ANNUAL PERFORMANCE REVIEW REPORT – 2001

EMISSIONS REDUCTION MARKET SYSTEM

AQPSTR 02-01

BUREAU OF AIR ENVIRONMENTAL QUALITY SYSTEMS

ILLINOIS ENVIRONMENTAL PROTECTION AGENCY 1021 NORTH GRAND AVE., EAST

P.O. BOX 19276 SPRINGFIELD, IL 62794-9276

May 15, 2002

PREFACE

We are pleased to publish this second Annual Performance Review Report about

the Emissions Reduction Market System (ERMS) in Illinois. The ERMS is an innovative,

market-based approach for reducing emissions of volatile organic materials that

contribute to ozone nonattainment.

This report is designed to give the reader the pertinent information about market

system performance for 2001, the second year of operation. This report documents the

progress that results from implementation of this new market system and provides an

analytical framework that serves as a platform for future evaluation of key trends and

patterns that may be important for us to monitor. This second report also contains new

information about emissions of Hazardous Air Pollutants in the market area.

Development of the ERMS was truly a participatory process, as was this second

performance report. We want to express our appreciation for the contributions made by

the industrial and environmental interests that participated in the review of this report.

The final product reflects this open, collaborative process.

______________________________ ______________________________ Roger A. Kanerva David J. Kolaz Senior Manager Chief Environmental Quality Systems Bureau of Air

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Table of Contents Section Page Number List of Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii List of Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii List of Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 II. Scope of the Annual Performance Review Report . . . . . . . . . . . . . . . 5

A. Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 B. Dialogue and Peer Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

III. Rate-of-Progress Plan and Moving Towards Attainment . . . . . . . . . . 7

A. Federal Reduction Requirements. . . . . . . . . . . . . . . . . . . . . . . 7 B. Post-9% ROP Submittal Actions. . . . . . . . . . . . . . . . . . . . . . . 7 C. ROP Requirements Through 2007. . . . . . . . . . . . . . . . . . . . . . 8 D. ERMS Contribution to the ROP and Attainment . . . . . . . . . . 8

IV. Area-Wide Emissions Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

A. Source Types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 B. Total Aggregate VOM Emissions . . . . . . . . . . . . . . . . . . . . . . 11 C. Breakdown of ATU Use. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 D. Expired ATUs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 E. Source Emission Reduction Strategy . . . . . . . . . . . . . . . . . . . . 13 F. ATU Vintage Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 G. Findings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

V. Evaluation of Trading Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

A. Account Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 B. Website Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 C. Transaction Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 D. ATU Availability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 E. Average Market ATU Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 F. Special Market Activity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 G. Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

VI. Alternative ATU Generation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

A. Summary of Emissions Reduction Generator (ERG) Proposals 20 B. Summary of Inter-Sector Proposals. . . . . . . . . . . . . . . . . . . . . . 21 C. Finding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

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Section Page Number VII. Performance Accountability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

A. Seasonal Emissions Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 B. Alternative Compliance Market Account (ACMA) . . . . . . . . . 23 C. Excursion Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 D. Source Inspections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 E. Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

VIII. Distribution of Emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

A. Geographic Distribution of Transactions. . . . . . . . . . . . . . . . . . 26 B. Type of Source. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 C. Trends and Spatial Distributions of Hazardous Air

Pollutants (HAPs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 D. HAP Information Request Letters. . . . . . . . . . . . . . . . . . . . . . . 43

E. Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 IX. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Appendix A: Township Names and ID Numbers . . . . . . . . . . . . . . . . . . . . . . A-1 Appendix B: Township Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1 Appendix C: Peer Review Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1 Appendix D: Errata Sheet for 2000 Report . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1

List of Tables Table Page Number 1. Source Emissions Breakdown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2. Special Unit Emissions Breakdown. . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3. Expired ATUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4. ATU Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 5. ATU Buyers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 6. ERGs Receiving Future ATUs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 7. ACMA Account Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 8. ACMA Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 9. ATUs Traded by County. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 10. County Comparison of Net ATUs for 2000 and 2001 . . . . . . . . . . . . . 27 11. ATU Comparison by County . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 12. Total ATUs Expired and Retained by County . . . . . . . . . . . . . . . . . . . 28 13. Number of Sources per Township . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 14. Township Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

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Table Page Number 15. ATUs Traded by Township . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 16. Expired ATUs by Township. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 17. Retained ATUs by Township . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 18. Townships with Emissions Over Baseline Level . . . . . . . . . . . . . . . . . 31 19. Townships with Emissions Over Allotment Level . . . . . . . . . . . . . . . . 31 20. Transactions by SIC Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 21. Total ATUs Expired and Retained by SIC Code. . . . . . . . . . . . . . . . . . 33 22. Reported HAP Emissions by Township. . . . . . . . . . . . . . . . . . . . . . . . . 39 23. Key Results on HAPs for Five Highlighted Townships. . . . . . . . . . . . . 43

List of Figures Figure Page Number 1. Illinois’ ROP Plan – VOM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2. Illinois’ ROP Plan – NOx . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3. Difference from Baseline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 4. Difference from Allotment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 5. Difference from Baseline and Traders. . . . . . . . . . . . . . . . . . . . . . . . . . 36 6. Difference from Allotment and Traders . . . . . . . . . . . . . . . . . . . . . . . . 37 7. VOM HAP Reporting Sources (Difference from

Allotment/Baseline). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 8. Traders with VOM HAP Sources and/or 1998-1999 TRI Sources

(Difference from Allotment/Baseline) . . . . . . . . . . . . . . . . . . . . . . . . . 41 9. Change in 1999-2000 TRI Emissions (Difference from

Allotment/Baseline) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 10. VOM HAP Reporters with Population Density

(Difference from Allotment/Baseline) . . . . . . . . . . . . . . . . . . . . . . . . . 45 B-1 Actual Emissions Compared to Allotment . . . . . . . . . . . . . . . . . . . . . B-4

List of Acronyms ACMA Alternative Compliance Market Account AER Annual Emissions Report ATU Allotment Trading Unit BAT Best Available Technology CAA Clean Air Act CAAPP Clean Air Act Permit Program EPA Environmental Protection Agency ERG Emissions Reduction Generator ERMS Emissions Reduction Market System

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HAP Hazardous Air Pollutant LAER Lowest Achievable Emission Rate MACT Maximum Achievable Control Technology NAA Nonattainment Area NAAQS National Ambient Air Quality Standards NESHAP National Emission Standard for Hazardous Air Pollutants RACT Reasonably Available Control Technology ROP Rate-of-Progress SER Seasonal Emissions Report TPD Tons Per Day TRI Toxics Release Inventory VOM Volatile Organic Materials

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Executive Summary Northeastern Illinois – the Chicago area – has been designated as a severe nonattainment area (NAA) for ozone. Under provisions of the Clean Air Act (CAA), as amended in 1990, the area must be in attainment by 2007. Extensive air quality modeling has shown that emissions of volatile organic materials (VOM), a component involved in ozone formation, must be reduced. Most VOM emissions are already controlled by technology-based rules, and further reductions in emissions using such “command and control” measures are potentially very costly. As such, Illinois adopted the Emissions Reduction Market System (ERMS), an emission trading program that would reduce overall VOM emissions in the Chicago NAA. The ERMS program operates from May 1 through September 30, correlating with the time of the year when ozone formation occurs. The program allows trading among participating sources in order to meet a reduced cap on their overall VOM emissions. Each participant is given a baseline according to what they were actually emitting in previous years, adjusted for their compliance or noncompliance with existing rules. (ERMS participants must still adhere to all other state and federal emission limitations.) From that baseline, sources were given a number of allotment trading units (ATUs) corresponding to an overall area-wide reduction of 12%, with some exceptions for units with emissions that could not be further reduced. ATUs are retired by the Illinois Environmental Protection Agency (Illinois EPA) after each trading season to account for all of the source’s emissions during that season. Sources may either reduce their emissions by the use of emission controls or process changes, or they may buy ATUs from other sources to account for any emissions in excess of their initial allotment. Any source that reduces its VOM emissions below the allotment level may sell its excess ATUs to another source. Overall VOM emissions in the Chicago NAA are therefore reduced while providing a variety of mechanisms for sources to use in achieving their individual reductions. Illinois EPA is required by the ERMS rule to prepare an Annual Performance Review Report addressing the effect of ERMS on VOM emissions, reviewing trends and patterns that have emerged in the operation of the ERMS, and looking at nine specific areas of the program for the previous seasonal allotment period. The structure for this report was prepared in consultation with industry and environmental groups, the U.S. EPA, and economists from the University of Illinois at Chicago, all of whom were participants in an ongoing dialogue that has helped to frame the information reported herein. The second year of ERMS market operation trading produced 29 seasonal trades and three new long-term transfer agreements in addition to three already in effect. These involved a total of 21 sources as sellers and 27 as buyers, with 3704 ATUs changing hands. This amounts to 3.8% of the total ATU allotment for the area, and 7.2% of the ATUs retired for compliance purposes. While some of the data necessary to fully analyze the operation of the ERMS program is not yet available for trend analyses, Illinois EPA has compiled a great deal of information

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for evaluation of the second operating year of the ERMS program. In studying these data, Illinois EPA finds that the ERMS program is functioning as intended. ATUs have been readily available, emissions are significantly lower than baseline and allotment figures – on both a local level and in the overall region. Indeed, the allotment itself is 9.9% below the baseline level, indicating that even if every company used its entire allotment, the area would still see a significant reduction from the baseline.

Key Findings

• The allotment shows a 9.9% reduction from the original baseline for sources.

• Sources were able to find trading partners, there was a sufficient supply of

available ATUs, and market prices were conducive to trading.

• Alternative ATU generation did not play a role in market performance.

• The reconciliation and compensation processes performed as designed and operated in a timely and effective manner.

• Overall, sources in the ERMS program emitted 52.1% less VOM than their

baselines would have allowed them to emit, and 46.8% less than their actual ATU allotments for 2001.

• Trading did not appear to influence HAP emissions.

• ATUs equivalent to 14.3% of those allotted to participating sources in 2001

expired without being used.

Conclusions

• The ERMS program continued to achieve the desired emissions reductions.

• ERMS participants are performing significantly below the baseline and allotment levels.

• The Market System operated in an effective manner.

• No relationship is apparent between market activity and hazardous air

pollutant levels.

• Time-based trends are not yet available.

