Environmental Progress - Fall 2004

Emissions Reduction Market System Trading Program Continues to Benefit Air Quality in the Chicago Metro Area

Emissions of volatile organic materials nearly 60 percent below baseline in 2003

This past summer outdoor air quality in the Chicago metro area was in the "healthy" category during the entire season for ground-level (ozone) smog. It continued a trend in recent years of Chicagoland's air quality being cleaner and healthier than most other urban areas around the nation. Although Chicago is the third largest metro area in the nation, according to a U.S. EPA report on 50 metropolitan areas for the years 2000-2002, Chicago had more "good" or "moderate" air quality days than 39 other metro areas.

A number of important steps taken by industry, individual citizens and government have contributed to making that good news possible.

One of the lesser- known contributions was from a unique and innovative program that Illinois EPA launched five years ago, called the Emissions Reduction Market System. (ERMS). ERMS was the first market-based, cap and trade program in the nation for emissions of volatile organic materials (VOM), the soup of chemicals emitted by factories and cars and other sources that contribute to the formation of smog.

More than 170 of the largest industrial sources in the metro region, representing some 24 different types of industries, participate in ERMS. In each year, it has surpassed its goals and expectations, resulting in significant reductions of VOM, while providing flexibility and cost-effectiveness that helps our industry in Illinois stay competitive.

We are proud of the ERMS program at IEPA and now the world is also taking notice. In recent months, officials from the Region of Tuscany in Italy and from Santiago, Chile, have talked to IEPA air experts about ERMS and are interested in adapting it to reduce pollution in their areas.

Industrial sources in the Chicago area that emit 25 tons per year or more of VOM were given "allotment trading units" (ATUs) and most sources were required to reduce emissions by at least 12 percent. The initial baseline emission levels established prior to the first year of the program in 2000, generally were pegged to emissions during the 1994-1996 period for most sources.

The latest ERMS annual report, for the 2003 season, shows the 175 sources in the program emitted 59.9 percent less volatile organic materials than their baselines would have allowed them to emit and 55.5 percent less than their allotments for the season. The program operates during the May through September "ozone season" in the region.

This continues positive trends from the prior seasons. For 2002, emissions were 54 percent less than baselines and 48 percent less than the allotments for that year. In 2001, the comparative numbers were 52.1 percent and 46.8 percent.

Sources that emit less than their baselines and accumulate allotment trading units (ATUs) are only allowed to hold them for two years, another feature that results in fewer smog-causing pollutants in the air. In 2003, units equivalent to 38.5 percent of those allotted to participating sources expired without being used, for example.

Under the trading program, sources that emit less than their allotments can sell them to sources that need credits. Surveys of participants

have given the program high marks for efficiency, and IEPA also had provided extensive training for nearly 400 "account officers."

Under the traditional regulatory approach, the state had to develop specific reduction rules for each type of industry, a process that was time-consuming and often contentious.

While providing added flexibility to individual companies and factories through the trading option, it is important to emphasize that ERMS is in addition to and not a substitute for pollution control technology requirements under the Clean Air Act, such as the Available Control Technology rules. The industries covered by ERMS are still subject to continuing traditional inspection and enforcement efforts as well, to make sure they are meeting the requirements of their Clean Air Act Permits.

As Sam Yoshizawa, Vice President and Chief Operating Officer of American NTN Bearing Manufacturing in Elgin, noted: "This is a good example of innovative government-industry cooperation that improves air quality and saves money, demonstrating that a clean environment is good business."

One of the other innovative features is the ability to use trading to support other clean air benefits. NTN, for example, used some of the earnings from its transfer of ATUs to support employees who used low-polluting E-85 corn-based ethanol. Nova Chemicals in Will County donated ATUs to the University of Illinois at Chicago to permanently retire the credits to benefit overall air quality in the region.

Illinois EPA currently has a proposal before the Illinois Pollution Control Board to maintain the current requirements for ERMS participation.

The rules changes are necessary because the one-hour federal standard for ozone will be eliminated next year and a new eight-hour standard will prevail. The Illinois EPA anticipates, based on computer modeling, that the Illinois portion of the Chicago metro area will be in compliance with the eight-hour standard by 2007, or at least three years before the anticipated federal deadline.

However, as part of our strategy to meet and maintain that standard, we believe it is important that the current sources continue to participate and the contribution of ERMS to cleaner air for the more than 8 million citizens of the Chicago metro area in Illinois continues uninterrupted.