**TESTIMONY OF DOUGLAS P. SCOTT**

**DIRECTOR, ILLINOIS ENVIRONMENTAL PROTECTION AGENCY**

**BEFORE THE:**

***U.S. SENATE COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS***

***SUBCOMMITEE ON CLEAN AIR AND NUCLEAR SAFETY***

**ON THE SUBJECT OF:**

**"THE STATE OF MERCURY REGULATION, SCIENCE AND TECHNOLOGY"**

**MAY 16, 2007**

**Testimony of Douglas P. Scott**

**Director, Illinois Environmental Protection Agency**

**Before the:**

**U.S. Senate Committee on Environment and Public Works**

**Subcommittee on Clean Air and Nuclear Safety**

**On the Issue of:**

**"The State of Mercury Regulation, Science and Technology"**

**May 16, 2007**

Mr. Chairman and Members of the Committee: My name is Doug Scott and I
am the Director of the Illinois Environmental Protection Agency. I want
to thank Senator Carper and the other members of the Senate Subcommittee
on Clean Air and Nuclear Safety for this opportunity to testify on
Illinois' recently adopted regulations to control mercury emissions from
the State's coal-fired power plants.

I received a Bachelor's Degree with honors from the University of Tulsa
in 1982, and received a graduate Juris Doctor law degree with honors
from Marquette University in 1985. I served as Assistant City Attorney
and City Attorney for the City of Rockford, Illinois from 1985 to 1995.
I also represented the City on a number of environmental issues.
From1995-2001 I served as an Illinois State Representative for the 67th
District and served on the House Energy and Environment Committee, and
was a member of the committee that rewrote the States' electric utility
laws. I was elected to the Office of the Mayor of Rockford in April 2001
and served a four-year term and served as President of the Illinois
Chapter of the National Brownfields Association. I was appointed as the
Director of the Illinois EPA by Governor Rod Blagojevich in July 2005.

I am pleased to be here to provide testimony on behalf of Illinois
Governor Rod Blagojevich and the Illinois EPA regarding Illinois'
mercury rule and the associated agreements we reached with the State's
three largest coal-fired power plant system owners. My testimony will
provide background information and a broad overview of the development
of Illinois' mercury rule and the related multi-pollutant reduction
agreements. I will address some of the measures the Illinois EPA took
during rule development to ensure that we relied on accurate and current
information as we crafted the rule.

[Introduction]{.underline}

Illinois is a large industrial state with a population of around 13
million and a gross state product of \$522 billion, both of which are
approximately four percent of the U. S. total and ranks Illinois as
fifth among the 50 states in these categories. Illinois obtains more
than 40 percent of its electricity from coal-fired power plants and sits
on top of 38 billion tons of coal, giving it the third largest coal
reserves in the nation. Coal-fired power plants in Illinois constitute
the largest source of man-made emissions of mercury and sulfur dioxide
(SO~2~), and one of the largest sources of nitrogen oxides (NO~x~).

On January 5, 2006, Illinois Governor Rod Blagojevich announced an
aggressive proposal to reduce mercury emissions from Illinois coal-fired
power plants by 90 percent beginning mid 2009. After nearly a full year
of stakeholder meetings, contested public hearings, rulemaking
procedural processes, and lengthy negotiations, the Illinois mercury
rule was unanimously approved by both the Illinois Pollution Control
Board (Board) and the Joint Committee on Administrative Rules (JCAR),
the two governing oversight bodies for regulations in Illinois. The
Illinois mercury rule became effective on December 21, 2006. This rule
requires coal-fired power plants in Illinois to achieve greater
reductions of mercury and achieve these reductions more quickly than
that proposed in May 2005 by the U. S. EPA under the federal Clean Air
Mercury Rule (CAMR). Illinois is not alone in seeking to go beyond the
federal CAMR. Other states have made similar decisions. Numerous states
have adopted mercury reduction programs that "go beyond" CAMR in their
reduction target or timeframe for obtaining reductions, and a number of
other states have announced their intentions to do so as well.