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I. Introduction Northeastern Illinois, including the Counties of Cook, DuPage, Kane, Lake, McHenry, and Will, and the Townships of Aux Sable and Goose Lake in Grundy County and Oswego in Kendall County, has been designated as a severe nonattainment area (NAA) for ozone. Under provisions of the Clean Air Act (CAA), as amended in 1990, the area must be in attainment by 2007. Extensive air quality modeling has shown that emissions of volatile organic materials (VOM), a component involved in ozone formation, must be reduced. Most VOM emissions are already controlled by technology-based rules, and further reductions in emissions using such “command and control” measures are potentially very costly. As such, the Illinois Environmental Protection Agency (Illinois EPA) proposed the Emissions Reduction Marketing System (ERMS), an emission trading program that would reduce overall VOM emissions in the Chicago NAA. The Illinois Pollution Control Board adopted the ERMS program as a rule in November 1997 and the rule appears in Title 35 of the Illinois Administrative Code, Subtitle B (Air Pollution), Part 205 (35 Ill. Adm. Code 205). The ERMS program is designed to operate on a seasonal basis, from May 1 through September 30, to correlate with the time of the year when ozone formation occurs. The program allows trading among participating sources in order to meet a reduced cap on their overall VOM emissions. Each participant has been given a baseline according to what they were actually emitting in previous years, adjusted for their compliance or noncompliance with existing rules. Unlike the situation in some open market trading systems, sources in ERMS, which is the first cap-and-trade system in the U.S. for VOM, must still adhere to all other state and federal emission limitations. From that baseline, sources were given a number of allotment trading units (ATUs) corresponding to a reduction of 12%, with some exceptions for units with emissions that could not be further reduced. Section 205.405 provides that units falling into one of the following categories are not required to reduce their emissions by 12% below their baselines: units subject to a Maximum Achievable Control Technology (MACT) standard or a National Emission Standard for Hazardous Air Pollutants (NESHAP); units that have demonstrated Lowest Achievable Emission Rate (LAER); units that have demonstrated Best Available Technology (BAT); space heaters; fuel combustion units; and internal combustion engines. The baseline, therefore, is the allotment for these units. When such exemptions are factored into the area-wide allotment, the actual aggregate allotment is 9.9% less than the baseline total. ATUs are retired by the Illinois EPA after each trading season to account for all of the source’s emissions during that season. Sources may either reduce their emissions by the use of emission controls or process changes, or they may buy ATUs from other sources to account for any emissions in excess of their initial allotment. Any source that reduces its VOM emissions below the allotment level may sell its excess ATUs to another source. In this way, overall VOM emissions in the Chicago NAA are reduced while providing a variety of mechanisms for sources to use in achieving their individual reductions.

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Key Features of ERMS ERMS contains a number of features that distinguish it from traditional command and control programs and other market systems: • Most command and control rules are in force year-round. However, since ozone is a

problem in Illinois only during the summer season, and this program goes beyond the traditional “Reasonably Available Control Technology” (RACT) rules, the ERMS program is seasonal, and restricts emissions during May 1 through September 30, when the ozone problem exists.

• Many regulations limit emission rates rather than actual emissions. The ERMS program puts a cap on sources based on their actual emissions, which provides certainty that it will reduce VOM in the nonattainment area.

• The ERMS program, as noted above, goes beyond RACT. Unlike other emissions trading systems across the country, Illinois does not allow sources to avoid other emission limits by participating in the ERMS. Sources must comply with the ERMS 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. The ERMS rule provides that ATUs have a limited two-year lifetime. This helps to ensure a robust market, allows some saving for companies, but prevents excessive accumulation of active trading units with unlimited life.

• Because the ERMS rule is associated with the Clean Air Act Permit Program (CAAPP), monitoring and recordkeeping 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 ERMS rule, requiring most units to reduce VOM emissions by at least 12%. This provides Illinois with a specific, creditable VOM reduction in the Chicago NAA.

• Sources which fail to reduce their emissions or obtain the proper number of ATUs are held accountable for their actions as a part of the ERMS rule itself. Indeed, such sources are penalized at a higher rate for repeated failure to hold the required ATUs. This discourages noncompliance on the part of participating sources and provides Illinois with some certainty that the VOM reductions will be achieved.

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II. Scope of the Annual Performance Review Report

A. Requirements

Section 205.760 of the ERMS rule directs the Illinois EPA to prepare an Annual Performance Review Report addressing the effect of ERMS on VOM emissions, reviewing trends and patterns that have emerged in the operation of the ERMS, and looking at nine specific areas of the program for the previous seasonal allotment period. These areas, all of which are included in later parts of this report, are: 1. Total aggregate VOM emissions from all ERMS sources. 2. A breakdown of the number of ATUs retired for compliance purposes or air

quality benefit, number currently banked, and the number used by new participating sources.

3. Evaluation of trading activities, including those sources that were net buyers, those that were net sellers, and those that did not trade.

4. The use of the Alternative Compliance Market Account (ACMA), including its balance and all transactions into or out of the account.

5. Summary of emissions reduction generator (ERG) and inter-sector proposals. 6. Distribution of transactions by geographic area or character of source. 7. Availability of ATUs for purchase. 8. Average market price for ATUs. 9. Trends and spatial distributions of hazardous air pollutants (HAPs). The Annual Performance Review Report must be prepared by May 15 of every year. This second report covers the 2001 ERMS season and all transactions pertaining to that season up to March 27, 2002. Many of the terms and technical information referred to in this document are based on the requirements in the ERMS rule. Readers who are unfamiliar with that rule should review it first for a better overall understanding of the program and the terminology used in this report.

Some of the data necessary to fully analyze the operation of the ERMS program is not yet available for several reasons. This is only the second year of the program and it generally takes several years of data to evaluate or identify trends. Furthermore, this is the first year for which specific company-reported data on actual HAP emissions are available. B. Dialogue and Peer Review The structure for this report was prepared in consultation with industry and environmental groups, the U.S. EPA, and economists from the University of Illinois at Chicago, all of whom were participants in an ongoing dialogue that has helped to frame the information reported herein. With the exception of new

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information obtained on HAPs through changes to the Annual Emissions Report rule, the overall framework of this report is the same as that used in the 2000 report. In order to ensure that this report addresses all the required aspects of the ERMS program, the 2000 report was sent for peer review to the Center for Clean Air Policy in Washington, D.C., and the Federal Reserve Bank in Chicago, Illinois. A number of their recommendations have been incorporated into this 2001 report. A more complete discussion of those reviews can be found in Appendix C.

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III. Rate-of-Progress Plan and Moving Towards Attainment

A. Federal Reduction Requirements Illinois was required, pursuant to Sections 182 (b)(1) and 182 (c)(2) of the CAA, to maintain reasonable further progress toward attaining the National Ambient Air Quality Standards (NAAQS) for ozone in the Chicago NAA. This required the State to develop a rate-of-progress (ROP) plan which outlined how reasonable further progress would be achieved. Illinois originally developed a 15% ROP plan pursuant to Section 182(b)(1), which covered the period from 1990 through 1996. This plan was approved by U.S. EPA on December 18, 1997, and provided for a total of 297 tons per day (TPD) of VOM emissions reductions, Illinois has implemented all of these measures and achieved reasonable further progress for that period. Further, Section 182(c)(2) of the CAA required each serious, severe, and extreme ozone NAA to submit a State Implementation Plan (SIP) revision which provided for an actual reduction in ozone precursors of at least 3% per year averaged over each consecutive 3-year period, for a total reduction of 9% per period. This requirement began in 1997 and continues until the area attains the 1-hour ozone standard. Illinois’ SIP revision that addressed this requirement in Chicago for the first three-year period (1997-1999) is referred to as the 9% Rate-of-Progress Plan (9% ROP Plan). The Illinois EPA prepared the 9% ROP Plan for Chicago in the Fall of 1997 and submitted the plan to the U.S. EPA on December 18, 1997, as a revision to the Illinois SIP. B. Post-9% ROP Submittal Actions A number of actions occurred after the completion of the original 9% ROP Plan and resulted in Illinois EPA supplementing the original plan. Some of these actions stemmed from a U.S. EPA revised policy regarding implementation of the 1-hour NAAQS for ozone. Other actions involved changes in VOM emissions reduction credit allowed by U.S. EPA. In addition, delays in the implementation of several federal and state regulatory programs, including ERMS, necessitated an adjustment to the reduction credit previously claimed in the 9% ROP Plan for VOM, and included the addition of NOx reductions in the attainment area to substitute for some of the VOM reductions. The revised 9% ROP Plan incorporating these plan adjustments for the 1997-1999 period was submitted to the U.S. EPA on February 17, 2000, and demonstrated that the federal ROP requirements were met by utilizing a reduction strategy of 2% VOM reductions from the ozone nonattainment area and 7% NOx reductions from the statewide ozone attainment area. The 9% ROP Plan was approved by the U.S. EPA on December 18, 2000, and provided 157 TPD of VOM emissions reductions and 262 TPD of NOx emissions reduction. Illinois has implemented all of these measures and has achieved reasonable further progress for this period.

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C. ROP Requirements Through 2007 The Chicago ozone nonattainment area is required to attain the ozone standard by 2007, and must continue to meet ROP requirements for each three-year period until that date, or until such time as the area achieves the ozone NAAQS. As in the case with the 9% ROP Plan, Illinois is relying on both VOM and NOx emissions reductions to meet its ROP requirements for the remaining milestone periods (i.e., 2002, 2005, and 2007). Illinois EPA has found that a combination of 2% VOM reductions from the Chicago ozone NAA and 7% NOx reductions from the statewide ozone attainment area is sufficient to satisfy the remaining ROP periods, just as it was for the 9% ROP Plan. This ROP reduction strategy for the 2000-2007 period was included in Illinois’ ozone attainment demonstration SIP revision, submitted to U.S. EPA on December 26, 2000, and approved by the U.S. EPA on December 13, 2001. Figures 1 and 2 show the planned reductions for VOM and NOx respectively, incorporating all of the elements of Illinois’ ROP Plans. The “Target Level” indicated on each of these diagrams represents the maximum amount of emissions allowed in each ROP milestone year necessary to satisfy the required CAA ROP reduction (i.e., 15% or 3% per year). The target levels are determined through a series of detailed calculations based on the 1990 CAA baseline inventory and adjustments for non-creditable ROP emissions reductions. For further information regarding ROP target levels, see U.S. EPA’s Guidance on the Adjusted Base Year Emissions Inventory and the 1996 Target for 15 Percent Rate-of-Progress Plans and Guidance on the Post-1996 Rate of Progress Plan and the Attainment Demonstration. D. ERMS Contribution to the ROP and Attainment Illinois EPA has relied upon VOM emissions reductions from the ERMS program as part of the ROP reduction measures for the 2000-2002 milestone period. Illinois EPA has estimated in its ROP plans that the ERMS program will achieve a VOM reduction of 12.6 TPD. This represents nearly 7% of the total VOM ROP reduction needed for this milestone period. Regarding the attainment demonstration for the Chicago NAA, Illinois EPA submitted amendments to the Illinois SIP on December 26, 2000. That submittal supplemented the attainment demonstration submitted to U.S. EPA in April 1998. Illinois EPA’s attainment demonstration included air quality modeling and a strategy for reducing emissions which relies on the ROP Plans and U.S. EPA’s NOx SIP Call. The air quality modeling has been performed in cooperation with the Lake Michigan Air Directors’ Consortium (LADCO) and the States of Indiana, Michigan, and Wisconsin. The results demonstrate that implementation of the VOM and NOx control strategies, including the ERMS, will result in the Chicago area attaining the ozone NAAQS by the 2007 attainment date. As noted previously, U.S. EPA approved Illinois’ attainment demonstration on December 13, 2001.

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IV. Area-Wide Emissions Status

A. Source Types There are several different types of emissions sources involved in the ERMS program: participating sources, new participating sources, sources that are exempt, general participants, and special participants:

• Participating sources are those that are required to have a CAAPP permit, have baseline or actual emissions of at least 10 tons during the season, were operating prior to May 1, 1999, and are located in the Chicago ozone NAA. These make up the vast majority of emissions sources in the ERMS program, and they are required to hold ATUs for all of their VOM emissions during the season.

• New participating sources are required to have a CAAPP permit, have

actual seasonal emissions of at least 10 tons, are located in the Chicago NAA, but were not operating prior to May 1, 1999. These sources must also hold ATUs for all of their VOM emissions during the season, but were not given baselines. They must acquire their ATUs through trades or long-term transfers.

