Air Pollution Information

Report to the Illinois General Assembly in Response to House Resolution 405

Executive Summary

On May 31, 2001, House Resolution 405 ("Resolution") was adopted expressing concern over the availability of nitrogen oxide ("NOx") emission allowances for new electric generation units under the federally required NOx SIP Call regulations adopted by the Illinois Pollution Control Board ("IPCB"). The Resolution directed the Illinois Environmental Protection Agency ("Illinois EPA") to prepare an annual report to the General Assembly for seven years, beginning on October 31, 2001, regarding the availability of NOx allowances within the State and within the larger trading region established by U.S. EPA as part of the NOx SIP Call. This is the second of these annual reports.

Illinois EPA submitted the first report in October 2001. This report described the federal NOx SIP Call and the Illinois regulations adopted by the IPCB to enable the State of Illinois to meet those requirements. It addressed the background of this complex regulatory framework, the market-based nature of these regulations, and the effect of these regulations on existing electric generating units ("EGUs") and on new or prospective EGUs in Illinois. The report also provided explanations of the methods for calculating NOx allocations and the mechanics and purposes of the new source set-aside and early reduction credits.

The development of the NOx trading budget is a critical part of these regulations. The trading budget establishes the total amount of NOx emissions allocated in the aggregate to EGUs in Illinois. The establishment of the growth rate, one of the critical determinants in setting the NOx budget, is an important issue for Illinois that remains unresolved. Although the U.S. Supreme Court has upheld the NOx SIP Call, the determination of growth rates was remanded to U.S. EPA for review and final action. Illinois EPA made extensive comments to U.S. EPA requesting revision of the Illinois growth factors to provide a larger growth for EGUs in Illinois. U.S. EPA responded to the court's remand and the commenters' concerns. U.S. EPA believed that the growth factors and the methodology to predict growth factors were reasonable. The explanations provided by the U.S. EPA in its response are not convincing. Illinois has joined a lawsuit in federal court that continues to challenge U.S. EPA's determination of the growth rates for EGUs. In addition, Illinois EPA continues to have discussions with U.S. EPA seeking a favorable resolution of the growth issue.

As a part of the NOx implementation process, the NOx SIP Call provides for the distribution of additional NOx allocations for sources who make NOx reductions ahead of that required by the NOx rules. Illinois has reserved 15,261 early reduction credits (ERCs) for its EGUs, and 2,427 ERCs for its non-EGUs. Of the early reduction credits reserved for both EGUs and non-EGUs, one-half are available for distribution for reduction made in 2001, one-half for reductions made in 2002. If there are allowances remaining in the relevant pool, they can be distributed to sources for reductions made in 2003. On or before November 1, 2001, Illinois EPA received requests for ERCs from the owners or operators of 16 EGUs. No requests were received from any non-EGUs. Upon review of the requests for ERCs, Illinois EPA determined that a total of 10,393 ERCs were earned by the 16 EGUs. Because the total requested ERCs exceeded the number of ERCs reserved for EGUs for 2001 (i.e., 7,630), Illinois EPA distributed 7,630 ERCs to all 16 units on a pro-rata basis. In doing the adjustment, fractions of allocations were rounded off, leaving five unallocated ERCs, which could not be allocated fairly between the 16 sources. These five ERCs will be held over for distribution in next year's allocation.

The market system for NOx trading that is the subject of this report begins operation in the summer of 2004. Much of the information needed to determine how the market is operating is not currently available. When it is fully functional, Illinois EPA will assess its operation and impact on the development of new EGUs in Illinois. Consequently, some of the analyses requested by the Resolution will need to be addressed by future annual reports.

2002 HR405 Full Report - View the full report in Adobe Acrobat format.
2001 HR405 Full Report - View the full report in Adobe Acrobat format.

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