Of special significance for Illinois was that the Illinois mercury rule
became the catalyst for the State to reach landmark,
environmentally-beneficial agreements with the three largest coal-fired
power plant systems operating in Illinois: Midwest Generation, Ameren,
and Dynegy. These three companies represent 88 percent of Illinois'
17,007 Megawatts of coal-fired electric generating capacity and account
for hundreds of thousands of tons of air emissions each year.

After the Illinois EPA presented its findings in support of the mercury
rule during two weeks of public hearings that were well attended and
full of lively debate, the Illinois EPA was approached by one of the
power companies that expressed a desire to work toward common goals. As
a result of long hours of negotiation, an alternative standard was
proposed that allowed some limited flexibility in complying with the
mercury standards in exchange for commitments to also significantly
reduce SO~2~ and NO~x~ emissions from the company's coal-fired power
plants. This initial agreement led to similar discussions and agreements
with Illinois' other two large coal-burning plant owners.

The agreements reached and memorialized in the Multi-Pollutant Standard
(MPS) and Combined Pollutant Standard (CPS) are significant not only for
the magnitude of emissions reductions that occur, but also for the
mercury rule support that accompanied the agreements. The Illinois
mercury rule was initially vehemently opposed by a unified coal-fired
power industry. The first agreement established that mutual goals were
achievable, set the guiding principles, and opened the door for other
companies to follow. Ultimately, the success of the Illinois mercury
rule, and in particular the final unanimous approval of the rule, can be
widely attributed to the removal of significant opposition and
reciprocating support that occurred due to these agreements.

These multi-pollutant reduction agreements are expected to result in
measurable improvements to Illinois and regional air quality by
dramatically reducing mercury, SO~2~, and NO~x~ emissions.  The agreed
to measures are a critical milestone in reducing air pollution and one
of the most important environmental and public health advances in
Illinois or this nation's history.  They represent the largest
reductions in air emissions ever agreed to by individual companies in
Illinois under any context, whether through an enforcement action or
regulation.

The coal-fired power plant operators covered by MPS and CPS must also
fully comply with the federal Clean Air Interstate Rule (CAIR) and the
combined impact will be reductions of SO~2~ and NOx that will far exceed
those required under CAIR alone. Under the proposed CAIR, U.S. EPA
estimates that coal-fired power producers in Illinois would have been
required to reduce their SO~2~ missions by 34 percent overall, by 2019.
Under the CPS, Midwest Generation, the largest coal-fired power
generator in Illinois, will have an estimated reduction of 80 percent by
2019 in SO~2~. In terms of the emission rate, it would have been an
estimated 0.45 pounds per million Btu by 2019 under CAIR only, compared
to 0.11 pounds per million Btu with CPS. Under MPS, Ameren will be
required to reduce emissions of SO~2~ by 76 percent by 2015 and Dynegy
will be required to reduce emissions by 65 percent by 2015.

For NOx, the reduction would be a projected 55 percent for all of the
coal-fired power plants in Illinois under CAIR only compared to 62
percent for Midwest Generation under CPS, 52 percent for Ameren, and 48%
for Dynegy under MPS.

The Illinois EPA estimates the total emission cuts from all three power
companies that will result from the combined CAIR, CPS and MPS rules,
comparing a baseline in the 2003-2005 period and 2019, will be 233,600
tons per year reduction for SO~2~ and 61,434 tons per year reduction for
NOx.

Just as trading to prevent "hot spots" was prohibited in the mercury
rule, in order to receive the maximum benefit in Illinois air quality
and to prevent contributions to interstate pollution transport, the CPS
and MPS rules also substantially restrict trading of SO~2~ and NOx
allowances. For Midwest Generation, under the CPS, the allowances can
only be initially traded to the company's own generation station in
Homer City, Pennsylvania and thereafter only outside Ohio, Indiana,
Illinois, Wisconsin, Michigan, Kentucky, Missouri, Iowa, Minnesota, and
Texas -- all of which are states that have been shown to contribute to
pollution in Illinois. For Ameren and Dynegy, there are no restrictions
on the trading of allowances interstate amongst their own units,
however, they can only interstate trade any additional allowances that
occur as a result of controlling emissions beyond the levels required by
the MPS. This provides an incentive for these companies to reduce
emissions to the greatest extent possible instead of seeking only to
control emissions to the exact level of the MPS numeric emission limits.
In addition, Midwest Generation, Ameren and Dynegy cannot purchase
allowances to assist in meeting the MPS or CPS emission standards.