• Exempt sources are those which would otherwise need to be participating

sources, but have restricted their emissions in one of two ways. They may have used their CAAPP permit to limit seasonal VOM emissions to under 15 tons per season (TPS), or they may have already reduced their seasonal emissions by at least 18% of their baseline.

• General participants are people or companies other than participating

sources or new participating sources who have obtained a transaction account and are allowed to trade ATUs. Examples may include brokers or companies that were participating sources but who shut down their operations and still want to retain control of their ATUs. For the purposes of this report, there are two different types of general participants. There are those who used to be participating sources and therefore continue to receive an allotment. These general participants will be included in tables later in this report that discuss the geographical and industrial distribution of emissions because allotments were actually designated to go to these sources. The second group are those who were not previously classified as participating sources and who never received allotments. These are not included in the geographical and industrial breakdowns later because they act more as holding accounts or brokers, and may be outside the nonattainment area or even outside the state. All trades from both types of general participants are still reported here, though.

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• Special participants are any people or groups that register with the Illinois EPA to purchase and retire ATUs but not sell ATUs. Any ATUs given or sold to a special participant is automatically retired.

B. Total Aggregate VOM Emissions The Annual Performance Review Report for 2000 stated that there was a total of 10,603.9 tons of seasonal VOM emissions overall in the baselines of participating sources, and an allotment equating to 9,513.4 tons. It was reported that this provided an area-wide 10.3% reduction from the baseline VOM total to the allotment total before actual emissions would even be taken into account. The peer review analyses discussed in Appendix C raised some issues regarding calculations done by Illinois EPA in the 2000 report. In evaluating these, it was discovered that an unrelated issue related to the timing of data collection had caused a miscalculation of the reduction between baseline and allotment. This error was not readily apparent and was, in fact, not even caught by the peer reviews. It resulted from changes to the baselines and allotments of sources after the ERMS season had ended but before the Annual Performance Review Report data was compiled for the year. By going back and correcting the data, it was determined that the actual baseline was 10,547.9 tons and the allotment equated to 9,539.8 tons, giving a reduction from baseline to allotment of 9.6%. This corrected value still exceeds the 9% target (as described in F., below). Appendix D contains corrected data for 2000 as it relates to these changes. For 2001, Table 1, below, summarizes the seasonal VOM emissions from each of the source categories:

As a subset of participating sources and new participating sources, some emissions may be covered by variances, consent orders, or CAAPP compliance schedules. Others may come from contingent units, which are those units for which a construction permit was issued prior to 1998, but for which three years of

Table 1: Source Emissions Breakdown Seasonal Category Number of Sources Tons VOM Participating Sources* 172 5159.0 New Participating Sources 0 0.0 Exempt due to 15 TPS Limit 67 447.4 Exempt due to 18% Reduction 4 27.3

*Emissions are for those participating sources that had a Title V permit, reported emissions, and went through reconciliation. Two additional participants, not included in this total, are involved in bankruptcy/sales and the emissions are a matter of ongoing discussion with the Agency as of the writing of this report.

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data are not yet available to determine a baseline. A third subcategory are units that had an emergency condition approved by the Illinois EPA as described in Section 205.750. Emissions from the affected units are not included in the total for which ATUs are required in all of these situations. Thus, they are subtracted out before reconciliation is done.

Other units may be part of a major modification to the source. Such a situation requires that the source provide 1.3 times the emissions from the applicable units, in order to account for new source review requirements. All of these are split out in Table 2, below, for additional information.

Overall, there was a total of 10,777.7 tons of seasonal VOM emissions in the baselines of all participating sources. These sources had an allotment of 97,124 ATUs (9,712.4 tons). This represents an area-wide 9.9% reduction from the baseline VOM total to the allotment total before actual emissions are even taken into account. The increase in reduction to 9.9% in 2001 from 9.6% in 2000 is due in part to shutdowns (where 20% of the allotment is no longer given to the source) and other slight changes that would be expected to happen every year. C. Breakdown of ATU Use ATUs are retired by the Illinois EPA to account for VOM emissions from participating and new participating sources during the season. ATUs have a two-year life (except for some special circumstances) and can be retained if they are not used or traded during the year in which they are allotted. An ATU that is not used during this two-year period automatically expires. ATUs may also be donated or sold to a special participant for air quality benefit (immediate retiring), should a source so choose. As noted above, there were no new participating sources in the ERMS program during the 2001 season. Participating sources used 51,703 ATUs for compliance purposes (it should be noted that this is a larger amount than simply looking at the number of ATUs reported, due to three companies that went into excursion).

Table 2: Special Unit Emissions Breakdown Seasonal

Special Unit Type Number of Sources Tons VOM Contingent Units 12 133.0 Emergency 1 1.5 Variance, Consent Order, Etc. 2 43.3 Major Modifications 1 4.2

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Participants are also retaining 73,401 ATUs for the 2002 season, and 301 ATUs were donated to two special participants. D. Expired ATUs The 2001 season was the first in which ATUs could expire, and 13,924 ATUs did expire from non-ERG sources at the end of the season. This represents 14.3% of the number of ATUs allotted in 2001. Table 3, below, shows where these expirations came from according to the type of source. General participants have been further split in this table to show those that have received ATUs from ERGs separate from those which did not. For more information on ERGs, see Section VI, below.

E. Source Emission Reduction Strategies

Sources have had several years to prepare for the reductions required by the ERMS rule, and many of the affected sources have decided to modify their operations in order to either avoid the need to buy ATUs or to be able to sell ATUs. Illinois EPA’s survey results from facilities that sold ATUs in 2000 indicate that over 50% of those who responded have changed or improved their processes in order to reduce their emissions, and an additional 10% added control devices for the same reason. F. ATU Vintage Summary As noted above, the 2001 season was the first in which ATUs could expire. Indeed, at the same time some year-2000 ATUs were expiring, other companies were retiring year-2001 ATUs for compliance purposes. For the 2000 season, 95,398 ATUs were allotted to sources. Of these, 59,112 ATUs were retired for compliance purposes for that same 2000 season. Another 21,407 were retired for compliance as a result of the 2001 season. All of the remaining ATUs expired or will expire when final compensation is run on sources that are unresolved as of the date of this report. (It should be noted the number of

Table 3: Expired ATUs Number of Sources Total Number Source Type With Expired ATUs of Expired ATUs Participating Sources 44 12,316 General Participants (Non-ERGs) 6 1608 New Participating Sources 0 0 Total Non-ERG 49 13,924

ERGs 3 1029

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expired ATUs differs slightly from the one given above due to these unresolved sources.) In 2001, 97,124 ATUs were allotted, and 30,215 of these were retired for compliance purposes, with the rest available for future use. Since 2001 was also the first season in which ATUs of different expiration dates could be traded, the average price by ATU vintage was analyzed. Only four trades in the 2001 season involved ATUs that were issued in 2001 (and thus expire after the 2002 season). These trades averaged $63.93 per ATU. The trades involving ATUs that were issued for the 2000 season (and thus would expire after the 2001 season) averaged $50.54 per ATU. Thus, there may be a difference in price that depends on the ATU’s expiration date. However, Illinois EPA is aware of no specific instances of traders specifying a particular vintage of ATU, and with the few trades to date involving ATUs of the later expiration date, no conclusion can yet be drawn as to how the prices may be affected. G. Findings

1. The initial design target for the ERMS program was a 12% reduction from the baseline, made up of 9% for ROP, 1% for ACMA, and 2% contingency. The resulting allotment for 2001 was 9.9% below the baseline, which satisfies the needed reduction for achieving reasonable further progress, given the net effect of exemptions, opt-outs, and contingency measures.

2. ATUs equivalent to a total of 14.3% of those allotted to participating

sources expired in 2001 without being used.

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V. Evaluation of Trading Activities

A. Account Officers

All sources required to participate in the ERMS program must have at least one account officer designated to represent their Transaction Account. Designated account officers are ultimately responsible for all information contained in each Account. Many sources budgeted for at least two account officers so that one individual could be the primary and the other could be the alternate. The ERMS rule specifies that all prospective account officers must participate in Agency-sponsored account officer training prior to representing a Transaction Account. As of the start of the 2001 seasonal allotment period, the Illinois EPA had developed and presented 16 account officer training sessions that were held from August 1999 to February 2001. Each training session was approximately five hours in length and all account officers were given a take-home manual that could be used as a reference tool. The training agenda included sections covering Title V permitting, ERMS program overview, ATU creation review, seasonal emissions reporting, emissions compensation process, functioning in the ERMS marketplace, Transaction Accounts, ACMA, and the ERMS Website. The ability to access and work with an assortment of information via the ERMS Website would be a large part of many account officers' duties. Not only is the information on the Website convenient to access, but it also provides the most up-to-date data available in the ERMS program. Therefore, the Illinois EPA determined that it was important to provide access to a training version of this site during the account officer training to give participants hands-on opportunities. Account officers were able to post mock buy/sell postings and enter into mock trades via a training module on the site during the session.

• A total of 336 account officers have been trained to date, including 28 in 2001. Of these, 223 are currently designated to represent ERMS Transaction Accounts.

B. Website Access While approximately a dozen sources and individuals reported problems accessing the ERMS Website, most of these were on the account officer’s end and dealt with their firewall set-up. Representatives from the Agency’s Information Systems Section worked with these cases to suggest corrections. In a few instances, the Agency sent out or faxed the inaccessible information. Also, the solution to these problems was posted on the ERMS website for use by others experiencing similar difficulties.

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C. Transaction Summary During the 2001 season, the program generated 29 seasonal trades (including one purchase from ACMA during the reconciliation period), three new long-term transfer agreements, and three transfer agreements continuing from the previous year. These involved a total of 21 sources as sellers and 27 as buyers (including the transfers and excursion compensation). One source both bought and sold ATUs in 2001, due to the necessity of entering excursion compensation after having sold one too many ATUs. Most sold to other participating sources, but one source traded ATUs to two different special participants. Tables 4 and 5 list the overall selling and buying of each source. Those sources not listed had no trading activity.

Table 4: ATU Sellers Number of ATUs to Company ATUs Sold Special Participants ANR Pipeline Company (Woodstock) 94 Abbott Labs (Abbott Park) 125 Alpha Baking Co. (Chicago) 22 American NTN Bearing Mfg. Corp. (Elgin) 188 Berlin Industries (Elk Grove Village) 166 Brakur Custom Cabinetry Inc. (Shorewood) 4 Brown Printing Company (Crystal Lake) 88 Chicago Carbon Co. (Lemont) 28 Corn Products International, Inc. (Bedford Pk.) 186 301 Equilon Enterprises LLC (Arlington Heights) 2 FCL Graphics, Inc. (Harwood Heights) 70 Flexicon, Inc. (Cary) 200 Jefferson Smurfit Corp. (St. Charles) 64 Jefferson Smurfit Corporation (Carol Stream) 474 Lyon Metal Products LLC (Montgomery) 8 PDV Midwest Refining LLC (Mt. Prospect) 150 Plastic Decorator (Elgin) 49 Rexam Beverage Can Co. (Chicago) 131 Rock Tenn Co. (Chicago) 1170 St. Clair Pakwell (Bellwood) 75 Stack-On Products (Wauconda) 408 Totals: 3702 301

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Thus, trades (excluding excursion compensation and trades to special participants) accounted for 3704 ATUs. Trading activity made up 3.8% of the total allotment of 97,124 ATUs and 7.2% of the 51,675 ATUs that represent the emissions reported for compliance purposes. In studying the operation of the ERMS market, Illinois EPA has looked at which sources were buyers or sellers for both years of operation to date. Of those

Table 5: ATU Buyers Number of ATUs Acquired

Bought on From Excursion ATU Buyers the Market ACMA Comp.

