-42 for uncontrolled

NO

x

from a FBC boiler is 5 lbs/ton whereas for other boiler types the factor ranges from 7.2 to

33 lbs/ton. Obviously, uncontrolled emissions of NO

x

can be much higher from a non-FBC

boiler. A similar situation exists for SO

2

, although it is not as straightforward of an emissions

factor. Instead, AP-42 states that SO

2

emissions from FBC boilers are a function of fuel sulfur

content and the calcium-to-sulfur ratio.

The emissions from coal-fired boilers are dependent upon many parameters, including

boiler type, coal type, and installed pollution control devices. The common starting point for

estimating the emissions from coal-fired boilers, like all units, is the uncontrolled emissions rate.

Using uncontrolled emissions allows a like comparison (e.g., apples to apples) for the different

type of boilers (PCC tangential-fired, PCC wall-fired, cyclone-fired, FBC and IGCC) and coal

types, regardless of what type of control devices are installed. Next, the actual emissions rates

are typically determined in order to assess the emissions after the installation of any emissions

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control devices and techniques. A wide variety of emission control devices and techniques exist

for NO

x

and SO

2

control from coal-fired boilers, including dry scrubber, wet scrubber, baghouse

with lime injection, SCR, SNCR, SNCR with RRI, staged combustion air, OFA, and low NO

x

burners. The effectiveness of controls is measured by the percent reduction in emissions they are

able to achieve, or their control efficiency.

The actual emission rate is determined by reducing the uncontrolled emissions rate by the

control effectiveness. For example, a boiler that has 100 tons/yr of uncontrolled SO

2

and has a

scrubber installed that reduces the uncontrolled SO

2

emissions by 90% will have actual

emissions of 10 tons/yr of SO

2

, which is the result of reducing 100 tons/yr by 90%. Obviously, a

boiler that has lower uncontrolled emissions of 50 tons/yr of SO

2

will have even lower SO

2

emissions given the same scrubber control, i.e., 50 tons/yr reduced by 90% is only 5 tons/yr.

Since there are a wide variety of control devices and techniques available, many boilers

are capable of reducing both their NO

x

and SO

2

emissions by a large percentage, limited perhaps

primarily to the amount of money they are able and/or willing to spend on controls and other

control techniques. For example, should a company with an FBC boiler wish to reduce NO

x

and

SO

2

emissions by a large percentage they could switch to a lower sulfur coal, install and

optimally operate an SNCR year round, and install a dry scrubber.

Using permitted emissions, actual emissions, or controlled emissions to analyze the

impact boiler type has on emissions will not necessarily provide an accurate assessment since it

is likely only measuring the level of control a particular boiler type has installed. A more

accurate measure to determine if one type of boiler is “cleaner” than another is to compare the

uncontrolled emission rate, thereby comparing “apples to apples.” Likewise, concluding that a

specific non-FBC (e.g., PCC or cyclone boiler) is “cleaner,” or less polluting, than an FBC boiler

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because its emission limits in a permit (or permitted emissions) are lower than a specific existing

FBC boiler’s actual emissions is also flawed in that one needs to know how the permitted

emissions were obtained. If they are based on estimated actual emissions from the non-FBC

boiler, then one of the primary factors in estimating these emissions is the control used by the

non-FBC boiler. Given equal control and coal type, the FBC boiler would likely achieve lower

emissions based on the lower uncontrolled emissions needed to be reduced. If the

owner/operator of the non-FBC boiler installs controls able to achieve a higher percent reduction

than those installed on the FBC boiler then the actual and permitted emissions may in fact be

below those of the FBC boiler. However, if the same level of control was also installed on the

FBC boiler then the emissions would likely be even lower than those of the non-FBC boiler.

This is based on the fact that starting with lower emissions often allows one to reduce to a lower

final emission rate.

For example, a PCC boiler controlled by a scrubber and SCR may have permitted

emissions lower than a FBC boiler that does not have any controls, but that does not mean the

PCC boiler itself is a cleaner unit. If the FBC boiler were to install a similar scrubber and an

SNCR and all other parameters were kept similar, its emissions of SO

2

and NO

x

would likely be

lower than those from the PCC boiler. Given equal operating parameters, the FBC boiler has

lower emissions of regulated pollutants than those from a PCC boiler.

Even if some companies with PCC and cyclone boilers have agreed to lower permitted

rates of NO

x

and SO

2

than similarly sized and fired FBC boilers, it does not necessarily follow

that those non-FBC boilers have lower emissions and are capable of achieving lower emissions

than the FBC boilers. This may not be the case for several reasons, including those previously

mentioned as well as the fact that companies have many different reasons for accepting emission

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rates limits in permits. Companies will typically seek a permit limit of the highest emission rate

that allows them to meet the applicable regulatory requirements and accomplish other goals. As

a practical matter for plant operation, companies do not seek or accept as a permit limit the

lowest level of emissions that can be achieved. Although there may be many non-FBC boilers

permitted to emit lower amounts of NO

x

and SO

2

, this cannot reasonably lead to a conclusion

that these boilers either emit or are capable of emitting lower NO

x

and SO

2

emissions than

comparable FBC boilers. The permitted emission rates in a FBC boiler permit may simply be

based on the regulatory requirements while the boiler is actually achieving, or capable of

achieving, a much lower emissions rate.