[Illinois Mercury Rulemaking Process]{.underline}

The mercury rulemaking process in Illinois began long before 2006 with
Illinois providing comments on federal mercury control proposals and
indicating to our coal-fired power industry that the State was looking
to control mercury emissions to the greatest extent reasonably possible
in consideration of technical and economic issues.

Illinois Governor's Rod Blagojevich's January 2006 announcement on
mercury control set the rule development process into high gear. The
Illinois EPA began to hold stakeholder meetings later that very month
and proposed a draft rule to the Board in March of 2006.

Illinois recognized early on that it needed to obtain the highest
quality information on the controversial subject of mercury control. We
sought out and retained nationally recognized experts on different
topics regarding mercury. These experts were utilized to assist the
Illinois EPA in rule development and testimony before the Board. Experts
were retained that included: Dr. James Staudt, PhD, Andover Technology
Partners, on mercury controls and associated costs; Dr. Gerald Keeler,
PhD, Professor, University of Michigan, on mercury deposition and local
impacts; Dr. Deborah Rice, PhD, Toxicologist, on health effects; ICF
Consulting Inc. and Synapse Energy Economics, on regulatory economic
impacts; Dick Ayres, Principal, Ayres Law Group, on regulatory issues
surrounding mercury control.

The Illinois EPA performed significant outreach to stakeholders on the
rule, including the aforementioned stakeholder outreach meetings in
early 2006 where we presented information on our findings, updated
stakeholders on the rule, requested feedback on issues, and held
question and answer sessions. We also provided regular mail and e-mail
addresses to allow interested parties to submit comments and questions
that were then answered at the stakeholder meetings. In addition, we
repeatedly offered to meet with any stakeholders in smaller groups to
discuss the rule and related issues, and, in fact, held many such
meetings.

The rule was the subject of much controversy from the outset. Illinois'
coal-fired power plants united in opposition and several court
proceedings followed the initial filing of the rule. Nevertheless, the
mercury proposal continued to progress through the rulemaking process.
As is normal for any controversial rulemaking, the Board scheduled
public hearings with the initial round of hearing designated for the
Illinois EPA to present its case on why the rule should be adopted.

The proposed mercury rule received support from the State's
environmental groups and an alliance of opposition from the State's
coal-fired power plant owners. The first round of hearings lasted a full
two weeks and we believe the Illinois EPA and its experts built a strong
case for stringent mercury control before the Board, facilitating the
subsequent negotiations with the power plant systems on alternative
multi-pollutant regulatory approaches.

The second round of hearings was designed for the coal-fired power plant
representatives to present their findings to the Board on why they
believed the rule was flawed. The beginning of these hearings witnessed
the introduction of a joint filing by the Illinois EPA and one of the
power companies on the agreement reached whereby the company would
withdraw all opposition to the proposed mercury rule based on an
amendment to the rule that contained an agreed upon multi-pollutant
standard. This set the stage for other agreements to subsequently be
reached, although the last agreement was not finalized until after the
second round of hearings ended and only shortly before the rule was
approved by JCAR.