Aargus Plastics (Des Plaines) 77 Abbott Labs (North Chicago) 176 2 Acme Finishing Co. (Elk Grove Village) 4 Alpha Baking (Chicago) 2 Berlin Industries (Carol Stream) 166 Brachs Confections, Inc. (Chicago) 197 Brown Printing Company (Woodstock) 88 Citgo Petroleum Corp. (Lemont) 150 Dart Container Corp. of Illinois (N. Aurora) 200 East Balt Commissary (Chicago) 172 Equilon Enterprises LLC (Bedford Park) 2 Exxon Mobil Oil Corp. (Arlington Heights) 14 Field Container (Elk Grove Village) 75 Film Fabricators, Inc. (Marengo) 252 Formel Industries, Inc. (Franklin Park) 28 ITT Bell and Gossett (Morton Grove) 28 Jim Pendergrass (Rockford) 408 National Baking Co. (Chicago) 56 2 Nielson & Bainbridge LLC (Bridgeview) 208 North Safety Products, Inc. (Addison) 285 Pepperidge Farm, Inc. (Downers Grove) 108 Prairie Packaging, Inc. (Bedford Park) 8 Rock Tenn Co./Waldorf Corp. (Norcross, GA) 932 S&C Electric Co. (Chicago) 30 Smurfit Flexible Packaging (Schaumburg) 64 University Park Energy LLC (Univserity Park) 2 Wincup Holdings, L.P. (West Chicago) 49 Totals: 3702 2 81

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sources that bought ATUs in 2001, 17 of them had also bought ATUs in 2000, while the other 10 had not (buyers included those who purchased ATUs on the market, from ACMA, or in excursion compensation). Of those that sold ATUs in 2001, 10 were also sellers in 2000 while the other 11 did not trade. Thus, significant percentages of ERMS sources who bought or sold ATUs in 2001 (63% of buyers, 48% of sellers) did so for both 2000 and 2001. With only two years of market operation completed, it is not possible to draw any conclusions yet from this information. However, the patterns of selling and purchasing of ATUs may be an important metric for market-based systems and will be the subject of further observation in future reports. D. ATU Availability There are several indicators of how accessible ATUs were to the ERMS participants. One indicator is the relative number of “Buy” and “Sell” postings to the ERMS bulletin board. There were a total of 26 “Sell” postings which showed 6,887 ATUs, and four “Buy” postings which showed 432 ATUs. The fact that there was such a high ratio of ATUs for sale as compared to sources attempting to buy indicates that ATUs were readily available to those looking for them. A second indicator is the average price for ATUs. If ATUs are difficult to obtain, their price should rise as a function of supply and demand. If they are readily available, the price should generally decline. Prices declined steadily from the 2000 season. The average ATU price in 2000 was $75.87; the average in 2001 was $51.93. This indicates that there were enough ATUs on the market to satisfy all potential customers. A third indicator is that only one source requested regular access to ACMA during the reconciliation period – and that was simply out of convenience, not need. More sources would likely request such access if they could not find the ATUs they needed on the market. Thus, it can be concluded that sources who were looking found the ATUs they needed in the market. A fourth indicator is the number of sources that had to go into excursion compensation because they did not have enough ATUs to account for their emissions. Three sources went into excursion compensation after the 2001 season. However, all had circumstances that cannot be attributed to unavailability of ATUs. Two miscalculated on their Seasonal Emissions Reports and either traded away too many ATUs or bought too few, but did not realize this until it was too late. The other simply waited too long to obtain ATUs. There has been no indication that any source that was actively looking for ATUs was unable to obtain the needed amount. A final indicator is the number of ATUs that expire. After the 2001 season, 13,924 non-ERG ATUs expired without being used. This represents 14.3% of the

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ATUs allotted in 2001. If ATUs were in high demand, it is unlikely so many would have expired unused. E. Average ATU Market Price The market price of an ATU is determined through trading among the ERMS participants. The Illinois EPA uses information submitted with each trade to calculate the average market price by dividing the total price of all included transactions by the number of ATUs traded. Trades may not be included if the participants indicated that special considerations were involved – for example, if one branch of a company trades ATUs to another branch without charging a fee. Using this method, the average market price for each ATU in the 2001 season was calculated to be $51.93. ATUs ranged in price from $38 to $100 each. Twenty of the 29 trades, which involved 1590 ATUs, were included in determining this average. The others were excluded as described above. Long-term transfer agreements are not included in this price. There were three permanent transfers of ATUs that began in 2001, all of which involved special considerations and were intra-company in nature. F. Special Market Activity Corn Products International: As noted earlier, this facility donated 300 ATUs to the Bedford Park Environmental Quality Control Board and one ATU to the Illinois EPA Bureau of Air, both acting in the role of special participants. Because donations to special participants immediately retire the affected ATUs, these donations ensured that the 30.1 tons of VOM represented by these ATUs would not be emitted to the atmosphere. American NTN Bearing Mfg. Corp.: As discussed in last year’s report, this company helped to promote clean air as well by creating their own special project. They used money they received from selling excess ATUs to provide $100 fuel vouchers to their employees who own or purchase flexible fuel vehicles that burn lower-emitting E-85 ethanol gasoline. When they announced the program in 2000, they expected 100 employees to have these vehicles by the end of their two-year Renewable Energy Program. G. Findings

1. The data show that sources were able to find trading partners, there was a sufficient supply of available ATUs, and market prices were conducive to trading. Thus, the market system operated in the desired manner.

2. Minor problems encountered with access to the Website were

satisfactorily resolved.

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VI. Alternative ATU Generation

A. Summary of Emissions Reduction Generator (ERG) Proposals

There was one proposal during 2001 from a facility that wanted to enter the ERMS program as an ERG. This proposal was accepted, with modifications, and it will begin receiving ATUs in the 2002 season. All ERG proposals to date have been shutdowns for which facilities have forfeited their permits to operate the affected units in order to receive ATUs. It is possible for sources to apply to become ERGs using other methods, but all must show actual reductions in VOM emissions. Any source wishing to get ATUs on a continuing basis must modify its permit to incorporate the limits, thus ensuring the actual reductions are achieved. Sources wishing only to get a single issuance of ATUs must prove actual VOM reductions for that season. The only new ERG proposal for 2001 was as follows:

• Illinois Tool Works/Signode shut down its A.J. Gerrard facility in Des Plaines, Cook County, which consisted of coil coating operations. The facility proposed 5.583 tons of reduction, but Illinois EPA corrected for the use of noncompliant coatings and allowed 4.3 tons (43 ATUs).

In previous years, eight ERGs have been approved. Table 6, below, shows the ERGs that received ATUs in 2001: ATUs for ERGs equates to 2.7% of the total allotment to all sources in the ERMS program. All of the ATUs allocated for ERGs in 2001, with the exception of General Mills, went into general participant accounts and were not traded in that season. A total

Table 6: ERGs Receiving ATUs in 2001 Company ATU Allotment ATUs to ACMA Alumax Extrusions 63 CCL Custom Mfg. 147 37 General Mills 19 Industrial Coatings 82 Metal Box International 90 Pactiv 1317 329 Sherwin-Williams 884 221 Solo Cup 99

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of 1029 ATUs expired from these accounts after the 2001 season. The ATUs for General Mills went to its sister facility in DuPage County. In the first two years of the ERMS program, a total of 38 ATUs has been transferred to General Mills due to this ERG. While the source did not have any ATUs expire this year, they are holding 138 ATUs in their account that will carry over to the 2002 season. Thus, the 38 ATUs from the ERG were not necessary to keep the company under their allotment and did not play any role in trading. B. Summary of Inter-Sector Proposals There were no proposals for inter-sector trading in 2001. C. Finding

• Alternative ATU generation did not play a role in market performance during the 2001 season.

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VII. Performance Accountability A. Seasonal Emissions Reports Illinois EPA was expecting 245 seasonal emissions reports (SERs) from facilities involved with the ERMS program. These reports are based on federally enforceable permit conditions for recordkeeping, reporting, monitoring, and calculation methodology. Of these, 174 were expected from permitted participating sources (this number is higher than the total number of participating sources listed in Table 1 because of the two sources that were supposed to have filed reports but are undergoing bankruptcy/changes of ownership and for which the emissions are still under discussion). Twenty-seven Violation Notices (22 to participants, four to sources having taken the 15 ton-per-season exemption, one to a source having taken the 18% reduction exemption) were sent to sources who did not submit their SERs by the deadline; this compares to 24 sent for the 2000 season (eight to participants, 16 to sources with a 15 ton-per-season exemption). Upon receiving the SERs, Illinois EPA consulted with a number of sources which had minor errors on their reports. In addition, Illinois EPA returned 77 of the 172 SERs received for participants (45%) for correction due to a variety of errors. This compares to a return rate of 51% for the 2000 season. Of those sources who had their SERs returned for correction in 2001, 38 of them (22% of the overall total) also had it returned in 2000. The top five types of errors in 2001 were:

1. Failure to list all units at the source. 2. Improperly listing new units as “contingent” units. 3. Mathematical or rounding errors. 4. Failure to report HAPs 5. Failure to follow proper CAAPP permit procedures for calculating

emissions.

Violation Notices were sent to eight facilities which did not complete their corrections in a proper or timely manner. All Violation Notices were resolved by the proper submission of emissions data. To help determine which sources should have reported HAP emissions, Agency review of the SERs used the issued CAAPP permit, previous emission inventories, and historically reported TRI data. Sources that did not report HAPs and sources that reported a pollutant to TRI but did not report it on the SER had their report rejected to obtain the further information required by the AER rule. Sources reporting a HAP that was not a VOM had that pollutant ignored.

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B. Alternative Compliance Market Account (ACMA) As noted in the ERMS rule, the purpose of the ACMA is to serve as a secondary source of ATUs for participants. Unlike ATUs allocated to sources, those in the ACMA have an indefinite life as long as they remain within the ACMA; once they are bought, they must be used to account for either the preceding or next seasonal allotment period. The ACMA may receive ATUs in several ways. First and foremost, the ACMA account is given ATUs in an amount equal to one percent of each year’s allotment to the participating sources. In addition, those sources that choose to become exempt from the ERMS rule by taking an 18% reduction have 6% of that reduction allotted to the ACMA. ATUs are also deposited in ACMA as a result of participating source shutdowns and ERG shutdowns, under the conditions described in the ERMS rule. In addition, sources may donate ATUs to the ACMA. In 2001, a total of 1722 ATUs were deposited into the ACMA, as described in Table 7, below. No ATUs were donated to the ACMA. Sources may buy ATUs from the ACMA during the reconciliation period or, if necessary, in excursion compensation. One source bought two ATUs from the ACMA during the reconciliation period. This was done not because the source was unable to find ATUs on the market, but for the sake of convenience by the source. Three sources bought ATUs from the ACMA as a result of the compensation process. The first purchased 33 ATUs at a total price of $2621.52; the other two each bought two ATUs for a total price of $158.88 per source. A comparison to last year’s ACMA purchases is shown in Table 8, below.