2.

FBC Boilers And Green House Gases (GHG)

Although the scope of CAIR is on reducing the emissions of NO

x

and SO

2

, Illinois EPA

conducted a review of the global warming impacts of utility FBC boilers as compared to PCC

boilers. The analysis was based on currently available emission factors for greenhouse gases,

and published factors which quantify the global warming potential for the major GHG pollutants.

This analysis demonstrates that coal combustion in FBC boilers results in higher GHG impacts

relative to PCC, mainly due to higher N

2

O emissions from FBC. It is important to note that the

carbon mass in the coal, which can vary by coal type, has a significant impact on the results.

Regardless of the combustion process, more than 80% of the GHG emissions are in the form of

CO

2

. Ultimately, the fuel choice and its resulting carbon content may be a more important factor

in determining the GHG impact than the choice of boiler type. The flexibility of FBC boilers to

combust different types of fuel may yield a significant advantage over PCC in terms of GHG

impacts. Unlike PCC, FBC boilers can more easily combust lower carbon content fuels (i.e.

biomass) which can have lower carbon emissions (CO

2

). Additionally, according to the National

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Renewable Energy Laboratories, the use of biomass energy has the potential to greatly reduce

GHG emissions. Burning fossil fuels releases CO

2

captured by photosynthesis millions of years

ago—an essentially “new” GHG. Biomass, on the other hand, releases CO

2

that is largely

balanced by the CO

2

captured in its own growth (Reference:

http://www.nrel.gov/learning/re_biomass.html).

Furthermore, recent research has emphasized that there is considerable uncertainty in

establishing accurate N

2

O emissions due to limited understanding of how fuels and operating

conditions affect formation. Illinois EPA’s analysis is based on one method and set of

assumptions for calculating global warming impacts from these combustion processes and

should not be considered definitive. As additional research becomes available on GHG

emissions from PCC and FBC processes, hopefully a more conclusive determination can be

made of the quantity of their GHG emissions and their potential to impact climate change.

According to the U.S. Department of Energy, optimum configurations of second-

generation pressurized fluidized bed combustion boilers with fuel cells and CO

2

sequestration

options are being developed. These second generation pressurized FBC boilers will have even

lower SO

2

and NO

x

emissions. (Reference: Program Facts, U.S. Department of Energy, National

Energy Technology Laboratory, 11/2000.)

3.

Revision of CASA Equation for Clean Fluidized Bed Coal Combustion

Illinois EPA has determined that it is appropriate to revise the allocation method in the

proposed in Sections 225.465(b)(5)(B) and 225.565(b)(5)(B) relating to allocating CASA

allowances to clean coal technology projects. The basis for this determination is that SIPCO

directly measures its emission rate in pound per megawatt (lb/MW) rather than converting from

pound per million Btu (lb/mmBtu). Illinois EPA had previously performed an estimate using

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data available from USEPA’s Clean Air Market Division (CAMD), which does not report the

direct measurement that SIPCO performs and therefore was less accurate than the direct

measurement.

The proposed revision will not result in a significant change for the CASA allowance

distribution; instead, it will result in a status quo CASA allowance distribution as compared to

Illinois EPA’s prior estimate. The proposed revision will include new subsections in Sections

225.465(b)(5)(B) and 225.565(b)(5)(B). Subsection (b)(5)(B) will include an equation similar in

all respects to the prior method with the exception of a factor change from 1.0 to 1.4. The factor

change will compensate for SIPCO’s direct measurements and provide the same level of

incentive that Illinois EPA was previously attempting to achieve.

Air Quality Modeling

Illinois EPA summarized USEPA’s modeling results in the Technical Support Document

(TSD), which were originally presented by USEPA in a March 2005 document entitled:

“Technical Support Document for the Final Clean Air Interstate Rule – Air Quality Modeling.”

Illinois EPA presented USEPA’s modeling showing that NO

x

and SO

2

reductions from power

plants are effective in reducing ozone and PM

2.5

concentrations in downwind nonattainment

areas, but that CAIR would not provide sufficient emission reductions, even in Phase II, to allow

the Chicago nonattainment area to attain either the ozone or PM

2.5

standards. (TSD at 35.) The

implication from USEPA’s modeling is clearly that Illinois must seek additional emission

reductions, either locally or regionally, to achieve attainment of the air quality standards.