The crux of the multi-pollutant agreements lies in the mutual benefits
of multi-pollutant standards for controlling the emissions of mercury,
SO~2~, and NO~x~ from coal-fired power plants. Such benefits include an
increase in the protection of public health and the environment by
achieving greater reductions, reducing pollution more cost-effectively,
and offering greater certainty to both industry and regulators. Since
mercury emission reductions can be obtained as a co-benefit from the
control devices used to reduce SO~2~ and NO~x~, it makes sense to allow
companies the option to synchronize the control of these pollutants,
provided that public health and the environment are also positively
impacted. Flexibility for mercury control in the MPS and CPS was
provided in the form of relief in the timing of demonstrating compliance
with a 90 percent reduction standard, with the final goal of achieving
even greater reductions. In essence, under the MPS and CPS, companies
are required to install mercury controls on the vast majority of their
units no later than mid - 2009 as required in the primary mercury
standard. However, actual compliance with the 90 percent standard is not
required to be demonstrated until 2015 for those units that are unable
to achieve this level of reduction. In providing more time to reach
compliance with the 90 percent mercury standard, emission controls that
target SO~2~ and NO~x~, and that achieve mercury reductions as a
co-benefit, can be installed and thereafter be used to further reduce
mercury to the desired level. It is anticipated that companies will
install a multitude of pollution control equipment costing billions of
dollars on their units, including scrubbers for SO~2~, selective
catalytic reduction and non-selective catalytic reduction units for
NO~x~, and particulate matter control equipment, such as electrostatic
precipitators and fabric filters.

In recognition of the high level of SO~2~ and NO~x~ control that result
from companies meeting the agreed standards of the MPS and CPS, the
Illinois EPA pledged to look first at other sources than those complying
with the MPS and CPS in Illinois for future reductions in these
pollutants for purposes of meeting the State's air quality goals.

The Illinois mercury rulemaking process culminated with the adoption of
the rule with an effective date of December 21, 2006.

# 

# Mercury Background and Concerns

Mercury is a persistent, bioaccumulative neurotoxin that presents a
serious threat to the health and welfare to the citizens of Illinois and
nationwide. Mercury as a pollutant is of particular concern to Illinois
due to our large fleet of coal-fired power plants. Mercury is contained
in small amounts in all forms of coal that are burned at Illinois power
plants. The combustion of coal at power plants represents the largest
source category of anthropogenic mercury emissions in Illinois, and for
that matter, in the United States. As the coal is burned in a boiler at
a power plant, the mercury is released into the exhaust flue stream and
travels through existing ductwork and control devices until it is
finally emitted through a stack into the atmosphere.

Mercury is released into the atmosphere from anthropogenic emission
sources such as coal-fired power plants as either a gas or attached to
minute solid particles. These emissions can contaminate the environment
both locally near the point of release and many miles away. Mercury
emissions in the air are transferred to the earth's surface via wet or
dry deposition processes. The wet forms can fall to earth as rain, snow,
or fog while the dry forms are particulates.

Mercury that is directly deposited or finds its way into the aquatic
systems transforms into methylmercury through a series of chemical
reactions involving microbial activity. Methylmercury is toxic and is
the most common organic form of mercury found in the environment. It is
very soluble and bioaccumulates within the tissues of wildlife (fish,
aquatic invertebrates, mammals) as well as humans. Bioaccumulation
occurs when an organism's rate of uptake of a substance exceeds its rate
of elimination. Fish become contaminated as they feed on contaminated
food sources such as plankton or smaller fish. Humans are contaminated
as a result of eating contaminated fish.

A key concept in understanding the need and methods for mercury control
is that, although mercury air emissions are the target for reductions,
the ultimate goal is to reduce methylmercury levels in water bodies, and
hence, fish tissue.

The Illinois EPA retained the services of Dr. Gerald Keeler to assist us
with understanding mercury deposition and to provide technical
information on deposition issues. Dr. Keeler is a recognized leader in
the field of mercury deposition and has conducted state-of-the-art
research on the relationship of mercury emissions, local impacts, and
coal-fired power plants.

[Illinois Coal-Fired Power Plants and Mercury]{.underline}

Today, more than 40 percent of Illinois' electricity comes from
coal-fired power plants. Illinois is home to 21 coal-fired power plants
that are affected by the Illinois mercury rule, most of which are over
25 years old. There are a total of 59 electric generating units
operating at these 21 plants. These coal-fired power plants emitted an
estimated 7,022 pounds per year of mercury into the atmosphere in 2002.
We estimate that these power plants make up around 71 percent of
Illinois' man-made mercury emissions. The State's fleet of power plants
are scattered throughout Illinois, with many located near major bodies
of water.