Table 7: ACMA Account Balance

ATUs in ATUs in 2000 2001 Regular Allotment 952* 966 Allotment from 18% Reduction 36 36 ERG Shutdowns 221 587 Participating Source Shutdowns 0 133 ATUs Bought from ACMA -150 -39 Previous Year’s Balance 0 1059 Total Balance 1059 2742

*This is four lower than noted in the 2000 report. After that report went to press, there was a correction that necessitated withdrawal of four ATUs.

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C. Excursion Compensation

As discussed earlier (directly above and in the section on ATU availability), three sources went into excursion compensation after the 2001 season. Two of these were due to miscalculation or misunderstanding of the rule, as described previously, and thus had to make up 1.2 times the number of ATUs they were short. Because each was short one ATU, that was rounded up to two ATUs. The other source was in excursion for the second year in a row and thus had to make up 1.5 times the number of ATUs they were short. This source was in excursion for 51 ATUs and thus had to provide 77 ATUs to compensate. Sources in excursion compensation have their ATUs withdrawn from the ACMA unless they instruct Illinois EPA to take them from the next year’s allotment instead. Two sources chose not to take from next year’s allotment, meaning the ATUs were purchased and then withdrawn from the ACMA to account for their excursion. The third source chose to withdraw their ATUs from the 2002 allotment, but did not have enough ATUs in that allotment to account for all that was necessary. Therefore, the remaining 33 ATUs had to be purchased from ACMA. D. Source Inspections

In order to make sure appropriate ERMS reporting and compliance is maintained, Illinois EPA has its Field Operations Section focus on ERMS sources during the year. In 2001, Illinois EPA inspected 22 of the 15-ton exempt sources and two of the 18% exempt sources. They performed ERMS Master File inspections at 59 participating sources and ERMS site visits at 118 participating sources. The site visits involve inspections of VOM-emitting equipment and recordkeeping. Master File inspections add a further level of review of the source’s ERMS Compliance Master File to make sure all recordkeeping, HAP information, and other ERMS-related items are being properly maintained. As a result of these inspections and other information gathered by the Agency, seven Violation Notices (VNs) were sent to ERMS sources for issues of noncompliance at the facility (as opposed to,

Table 8: ACMA Purchases 2000 2001 Number of Sources Purchasing 3 4* ATUs from ACMA Total Number of ATUs 150 39 Total Cost $17,086.50 $2,939.28

*One source bought two ATUs during the reconciliation period, as described above. All other purchases for both years were during excursion compensation.

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for example, failure to submit a Seasonal Emissions Report). Furthermore, the inspections resulted in four Noncompliance Advisories (NCAs) for minor recordkeeping irregularities.

E. Findings

1. With few exceptions, minor errors on the SERs were satisfactorily resolved during the reconciliation period.

2. One request for regular access to ACMA was received during the three-

month reconciliation period – for the sake of convenience only.

3. The reconciliation and compensation processes performed as designed and operated in a timely and effective manner.

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VIII. Distribution of Emissions

A. Geographic Distribution of Transactions Table 9, below, summarizes the number of ATUs traded for each county in the nonattainment area. It should be noted that the total number of ATUs leaving the area is much higher than the total coming in. This is mostly due to 1548 ATUs sold to general participants which do not reside in any particular county and which have not then traded those ATUs back into the area for use by a participant. In addition, 301 ATUs traded to special participants are counted as being sold but not being bought, because all such ATUs are immediately retired without being used in a particular county. Also, two ATUs were bought from ACMA outside of the excursion process, and thus are considered bought into a county but not sold from any county; similarly, the 81 ATUs bought in excursion did not come from any county. As can be seen, Lake and Cook Counties show the largest differentials in ATU transfers – both leaving the counties. DuPage and Will are the only two counties that show ATU increases, both of which are fairly minor. As shown in Table 10, below, there have been a number of changes since the 2000 season. In 2000, Cook County was the largest net “importer” of ATUs; in 2001, they were the largest net “exporter” – a difference of 2,032 ATUs. Kane and Lake also went from being a net importer to a net exporter, though with a smaller change. Will, on the other hand, went from being a net exporter to a net importer.

Table 9: ATUs Traded by County No. ERMS Excursion County Sources* ATUs Sold ATUs Bought ATUs Net DuPage 11 474 627 153 Will 20 32 152 120 Grundy 2 0 0 0 Kendall 1 0 0 0 McHenry 8 382 340 -40 Kane 13 309 200 -109 Lake 10 533 178 -355 Cook 117 2273 678 81 -1514 *No. ERMS Sources includes all types (Participating, New, and General as described in Section IV) except Special and General in the subcategory described in Section IV. (Note: See text above for explanation of why net does not balance out to 0.“Bought” and “Sold” amounts include ERG trades other than those described as being excluded.)

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Because of these differences between the two years of ERMS operation, no trend is detectable in terms of ATU flow among the counties. Table 11, below, provides a comparison by county showing baselines, allotments, and actual reported ATU use. As detailed in Table 11, the overall emissions in all eight counties were substantially lower actual than allotted emissions.

Table 11: ATU Comparison by County Baseline Allotment Reported Difference from: County (Tons) (ATUs) (ATUs) Baseline Allotment Cook 7,315.8 65,215 33,041 -54.9 % -49.3 %DuPage 470.3 4,169 2,485 -47.3 % -40.4 %Grundy 494.4 4,493 2,520 -49.0 % -43.9 %Kane 435.1 4,008 3,197 -26.7 % -20.2 %Kendall 61.4 542 481 -21.7 % -11.3 %Lake 472.7 4,452 1,250 -73.6% -71.9 %McHenry 188.7 1,706 954 -49.6 % -44.1 %Will 1,339.3 12,539 7,747 -41.5 % -38.2 % Total: 10,777.7 97,124 51,675 -52.1 % -46.8 %

Table 10: County Comparison of Net ATUs for 2000 and 2001

Change from County 2000 2001 2000 to 2001 Will -437 120 +557 DuPage 10 153 +163 McHenry -75 -40 +35 Grundy 0 0 0 Kendall 0 0 0 Kane 129 -109 -238 Lake 64 -355 -419 Cook 518 -1514 -2032

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Illinois EPA has utilized townships to look at ATU trading activity in more detail. Specifically, the Public Land Survey System township locations were used (as opposed to civil/political township borders – a cross-reference of these may be found in Appendix A). Survey townships were chosen for a number of reasons, including their generally uniform size (see Table 13, below), unchanging historical borders, and readily available population data. The borders of other possible geographic units, such as ZIP codes or census tracts, could change due to factors not involved in ERMS. There are 59 townships with ERMS participants, and a total of 118 townships in the Chicago NAA. Tables 13 and 14 summarize the number of sources in townships and the area of townships:

Table 13: Number of Sources per Township

No. Sources No. Townships

1 28 2-3 18 4-6 7 >6 8

Table 14: Township Areas Township Area

(Square Miles) No. Townships

30-39 100 20-30 7

<20 11

Table 12: Total ATUs Expired and Retained by County Allotment Expired % ATUs Retained %ATUs County (ATUs) ATUs Expired* ATUs Retained* Cook 65,215 10,742 16.5% 45,975 70.5 %DuPage 4,169 676 16.2% 3,122 74.9 %Grundy 4,493 0 0.0% 3,417 76.1 %Kane 4,008 98 2.4% 1,742 43.5 %Kendall 542 0 0.0% 144 26.6 %Lake 4,452 185 4.2% 3,885 87.3 %McHenry 1,706 118 6.9% 1,051 61.6 %Will 12,539 1,372 10.9% 7,447 59.4 % * Percent expired and retained calculated as comparisons with 2001 allotment. Note: Total expired ATUs does not equal full number discussed previously in text because 733 ATUs expired in accounts held outside the nonattainment area. Some ATUs are similarly retained in such accounts.

29

Table 15 summarizes trading at the township level: While looking at trading shows which townships had ATUs come in or move out of them, in order to get a full picture of how the ERMS program works, it is necessary to look at the actual emissions. Some companies had excess ATUs that they could have sold, if a buyer had been located. Others may have chosen not to sell even if their emissions were lower than their allotments. Thus, Illinois EPA compared the actual emissions reported by participants in each township to the baselines and allotments for those townships and used this approach throughout the remainder of the distributional analysis. In doing this, Illinois EPA found that three townships, or 2.5% of townships, in the entire Chicago NAA showed increases in emissions over their baselines, as shown in Table 14:

Table 15: ATUs Traded by Township ATU ATU % Change Township Allotment Increase Decrease Net from Allotment 3509 347 0 4 -4 -1.2 3513 0 2 0 2 -- 3710 273 150 28 122 4.5 3808 1755 200 8 192 10.9 3811 378 108 0 108 28.6 3812 19,597 2 487 -485 -2.5 3813 10,285 8 1170 -1162 -11.3 3814 1821 0 131 -131 -7.2 3912 2715 0 75 -75 -2.8 3913 2568 255 0 255 9.9 3914 2510 172 0 172 6.9 4008 420 0 64 -64 -15.2 4009 145 49 0 49 33.8 4010 2048 166 474 -308 -15.0 4011 1106 285 0 285 25.8 4012 2275 28 70 -42 -1.8 4013 1651 2 22 -20 -1.2 4110 416 64 166 -102 -24.5 4111 4158 93 152 -59 -1.4 4112 44 77 0 77 175.0* 4113 483 28 0 28 5.8 4114 220 30 0 30 13.6 4208 603 0 237 -237 -39.3 4308 88 0 88 -88 -100.0 4309 332 0 200 -200 -60.2 4405 430 252 0 252 58.6 4406 225 0 94 -94 -41.8 4407 0 88 0 -408 -- 4409 331 0 408 -125 -123.3 4411 677 0 125 178 -18.5 4512 3262 178 0 88 5.5 *This high percentage is partially due to one source in the township being in excursion for the second year in a row, necessitating a 1.5:1 compensation. (Note: Net does not balance out to 0 due to trades to general participants outside the nonattainment area, special participant trades, and sources that bought from ACMA or next year’s allotment. The ERG trade is not included here.)

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Tables 16 and 17, below, summarize the ATUs expired and retained at the township level of the entire nonattainment area. The percentage given is for the number of ATUs that expired as compared to the number of ATUs allotted to the township in 2001. See Appendix B for full details by township number.