Illinois EPA’s TSD also presented the results of ongoing modeling analyses performed

by the Lake Michigan Air Directors Consortium (LADCO). LADCO’s modeling results,

presented in Table 3-5 of the TSD, clearly indicate the emission reduction targets needed for

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both ozone and PM

2.5

attainment. Based on LADCO’s modeling, local VOC reductions of

approximately 75% are needed for Chicago to attain the ozone standard, assuming that no

additional reductions are achieved regionally beyond those provided by CAIR. Illinois EPA

does not posit that such reductions are technically or economically reasonable. When regional

NO

x

and SO

2

reductions are assumed, the modeling indicates that the emission reduction burden

in the nonattainment area is lessened.

Mr. Saladino recommended that Illinois EPA conduct a “modeling demonstration to

determine the level of reductions that may be necessary to resolve any residual nonattainment

problems following implementation of the CAIR reductions.” (Saladino at 4 and 5 of pre-filed

testimony.) However, the TSD submitted by Illinois EPA to the Board in this rulemaking

presented the results of two such modeling studies that address the issues raised by Mr. Saladino.

Thus, Illinois EPA has already presented the type of modeling otherwise suggested by Mr.

Saladino.

Responses to Questions Raised at Hearing

a.

Question: Section 225.455(b) concerns consequences for a finding of

noncompliance. Who makes these findings?

Illinois EPA Response: Illinois EPA will issue the notice referenced in Section

225.455(b) upon receipt of information, e.g., self-reporting from a regulated

facility, that warrants the issuance of the notice.

b.

Question: Section 225.460(d)(2) concerns projects that are not eligible to receive

CASA allowances. One type of project that will not be eligible is one that is

required to meet emission standards or technology requirements under State or

federal law or regulation. How will Illinois EPA determine whether a project is

required to meet a State or federal law or regulations?

Illinois EPA Response: Illinois EPA will make such a determination in a manner

consistent with all such situations. Illinois EPA routinely determines whether an activity

is subject to compliance with a law or regulation that is administered or overseen by

Illinois EPA. This determination may involve different members of Illinois EPA’s staff,

including but not limited to the compliance unit or legal counsel.

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c.

Question: In the definition for project sponsor it mentions a written agreement.

Who is the written agreement between?

Illinois EPA Response: The written agreement is between the entity providing the

majority of the funding and the entity that is becoming the project sponsor.

d.

Question: Section 225.320 requires the submittal by the owner or operator of any

supplemental information requested by Illinois EPA. What is the timing of the

equest for supplemental information?

Illinois EPA Response: Illinois EPA will send a letter requesting the additional

information that includes the timeline for its submission.

e.

Question: Section 225.450 refers to the word system when addressing the

requirements for gross electrical output monitoring. What is meant by the word

“system”?

Illinois EPA Response: This issue was also raised in Midwest Generation’s Response to

Illinois EPA’s Motion to Amend and was addressed by Illinois EPA in its Reply

to that Motion.

f.

Question: Section 225.320 states that a CAIR permit will be issued pursuant to

Section 39 or 39.5 of the Act. How will the owner or operator know which

Section of the Act is applicable?

Illinois EPA Response: It will depend on the circumstances that are applicable to source

or the unit. The owner or operator will make this determination before submitting

the application. For example, new sources typically obtain first obtain

construction permits pursuant to Section 39 of the Act and then obtain Clean Air

Act Program Permits (CAAPP) pursuant to Section 39.5 of the Act.

g.

Question:

The language in Section 405(b) is confusing.

Illinois EPA Response: USEPA had found the initial language included in the proposal

unacceptable but has found the current language approvable.

8.

Summary of Proposed Changes to the Proposal

a.

In the electronic version of the attached proposed changes to the regulatory

proposal changes appear in red, blue, purple and green. Changes in red and blue type refer to

proposals recommended in Illinois EPA’s Motion to Amend the Rule. Changes in purple refer to

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changes recommended in Illinois EPA’s Rely to the Response to Amend the Rule. Changes in

green refer to changes recently recommended by USEPA in a conference call with Illinois EPA

staff on December 21, 2006.

b.

USEPA recommended numerous conforming amendments. The three most

significant amendments that it recommended concerned deleting subsection (d)(5)(C) in Sections

225.445 and 225.545 that required Illinois EPA to reduce a unit’s allocation from the NUSA if it

had been allocated excess allowances for the prior control period. Second, the definition for

“CAIR Trading programs” was deleted because it was not used in the proposal. Third, the

language concerning fractional allowances has been clarified to indicate that Illinois EPA can

only allocate whole allowances and allowances that cannot be distributed on that basis will be

retained and distributed pro-rata for the next control period.

Respectfully submitted,

ILLINOIS ENVIRONMENTAL

PROTECTION AGENCY

By:

__________________

Rachel L. Doctors

Assistant Counsel

Air Regulatory Unit

Division of Legal Counsel

DATED: January 5, 2007

1021 North Grand Avenue, East

P.O. Box 19276

Springfield, Illinois 62794-9276

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217.782.5544

217.782.9807 (Fax)

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