Mercury emissions from coal-fired power plants can have both local and
downwind environmental impacts and Dr. Keeler assisted the Illinois EPA
in understanding the potential for local impacts from power plants.
Illinois EPA believes that the reduction in mercury emissions required
by the rule will result in significant reductions of mercury deposition
and methylmercury levels in Illinois waters and fish. This belief is
reinforced by actual measured reductions in methylmercury fish tissue
contents in Florida and Massachusetts that directly coincide with
measures taken to reduce mercury emissions from nearby sources.

Because mercury is of such a significant concern to human health and the
environment, Illinois has adopted legislation and/or implemented a
number of programs to reduce mercury emissions to the environment from
sources other than coal-fired power plants. Illinois' coal-fired power
plants constitute the largest source of uncontrolled mercury emissions
in the State.

[Mercury Contamination in Illinois]{.underline}

Fish consumption advisories are issued when concentrations above human
health-based limits of one or more of contaminants such as
polychlorinated biphenyls (PCBs), chlordane, and mercury are detected in
fish tissue. One of the most profound statements regarding the status of
mercury contamination in Illinois is that there is a statewide advisory
for predator fish in Illinois waters due to methylmercury. Fish
consumption use is associated with all waterbodies in the State and
therefore it is commonly stated that all waterbodies in the State have a
fish consumption advisory in place for mercury. According to the latest
(2004) Illinois list of impaired waters, there are 61 river segments
(1,034 miles) and 8 lakes (6,264 acres) that have mercury listed as a
potential cause of impairment due to restrictions on fish consumption.

Our review of fish consumption literature provides convincing evidence
that sport anglers currently consume amounts of sport-caught fish that
could cause them and their families to exceed health-based limits for
mercury contamination. The literature regarding anglers' consumption of
their catch strongly suggests that a subset of these anglers have meal
frequencies that exceed the state-wide fish consumption advisory for
mercury, putting them well above the recommended rates for even fairly
low levels of contamination.

The Illinois EPA retained the services of Dr. Deborah Rice, a
toxicologist with a background in the health effects of mercury, to
assist us with understanding the human health effects of mercury and to
provide technical information on such effects.

[Mercury Control in Illinois -- Identifying the Need to Go Beyond
CAMR]{.underline}

After earlier activities to determine how best to regulate mercury, on
January 30, 2004, U. S. EPA published a notice of proposed rulemaking
setting forth three alternative regulatory approaches to reducing
emissions of mercury from coal-fired power plants. In two of the three
alternatives, U. S. EPA proposed to rescind its regulatory finding,
which would require Maximum Achievable Control Technology (MACT) level
control of mercury emissions, and instead impose statewide mercury
emissions budgets to regulate power plants that could be met through a
cap and trade program, namely the CAMR.

In response to the proposed rule, the Illinois EPA submitted comments,
making the following key points:

-   Mercury is a powerful neurotoxin that needs to be regulated under
    Section 112 of the Clean Air Act (CAA) and as such, the mercury
    emissions from power plants must be subject to a MACT standard;

-   Mercury limits must be more stringent than set forth in the
    proposed U. S. EPA rule;

-   Any mercury rule for power plants must be fuel neutral, without
    favoring coal from any particular region of the country, and thus,
    there should be a common standard for bituminous and subbituminous
    coal;

-   Illinois EPA opposes emissions trading of mercury allowances unless
    the units involved in trading can demonstrate that mercury hot spots
    are prevented; and

-   Mercury emission reductions can and should occur by 2010.

The comments also stated that U. S. EPA gave insufficient support for
its extended compliance deadline of 2018, which U. S. EPA acknowledged
could extend compliance out to 2025 or 2030 due to banking elements of
the trading program.

In April 2004, U. S. EPA reversed the regulatory course it established
in 2000 for regulation of mercury emissions under Section 112 and
announced two key proposals: (1) to remove the source category
containing coal-fired power plants from the list of Hazardous Air
Pollutants (HAP) emitters under Section 112 of the CAA, and, (2) to
adopt a cap-and-trade program under Section 111 of the CAA instead of
MACT standards under Section 112 of the CAA. This regulatory approach
adopted none of Illinois EPA's key points on mercury control.