While looking at trading shows which townships had ATUs come in or move out of them, in order to get a full picture of how the ERMS program works, it is necessary to look at the actual emissions. Some companies had excess ATUs that they could have sold, if a buyer had been located. Others may have chosen not to sell even if their emissions were lower than their allotments. Thus, Illinois EPA compared the actual emissions reported by participants in each township to the baselines and allotments for those townships and used this approach throughout the remainder of the distributional analysis. In doing this, Illinois EPA found that four townships, or 3.4% of townships, in the entire Chicago NAA showed increases in emissions over their baselines, as shown in Table 18:

Table 16: Expired ATUs by Township

% ATUs Expired Number of Townships

0 92 0.1-20 16 20.1-40 5 40.1-60 2 60.1-80 2 >80 1

Table 17: Retained ATUs by Township

% ATUs Retained Number of Townships

0 63 0.1-20 6 20.1-40 8 40.1-60 4 60.1-80 16 80.1-100 20 >100 1

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The VOM increase for these four townships represents the following percentage of their respective county’s baseline emissions: 1.7% for DuPage (Downers Grove and Wayne); 0.05% for Cook (Maine); 6.7% for McHenry (Marengo). Figure 3 shows all participating sources and highlights in yellow the four townships with increases over their baselines. As can be seen in that map and in the table above, each township with an increase over its baseline has only one or two sources. As shown in Table 19, one additional township, for a total of 4.2% of NAA townships, showed an increase when comparing their 2001 emissions to the allotments received by sources within those townships: The VOM increases for these five townships represent the following percentage of their respective county’s ATU allotment: 0.06% for Cook (Maine and Lemont – part of Lemont is in Cook, part in DuPage, but the source causing the ATU increase is in Cook); 3.6% for DuPage (Downers Grove and Wayne); 10.8% for McHenry (Marengo). Therefore, it can be seen that while, for example, the percentage increase for Maine Township appears large at 88.6%, the 3.9 tons emitted beyond the allotment by the single source in that township is a quite small compared to the county overall. Figure 4 shows all participating sources in the NAA and highlights in yellow the five townships which show increases over their allotments. As can be seen in that map and in the table above, each township with an increase over its allotment also contains only one or two sources. Figures 5 and 6 show the highlighted townships for both baseline and allotment comparisons, and flag only those sources that traded. Both of these maps show

Table 18: Townships with Emissions Over Baseline Level % Increase Township No. Sources VOM Increase (Tons) from Baseline 3811 (Downers Grove) 1 5.6 13.2 4009 (Wayne) 1 2.5 15.1 4112 (Maine) 1 3.4 67.8 4405 (Marengo) 2 12.7 26.0

Table 19: Townships with Emissions Over Allotment Level % Increase Township No. Sources ATU Increase from Allotment 3711 (Lemont) 1 7 5.9 3811 (Downers Grove) 1 108 28.6 4009 (Wayne) 1 44 30.3 4112 (Maine) 1 39 88.6 4405 (Marengo) 2 185 43.0

32

that a single buyer in each of the affected townships put that township over its baseline or allotment. Also, it may be noted that township 4112 has no trader marked in it, yet has increased over its baseline. This is because a source in that township went into excursion compensation, which is not included as a trade on this map.

As noted earlier, every county, and the nonattainment area overall, showed emissions significantly less than both the baseline and allotment. Appendix B contains the data from which all of the above information was obtained and a map showing actual emissions compared to the allotment. B. Type of Source

Illinois EPA has analyzed the two-digit SIC codes of each source that took part in a trade. The results are shown in Table 20:

Rubber and Plastic Products sources bought the most ATUs of any category, accounting for 28% of the net ATUs purchased, with Food Products sources being the second largest buyers. Paper Products sold the most overall, accounting for 48% of net sales. There was a great deal of trading in the printing and publishing and food products industries, but each was almost equally active in both buying and selling.

Table 20: Transactions by SIC Code 2-Digit ATUs ATUs Expired Retained SIC Description Bought Sold Net ATUs ATUs 30 Rubber & Plastic Products 611 49 562 3597 5792 29 Petroleum Refin. & Related 150 28 122 0 1189 28 Chemical Products 178 125 53 1811 12,043 20 Food Products 556 509 47 72 3218 36 Electronic & Electrical Equip. 30 0 30 325 766 35 Industrial & Comm. Machinery 28 0 28 905 2341 24 Lumber & Wood, Except Furn. 0 4 -4 0 192 25 Furniture & Fixtures 0 8 -8 114 1366 27 Printing & Publishing 418 463 -45 361 2871 49 Electric, Gas & San. Services 2 94 -92 311 648 51 Wholesale Trade – Nondurable 16 152 -136 15 1451 34 Fabricated Metal Products 4 539 -535 2196 6488 26 Paper Products 175 1844 -1669 1280 15,166 (Note: Net does not balance out to 0 due to special participant and non-industrial general participant trades and sources in excursion compensation that bought from ACMA or next year’s allotment. “Bought” and “Sold” amounts include ERG trades. Only those facilities involved in transactions are included here.)

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Table 21, below, provides the allotments for every SIC code which has a participant and shows the number of ATUs and percent of the 2001 allotment that have expired and that are being retained by sources in that industrial category.

Table 21: Total ATUs Expired and Retained by SIC Code

2-Digit SIC & Allotment Expired % ATUs Retained %ATUs Description (ATUs) ATUs Expired* ATUs Retained* 20 Food Prod. 9009 72 0.8 3218 35.7 22 Textile Prod. 459 0 0.0 191 41.6 24 Lumber/Wood 386 0 0.0 192 49.7 25 Furn./Fixt. 1653 114 6.9 1366 82.6 26 Paper Prod. 17,384 1280 7.4 15,166 87.2 27 Printing/Pub. 4583 361 7.9 2871 62.6 28 Chem. Prod. 15,977 1811 11.3 12,043 75.4 29 Petr. Refin. 4788 0 0.0 1189 24.8 30 Rubber/Plastic 7878 3597 45.7 5792 73.5 31 Leather Prod. 281 0 0.0 212 75.4 32 Stone/Glass/Etc. 127 0 0.0 120 94.5 33 Primary Metal 5918 778 13.1 3888 65.7 34 Fab. Metal 8969 2196 24.5 6488 72.3 35 Ind./Comm. Mach. 3109 905 29.1 2341 75.3 36 Elect. Equip. 766 325 42.4 766 100.0 37 Trans. Equip. 6836 982 14.4 4258 62.3 39 Misc. Mfg. 83 71 85.5 83 100.0 42 Motor Frt. Trans. 1252 218 17.4 516 41.2 46 Pipelines 642 155 24.1 597 93.0 49 Elect./Gas/San. Svc. 798 311 39.0 648 81.2 51 Nondur. Wholesale 2516 15 0.6 1451 57.7 73 Prsnl. Svcs. 219 0 0.0 172 78.5 76 Misc. Rep. Svcs. 1169 0 0.0 296 25.3 87 Engr./Acct/Res. 2322 0 0.0 2919 125.7

* Percent expired and retained calculated as comparisons with 2001 allotment. Note: Total expired ATUs does not equal full number discussed previously in text because some ATUs expired and are retained in accounts held by general participants that do not fall into any SIC category.

34

35

36

37

38

C. Trends and Spatial Distributions of Hazardous Air Pollutants (HAPs) For this first year with HAP data reported by sources, Illinois EPA took a qualitative rather than quantitative approach to this aspect of the analysis. In future years, 2001 will serve as a basis for comparison as Illinois EPA looks for trends in HAP emissions. Figure 7 shows the previously-mentioned highlighted townships and those ERMS sources that reported VOM HAPs in their Seasonal Emissions Reports. As the map shows, only one of these sources is in a township which showed an increase over the baseline or allotment. To further examine any possible relationship between HAP emitters and those townships which saw an increase, Figure 8 shows those sources which are both HAP reporters and also participated in a trade during the 2001 season. None of the highlighted townships has any source that bought ATUs and also reported HAPs. All of the sources that both bought ATUs and are HAP reporters are in townships showing overall emission decreases. Table 22, on the following page, shows the total HAPs reported for each township by sources on their SERs for 2001. It also shows the relative HAP emissions density by looking at the percentage of HAP emissions compared to the total reported HAPs for the entire nonattainment area by ERMS sources and the net result of trading that took place in those townships. So while township 3812 emitted 24.5% of all the HAPs for the entire area, it actually had a net outflow of ATUs. And while 3714 emitted 15% of the HAPs, there were no trades either to or from any sources in that township. Looking at the townships with ATU inflow, all show small percentages of HAP emissions compared to the entire area, with most being right around or under 1%. While this analysis does not address trends, since there is only one year of data available, it does show that the areas with the highest HAP emissions were not buying ATUs, but selling. And the areas where ATUs were being bought had relatively small HAP emissions compared to the rest of the area. Thus, trading did not appear to influence HAP emissions. Because this is the first year in which sources are reporting HAP information on their SERs, Figure 9 looks at a comparison of 1999 and 2000 Illinois Toxic Release Inventory information (2001 is not yet available) to qualitatively look at whether such emissions increased or decreased in the highlighted townships. Future years will look at HAP emissions as reported on SERs as the primary indicator. As can be seen on the map, there are no sources with an increase in VOM HAP emissions from 1999 to 2000 in any of the highlighted townships. Indeed, the majority of sources overall show a decrease in VOM HAP emissions.

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Table 22: Reported HAP Emissions by Township

Total Rptd. % of Total Rptd. Net ATU Township HAPs (Tons) ERMS HAPs Change 3408 41.0 3.2 0 3409 105.9 8.3 0 3410 0.2 0.0 0 3411 0.6 0.0 0 3509 1.0 0.1 -4 3510 2.3 0.2 0 3511 0.6 0.0 0 3514 33.9 2.7 0 3610 0.7 0.1 0 3614 77.8 6.1 0 3615 8.2 0.6 0 3708 9.8 0.8 0 3710 35.3 2.8 122 3712 4.5 0.4 0 3713 33.0 2.6 0 3714 192.2 15.0 0 3715 2.6 0.2 0 3806 0.4 0.0 0 3808 16.3 1.3 192 3812 313.7 24.5 -485 3813 47.5 3.7 -1162 3814 55.7 4.4 -131 3908 6.6 0.5 0 3911 1.0 0.1 0 3912 11.5 0.9 -75 3913 64.1 5.0 255 3914 11.5 0.9 172 4008 23.1 1.8 -64 4010 3.9 0.3 -308 4011 3.6 0.3 285 4012 35.0 2.7 -42 4013 9.0 0.7 -20 4014 5.9 0.5 0 4108 0.7 0.1 0 4109 15.7 1.2 0 4110 2.8 0.2 -102 4111 27.2 2.1 -59 4113 13.9 1.1 28 4114 2.6 0.2 30 4208 7.0 0.5 -237 4210 7.8 0.6 0 4211 2.3 0.2 0 4309 0.6 0.0 0 4405 0.7 0.1 252 4406 2.4 0.2 -94 4408 0.1 0.0 0 4411 11.9 0.9 178 4508 10.5 0.8 0 4512 14.3 1.1 88 4612 1.1 0.1 0 Note: Only townships with reported HAP emissions included.

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41

42

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Illinois EPA also looked at population densities relative to HAP reporters to determine if trading activity might be affecting the more densely-populated areas. Population

densities, rather than actual populations, were used to normalize the emissions, as they might be distributed over a wide area. (Population figures were converted from the civil

townships, which are cross-referenced to the survey townships in Appendix A.) Figure 10 shows the sources which have reported HAPs, as described earlier, on a map that is color-coded for population density. As this map shows, there are no higher density areas which also have HAP reporters and emissions above the baseline or allotment level. The only highlighted township that has a HAP source is Marengo (4405), and it also is in the lowest population density level. Table 23 summarizes the key results from evaluating these maps: D. HAP Information Request Letters As discussed previously, the Annual Emissions Report rule was modified in 2001. Section 254.501(d) provides the Agency with the ability to gather additional HAP information that may not have already been reported if a source says emissions of HAP increased due to trading, if they emitted more than 1000 pounds of any HAP that they were not otherwise required to report, or if they had replaced a VOM with a HAP that is not a VOM. This information is gathered from a HAP Information Request Letter sent to the source by the Agency. The main goal of acquiring such additional information is to ensure that the levels set for HAP reporting are adequate to catch any potential problems related to both HAPs and the ERMS program. For the 2001 season, the Agency sent out 13 such letters. Twelve of the facilities, had indicated on their SERs that they emitted more than 1000 pounds of a HAP that was not required to be reported already. The remaining facility indicated that they had HAP increases due to trading and that they had replaced a VOM with a non-VOM HAP. This facility responded that those answers had been made in error due to a misunderstanding. Similarly, two other facilities also indicated that

Table 23: Key Results on HAPs for Five Highlighted Townships HAP Source Trading Pop. Density Township Present? HAP Source? Level %HAP* 3711 (Lemont) No No 3 0.0 3811 (Downers Grove) No No 3 0.0 4009 (Wayne) No No 3 0.0 4112 (Maine) No No 4 0.0 4405 (Marengo) Yes No 1 1.1

*Percent of VOM emissions in the township that are reported as HAPs.