On March 15, 2005, U. S. EPA issued the CAMR to permanently cap and
reduce mercury emissions from coal-fired power plants. Notably, CAMR did
not apply a MACT standard to mercury emissions from coal-fired power
plants, and instead created a market-based cap-and-trade program to
reduce nationwide power plant emissions of mercury in two separate
phases. The first phase sets a national emissions cap of 38 tons in 2010
that is to be achieved by mercury reductions occurring as a co-benefit
of requirements for reducing SO~2~ and NO~x~ emissions under the federal
Clean Air Interstate Rule (CAIR). No mercury specific controls are
required in this first phase. The second phase begins in 2018 and
requires coal-fired power plants to meet a reduced national cap of 15
tons. Illinois' budget, or cap, under CAMR is 1.594 tons per year of
mercury for Phase I and 0.629 tons per year for Phase II. U. S. EPA
estimates that CAMR provides mercury emission reductions from Illinois
coal-fired power plants of approximately 47 percent by 2010 and 79
percent by 2018.

After review of CAMR, the Illinois EPA determined that CAMR will not
result in timely and sufficient reductions of mercury and that the rule
contained biased allocation methods that favored non-Illinois coals and
thus impeded Illinois' efforts to encourage use of clean-coal
technologies involving Illinois coal. Illinois EPA requested that the
Illinois Attorney General's Office file an appeal of CAMR and the
related U. S. EPA actions. On May 27, 2005, the State of Illinois filed
Petitions for Review with the United States Court of Appeals for the
District of Columbia Circuit challenging CAMR. Thirteen other states
also filed one or more appeals of the CAMR and related actions. These
appeals are pending.

Illinois is not required to adopt the CAMR, but must submit a State plan
to achieve the statewide mercury emissions budget called for in the rule
and must demonstrate that Illinois' plan will achieve at least as much
reduction as CAMR. Illinois' plan is afforded the ability to forego
trading and the other aspects of a cap-and-trade program. However, if
Illinois' submittal is not timely and deemed acceptable by the U. S.
EPA, then CAMR will be imposed upon Illinois. Illinois' plan was due to
the U. S. EPA by no later than November 17, 2006.

The Illinois EPA determined that the appropriate method to protect the
public health and environment while meeting federal requirements was to
adopt reasonable state-specific mercury reduction requirements for
Illinois' coal-fired power plants.

[Illinois Mercury Rule Development Considerations\
]{.underline}

In developing the Illinois mercury rule, Illinois EPA took several
steps, including consulting recognized experts, holding discussions with
stakeholders and interested parties, conducting research and literature
reviews, and utilizing internal experts and staff.

A key finding was that mercury control technologies have advanced
significantly over the last several years (e.g., use of halogenated
sorbents) resulting in both a reduction in costs of mercury control and
increased effectiveness. The trend is one where technological advances
and vendor expansion should continue to lead to decreasing costs and
increasing control efficiencies and options.

The Illinois EPA retained the service of Dr. James Staudt of Andover
Technology Partners to assist us in understanding the state-of-the-art
in mercury controls, levels of mercury reductions obtainable under
different control configurations, and the associated costs. Dr. Staudt
is a nationally renowned expert on coal-fired power plant controls and
has done similar work for U. S. EPA, among others.

The Illinois EPA relied on several basic principles as guidance in
developing the proposed rule:

-   The need to protect human health, fish and wildlife, and the
    environment from the harmful effects of mercury and methylmercury;

-   The need to control the unregulated mercury emissions from Illinois'
    coal-fired power plants to the greatest level possible and as
    quickly as possible in a cost-effective manner;

-   Must consider the latest control technology that has been shown
    effective in controlling mercury emissions and which can be
    reasonably employed, in a cost effective manner, across the full
    fleet of Illinois power plants and coal types;

-   Must ensure that the required mercury reductions occur both in
    Illinois and at every power plant in Illinois to address local
    impacts; and

-   The rule needs to incorporate flexibility in complying with the
    proposed standards to assist in widespread compliance and to help
    reduce compliance costs.