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their answers had been made in error or that they had already reported the information, even if they had not been required to do so. The other 10 facilities provided additional HAP information, as requested. One of the pieces of information they were asked for was a comparison of their 2001 HAP emissions to their 2000 HAP emissions. Four of the facilities saw decreases, one stayed the same, and five had increases. The reasons for increases varied, but all were related to changes in production or process; none were related to the ERMS program itself. Most of the decreases were related to the economic situation, but one facility specifically noted that it replaced a HAP with a non-HAP material in all of its production. Comparing the additional HAP information reported by all facilities to the original HAPs they had reported on their SERs found no indication of any previously undiscovered significant HAP emissions. Only one of the sources that was sent a HAP Information Request Letter had bought ATUs in 2001 – as part of a long-term transfer agreement – and that source had more ATUs retained than it had purchased, plus it was one of the four that showed a decrease in HAPs from 2000 to 2001. One source sold ATUs. All showed reductions both from their baselines and their allotments, ranging from an 8% to a 72% reduction from allotment levels. None of them were located in any of the highlighted townships. It should be noted that all of the sources that increased their HAP emissions could have done so anyway without the ERMS program, and, in fact, would have been less restricted in doing so because the ERMS program holds them accountable for those VOM HAP emissions as with any other VOM emissions. The Agency’s analysis of these responses found no indication of ERMS playing any role in HAP emissions, and supported the reporting levels in place within the AER rule. E. Findings

1. Overall, the Chicago NAA and each county within the NAA showed emissions that are significantly less than both the baseline and allotment.

2. No trend is detectable in terms of ATU flow among the counties due to

differences between the two years of ERMS operation.

3. Using a township basis to look more closely at smaller areas shows only four townships (3.4%) with emissions higher than their baselines and five townships (4.2%) with emissions higher than their allotment.

4. Furthermore, trading did not appear to influence HAP emissions.

5. The reporting levels in place within the AER rule are supported by

analysis of the information obtained via HAP Information Request Letters.

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46

IX. Conclusions

As required by Section 205.760, Illinois EPA has documented the performance of ERMS for the 2001 season and evaluated these data for trends or patterns emerging from the ERMS program. Illinois EPA’s conclusions are: 1) The ERMS program continued to achieve the desired emissions reductions.

The allotment shows a 9.9% reduction from the original baseline and was above the necessary 9% reduction for the second year in a row. Thus, even if every allotted ATU was used, there would still be significant reduction from the VOM baseline in the area.

2) ERMS participants are performing significantly below the baseline and

allotment levels. The ERMS program was created to help reduce VOM emissions from the Chicago NAA and to aid in bringing that area into compliance with the NAAQS for ozone. A review of the emissions data for ERMS participating sources shows that these sources have, as a whole, reduced VOM emissions by a substantial amount compared to their baselines and allotments. Sources emitted 52.1% less VOM than their baselines would have allowed them to emit, and 46.8% less than their actual ATU allotments for 2001. Similarly, every county within the NAA saw similar substantial declines, and all but a few townships did as well.

3) The Market System operated in an effective manner. Sources were able to

find trading partners, there was a sufficient supply of available ATUs, and market prices were conducive to trading. Alternative ATU generation did not play a role in market performance during the 2001 season. Minor Website problems that occurred were satisfactorily resolved. The reconciliation and compensation processes performed as designed.

4) No relationship is apparent between market activity and HAP levels. This

first year of seasonal HAP reporting by ERMS participants did not indicate that trading had any influence on HAP emissions.

5) Time-based trends are not yet available. Although this was the second year of

operation for the ERMS program, time-based trends are not yet available. It will take multiple years of operation in order to properly analyze any such trends. However, as stated in Conclusion 1, above, the program is reducing emissions more than the necessary 9%. The Agency continues to develop and refine the analyses necessary to look for trends as more data accumulate.

A-1

Appendix A Township Names and ID Numbers

Township Names*

Township

ID Township Name County

3209 Custer/Reed Will 3210 Wesley Will 3308 Goose Lake Grundy 3309 Wilmington Will 3310 Florence Will 3311 Wilton Will 3312 Peotone Will 3313 Will Will 3314 Washington Will 3315 Washington - East Will 3408 Aux Sable Grundy 3409 Channahon Will 3410 Jackson Will 3411 Manhattan Will 3412 Green Garden Will 3413 Monee Will 3414 Crete Will 3415 Crete - East Will 3509 Troy Will 3510 Joliet Will 3511 New Lennox Will 3512 Frankfort Will 3513 Rich Cook 3514 Bloom Cook 3515 Bloom - East Cook 3609 Plainfield Will 3610 Lockport Will 3611 Homer Will 3612 Orland Cook 3613 Bremen Cook 3614 Thornton Cook 3615 Thornton - East Cook 3708 Oswego Kendall 3709 Wheatland Will 3710 DuPage Will 3711 Lemont Cook/DuPage3712 Palos Cook 3713 Worth Cook

A-2

Township ID

Township Name County

3714 Calumet Cook 3715 Chicago - 3715 Cook 3806 Big Rock Kane 3807 Sugar Grove Kane 3808 Aurora Kane 3809 Naperville DuPage 3810 Lisle DuPage 3811 Downers Grove DuPage 3812 Lyons Cook 3813 Berwyn Cook 3814 Chicago - 3814 Cook 3815 Chicago - 3815 Cook 3906 Kaneville Kane 3907 Blackberry Kane 3908 Batavia/Geneva Kane 3909 Winfield DuPage 3910 Milton DuPage 3911 York DuPage 3912 Proviso Cook 3913 Cicero Cook 3914 Chicago - 3914 Cook 4006 Virgil Kane 4007 Campton Kane 4008 St. Charles Kane 4009 Wayne DuPage 4010 Bloomingdale DuPage 4011 Addison DuPage 4012 Leyden Cook 4013 Chicago - 4013 Cook 4014 Chicago - 4014 Cook 4106 Burlington Kane 4107 Plato Kane 4108 Elgin Kane 4109 Hanover Cook 4110 Schaumburg Cook 4111 Elk Grove Cook 4112 Maine Cook 4113 Niles Cook 4114 Evanston Cook 4206 Hampshire Kane 4207 Rutland Kane 4208 Dundee Kane 4209 Barrington Cook

A-3

Township ID

Township Name County

4210 Palatine Cook 4211 Wheeling Cook 4212 Northfield Cook 4213 New Trier Cook 4305 Riley McHenry 4306 Coral McHenry 4307 Grafton McHenry 4308 Algonquin McHenry 4309 Cuba Lake 4310 Ela Lake 4311 Vernon Lake 4312 West Deerfield Lake 4313 Moraine Lake 4405 Marengo McHenry 4406 Seneca McHenry 4407 Dorr McHenry 4408 Nunda McHenry 4409 Wauconda Lake 4410 Fremont Lake 4411 Libertyville Lake 4412 Shields Lake 4505 Dunham McHenry 4506 Hartland McHenry 4507 Greenwood McHenry 4508 McHenry McHenry 4509 Grant Lake 4510 Avon Lake 4511 Warren Lake 4512 Waukegan Lake 4605 Chemung McHenry 4606 Alden McHenry 4607 Hebron McHenry 4608 Richmond McHenry 4609 Burton McHenry 4610 Antioch Lake 4611 Newport Lake 4612 Zion Lake

*Since some political townships do not share exact borders with surveyed townships, this table represents Illinois EPA’s best correlation.

Appendix B: Township Data

Town-ship

No. Sources

Baseline (Tons)

Allotment (ATUs)

Reported Emissions

(Tons) Reported(ATUs)

Trades or ERG

In (ATUs)

TradesOut

(ATUs)

Excursion Comp. In (ATUs)

Expired(ATUs)

Available(ATUs)

Reported HAPs (Tons)

Differencefrom

Baseline (%)

Differencefrom

Allotment (%)

3408 2 494.4 4493 251.9 2520 0 0 0 0 3417 41.0 -49.0 -43.93409 7 832.7 7735 441.7 4420 0 0 0 906 5202 105.9 -47.0 -42.93410 1 35.9 318 0.6 6 0 0 0 311 318 0.2 -98.4 -98.13411 1 48.3 472 14.9 149 0 0 0 155 472 0.6 -69.2 -68.43509 2 36.4 347 15.2 152 0 4 0 0 266 1.0 -58.3 -56.23510 2 71.3 629 24.5 246 0 0 0 0 565 2.3 -65.7 -60.93511 1 16.8 169 15.3 154 0 0 0 0 56 0.6 -8.7 -8.93512 1 0.0 0 0.0 0 0 0 0 0 0 0.0 0.0 0.03513 1 0.0 0 0.0 0 2 0 0 0 2 0.0 0.0 0.03514 3 193.2 1721 57.3 575 0 0 0 622 1242 33.9 -70.3 -66.63610 1 14.9 131 10.1 101 0 0 0 0 30 0.7 -32.1 -22.93614 5 302.4 2670 191.6 1917 0 0 0 0 1161 77.8 -36.7 -28.23615 1 23.8 210 13.7 137 0 0 0 0 127 8.2 -42.5 -34.83708 1 61.4 542 48.0 481 0 0 0 0 144 9.8 -21.7 -11.33710 3 283.0 2738 251.8 2519 150 28 0 0 536 35.3 -11.0 -8.03711 1 13.4 118 12.5 125 0 0 0 0 19 0.0 -6.9 5.93712 1 19.5 172 8.4 94 0 0 0 0 168 4.5 -56.9 -45.33713 5 216.9 1852 78.3 785 0 0 0 719 1590 33.0 -63.9 -57.63714 3 768.1 6779 392.1 3922 0 0 0 315 4253 192.2 -49.0 -42.13715 1 27.4 275 14.9 149 0 0 0 0 258 2.6 -45.9 -45.83806 1 21.4 188 4.3 43 0 0 0 98 188 0.4 -79.9 -77.13808 2 183.2 1755 172.2 1723 200 8 0 0 573 16.3 -6.0 -1.83811 1 42.9 378 48.6 486 108 0 0 0 3 0.0 13.2 28.63812 12 2219.9 19597 1033.6 10341 2 487 0 1252 13750 313.7 -53.4 -47.2

Town-ship

No. Sources

Baseline (Tons)

Allotment (ATUs)

Reported Emissions

(Tons) Reported(ATUs)

Trades or ERG

In (ATUs)

TradesOut

(ATUs)

Excursion Comp. In (ATUs)

Expired(ATUs)

Available(ATUs)

Reported HAPs (Tons)

Differencefrom

Baseline (%)

Differencefrom

Allotment (%)

3813 17 1108.9 10285 313.2 3140 8 1170 0 3857 8700 47.5 -71.8 -69.53814 4 206.6 1821 106.9 1072 0 131 0 165 1131 55.7 -48.3 -41.13908 2 30.8 272 13.1 132 0 0 0 0 233 6.6 -57.5 -51.53909 1 18.5 164 12.0 120 19 0 0 0 138 0.0 -35.4 -26.83911 1 37.2 328 2.7 27 0 0 0 260 328 1.0 -92.8 -91.83912 8 306.8 2715 86.9 872 0 75 0 772 2387 11.5 -71.7 -67.93913 9 291.2 2568 227.8 2281 253 0 2 276 968 64.1 -21.8 -11.23914 6 284.9 2510 197.1 1974 172 0 0 63 928 11.5 -30.8 -21.44008 2 47.6 420 35.1 352 0 64 0 0 235 23.1 -26.3 -16.24009 1 16.4 145 18.8 189 49 0 0 0 10 0.0 15.1 30.34010 3 232.5 2048 72.7 728 166 474 0 209 1903 3.9 -68.7 -64.54011 4 122.7 1106 93.3 935 285 0 0 207 740 3.6 -24.0 -15.54012 10 255.0 2275 119.5 1198 28 70 0 321 1714 35.0 -53.1 -47.34013 3 187.3 1651 31.0 312 0 22 2 1091 1499 9.0 -83.5 -81.14014 1 28.9 281 15.8 158 0 0 0 0 212 5.9 -45.3 -43.84108 3 83.8 770 72.5 726 0 0 0 0 88 0.7 -13.5 -5.74109 2 204.9 1932 47.2 473 0 0 0 796 1932 15.7 -77.0 -75.54110 3 49.4 416 34.2 343 64 166 0 0 92 2.8 -30.8 -17.54111 14 476.8 4158 236.1 2367 93 152 0 414 3033 27.2 -50.5 -43.14112 1 4.9 44 8.3 83 0 0 77 0 0 0.0 67.8 88.64113 4 53.1 483 36.1 363 28 0 0 60 215 13.9 -32.1 -24.84114 1 23.0 220 12.4 125 30 0 0 19 220 2.6 -46.1 -43.24208 3 68.3 603 21.9 221 0 237 0 0 425 7.0 -68.0 -63.34210 1 24.4 243 8.7 87 0 0 0 0 200 7.8 -64.4 -64.24211 1 24.8 219 14.8 148 0 0 0 0 176 2.3 -40.4 -32.44308 1 10.0 88 0.0 0 0 88 0 0 0 0.0 -100.0 -100.0

Town-ship

No. Sources

Baseline (Tons)

Allotment (ATUs)

Reported Emissions

(Tons) Reported(ATUs)

Trades or ERG

In (ATUs)

TradesOut

(ATUs)

Excursion Comp. In (ATUs)

Expired(ATUs)

Available(ATUs)

Reported HAPs (Tons)

Differencefrom

Baseline (%)

Differencefrom

Allotment (%)

4309 1 37.6 332 2.3 24 0 200 0 0 218 0.6 -93.8 -92.84405 2 48.8 430 61.4 615 252 0 0 41 86 0.7 26.0 43.04406 1 22.4 225 6.9 70 0 94 0 0 155 2.4 -69.0 -68.94408 1 16.2 157 8.5 85 0 0 0 0 118 0.1 -47.8 -45.94409 2 37.5 331 4.2 43 0 408 0 0 120 0.0 -88.7 -87.04411 3 76.3 677 34.2 343 0 125 0 72 303 11.9 -55.2 -49.34508 1 53.7 474 15.9 160 0 0 0 77 474 10.5 -70.4 -66.24512 4 338.3 3262 81.2 813 178 0 0 113 3280 14.3 -76.0 -75.14612 1 20.6 182 5.0 51 0 0 0 0 182 1.1 -75.5 -72.09999 12 0.0 0 0.0 0 1548 0 0 2063 3497 0.0 0.0 0.04407 1 0.0 0 0.0 0 88 0 0 0 176 0.0 0.0 0.0

Note: The townships listed in Appendix A but not in Appendix B do not have ERMS sources locating within their boundaries.

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Appendix C Peer Review Results

As mentioned in Section II, in order to ensure that this report addresses all the required aspects of the ERMS program, the 2000 report was sent for peer review to the Center for Clean Air Policy in Washington, D.C., and the Federal Reserve Bank in Chicago, Illinois. Below is a discussion of some of the main points they raised, and how Illinois EPA has incorporated these into this 2001 report or an explanation of why such items were not included: Clarify what the “target level” in Figures 1 and 2 mean. Illinois EPA has added more discussion to Section III to better explain what the “target level” means. Explain more fully where ATU and emissions totals differ from one another. This issue arises in a number of the tables where emissions or trades are compared. For example, Table 8, ATUs Traded by County, shows a large difference between the ATUs traded into various counties and those traded out of them. Illinois EPA has written additional explanation both within the notes of such tables and in the text describing them to better detail why such apparent discrepancies occur. Improve consistency and transparency of data reporting. The 2000 report was the first one and there occurred from some minor inconsistencies between some of the tables due to the use of different cut-off dates for different aspects of the data. In order to address this problem, Illinois EPA has enacted quality control measures in the writing of this report to ensure that the data match from table to table and to explain where there appear to be differences. Track and clearly report changes in program participation. Last year one of the problems was that some sources were in a fluctuating mode – they began the season as one type of source and ended as another. This was not fully explained in the 2000 report. For 2001 and the future, any such changes will be clarified, but it is not expected to be as much of a problem as it was in 2000, since that was the first year of the program and things are more stable now. Acknowledge and document discrepancies that occurred in the 2000 report. Where discrepancies have been found, they have been explained in more detail here. For example, in the 2000 report it was stated that there was a 10.3% reduction from the baseline to the allotment. In doing the 2001 report, it was discovered that this information was incorrect, and an explanation was put into the text of Section IV to document this

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mistake. Illinois EPA commits to dealing with any future meaningful discrepancies in a similar manner. Explain more fully the number of trades included in the average ATU price. In determining the average ATU price, Illinois EPA excludes some trades that have “other considerations” involved, as described in Section V, subsection D. In response to this comment, we have added the information to show how many trades and how many ATUs went into the calculation of the average. In the table of transactions by SIC code, include the information as a percentage of the allotment by SIC. Illinois EPA has added Table 21 to show industrial category allotments and compare ATU expiration and retention by two-digit SIC code. Report ATUs only with respect to the allotment, as reporting it with respect to the baseline as well is redundant. While there is some redundancy, many of the representatives from outside groups wanted to see the comparison to both. It is helpful to show not just how emissions compare to the amount of ATUs allotted to the sources, but also what the overall baseline would have been without the ERMS program. Therefore, this 2001 report continues to include both baseline and allotment comparisons in some cases, though in other cases they have been combined. Explain why actual emissions are lower than the allotments. While Illinois EPA does not have detailed information on specifically why actual emissions are lower than allotments, the 2000 report noted that sources have had several years to prepare for the reductions required by the ERMS rule, and many of the affected sources decided to modify their operations in order to either avoid the need to buy ATUs or to be able to sell ATUs. Illinois EPA’s 2000 survey results from facilities that sold ATUs indicate that over 50% of those who responded had changed or improved their processes in order to reduce their emissions, and an additional 10% added control devices for the same reason. Evaluate whether banked ATUs contribute to emissions increases and/or disproportionate impacts in the 2001 season. Illinois EPA has added this evaluation to the 2001 report by looking at the number of ATUs that have expired, the number retired for compliance purposes, and the number that are being retained. The numbers plainly show that banking of ATUs did not increase emissions nor did it cause disproportionate impacts in 2001.

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It will be necessary to wait until the third (2002) report to evaluate trends in air toxics emissions associated with ERMS. Illinois EPA agrees that it will be necessary to wait until at least next year’s report. It is not yet possible to determine if there are any trends with the data currently available. Explain how ATU prices compare to expectations about the prices before ERMS went into effect. The data necessary to determine this relationship and its cause is beyond the scope of information available from the operation of the ERMS program. Conduct more in-depth evaluation of air toxics emissions for the 2000 season in the 2001 report. Collect and assess program-specific data on air toxic emissions, both speciated and total, for both ozone and non-ozone seasons; provide both total and speciated in the 2001 report by township and season. Use both Toxic Release Inventory and Seasonal Emission Report data for HAP information to evaluate ERMS effects. Use data on minority populations and income in addition to population levels. Estimate how MACTs might affect HAP emissions outside of ERMS. Collect HAP data for both participating and non-participating sources. These particular comments go beyond the scope of ERMS, this report, and the peer review request. The ERMS program is a VOM-reduction program, not a HAPs one. While Illinois EPA is mandated to evaluate trends and spatial distribution of HAP emissions as an effect of trading, all of these comments go well beyond this. As such, they have not been included in this report. If evaluation of HAP data at some point indicates a potential problem, Illinois EPA will undertake a further examination at that point, and may include some of these suggestions in any additional investigation.

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Appendix D Errata Sheet for 2000 Report

As discussed in Section IV, subsection B, Illinois EPA discovered an error in some of the 2000 allotment and baseline data related to the timing of data collection. As such, the following information should be substituted, as described, in the 2000 report:

• Page 11, first three sentences of text below Table 2, should read: Overall, there was a total of 10,547.9 tons of seasonal VOM emissions in the baselines of all participating sources. These sources had allotments of 95,398 ATUs (9,539.8 tons). This represents an area-wide 9.6% reduction from the baseline VOM total to the allotment before actual emissions are even taken into account.

• Similarly, wherever else the numbers in the left column, below, are shown in the

report, they should be replaced with the numbers on the right:

10,603.9 tons 10,547.9 tons 95,134 ATUs 95,398 ATUs 10.3% 9.6%

• Page 22, Table 8, should be replaced by the following. Corrections are highlighted

in italics and bold:

• Page 24, Table 11, should have the allotment for township 3813 replaced with 10,238 ATUs.

Table 8: ATU Comparison by County Baseline Allocation Reported Difference from: County (Tons) (ATUs) (ATUs) Baseline Allotment Cook 7,213.0 64,662 39,127 -45.9 % -39.5 %DuPage 437.9 3,883 1,932 -55.9 % -50.2 %Grundy 494.4 4,493 3,049 -38.4 % -32.1 %Kane 432.8 4,013 2,970 -31.5 % -26.0 %Kendall 61.4 542 459 -25.4 % -15.3 %Lake 472.7 4,452 3,210 -32.2 % -27.9 %McHenry 188.7 1,706 995 -47.5 % -41.7 %Will 1,247.1 11,647 7,303 -41.5 % -37.3 % Total: 10,547.9 95,398 59,045 -44.0 % -38.1 %

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• Appendix B should have the following corrections:

Township 3514 should have its baseline replaced with 190 and its difference from baseline replaced with -47.6%.

Township 3813 should have its allotment replaced with 10,238, its

difference from allotment replaced with –67.6%, its baseline replaced with 1078.1, and its difference from baseline replaced with -69.3%.

Township 3908 should have its allotment replaced with 297 and its

difference from allotment replaced with –39.7%

Township 4011 should have its baseline replaced with 90.3 and its difference from baseline replaced with -13.6%.