We also sought to ensure that the rule would not encourage a switch to
the use of non-Illinois coal and interfere with actions to promote the
use of Illinois coal in clean-coal technology applications. Therefore,
the rule does not treat sources differently or establish different
requirements based on the type of coal being used. This is contrary to
CAMR, which established state mercury budgets, as well as proposes a
baseline allocation scheme that provides higher allowances for units
burning coal types other than Illinois bituminous coal. Furthermore,
credit for mercury removal from coal washing was given by establishing
an output-based limit that accounts for mercury removal during
pre-combustion processes such as coal washing.

Careful consideration was given to the effect mercury control
requirements will have on Illinois' economy, including consumers, jobs,
and the power sector. Illinois carefully selected an achievable,
reasonable, and cost-effective mercury reduction target. Illinois
research established that data supported a 90 percent reduction as an
achievable and reasonable level of mercury control for Illinois power
plants and that the costs of controlling mercury are consistent with
Illinois' goals. In addition, we looked into the amount of mercury
reduction in fish tissue levels needed to get below fish consumption
advisory levels. The mercury reduction amount required for a selected
species (e.g., largemouth bass) in order to reach unlimited consumption
levels by childbearing age women and children less than 15 years of age,
the most sensitive and restrictive sub-population, is about 90 percent.
Moreover, a November 2005 mercury control model rule proposed by then
State and Territorial Air Pollution Administrators (STAPPA) and
Association of Local Air Pollution Control Officials (ALAPCO) provided
two options, both of which had initial Phase 1 compliance dates set at
the end of 2008 and required final cuts in mercury equivalent to 90-95
percent by the end of 2012. Illinois also reviewed the actions of
several states that have selected compliance dates earlier than 2009 as
well as mercury reduction requirements of 90 percent or greater.

In addition to the detailed mercury control and cost analysis performed
by Illinois' technical expert, Dr. Staudt, Illinois utilized the
services of ICF Resources Incorporated (ICF) to evaluate the economic
impact of the rule on Illinois' electricity rates and affected power
plants. While there are some additional costs predicted from the rule
when compared to CAMR, the costs are deemed to be reasonable in light of
the concerns presented by mercury pollution and the potential benefits
of mercury control.

Illinois EPA determined that it can achieve the required mercury
reductions proposed by Governor Blagojevich and give compliance
flexibility to sources. Giving flexibility serves to reduce compliance
costs and increase the probability of widespread compliance.

Illinois was also concerned with the potential for so-called mercury hot
spots. We addressed the hot spot issue by not allowing trading, or the
banking or purchase of emissions allowances, and by requiring mercury
reductions at all power plants. Ensuring emission reductions take place
in Illinois and at all locations where power plants exist should reduce
local impacts and hot spots.

A multi-pollutant approach for controlling the emissions of mercury,
SO~2~, and NO~x~ from coal-fired power plants has numerous advantages
over a traditional, single regulatory pollutant schemes. For example, a
well crafted multi-pollutant standard can increase the protection of
public health and the environment, reduce pollution more
cost-effectively, and offer greater certainty to both industry and
regulators. Since mercury emission reductions can be obtained as a
co-benefit from the control devices used to reduce SO~2~ and NO~x~, it
makes sense to allow companies the option to synchronize the control of
these pollutants, provided that public health and the environment are
likewise positively impacted. Whereas the mercury rule single-mindedly
tackles mercury emissions, and CAIR concentrates on SO~2~ and NO~x~,
both the MPS and the CPS accomplish the aforementioned benefits in the
context of a single regulatory framework and in recognition of the
timing and other issues that accompany a combined-pollutant control
strategy.

[Mercury Controls]{.underline}

Many options exist for curtailing mercury emissions that occur as a
result of the combustion of coal at power plants. These options include
the cleaning of coal to remove mercury before combustion, improving
boiler efficiencies so that less coal is burned to obtain the same
amount of energy output, and the use of add-on air pollution control
equipment. All of these options can be used either alone or in
combination to arrive at an effective mercury control strategy. Several
variables play a role in determining what strategy and control options
are best suited and effective for mercury reductions at a given power
plant including, coal type, existing controls, boiler type, fly ash
needs, and economic feasibility.

Dr. Staudt with the assistance of Illinois EPA staff conducted a
unit-by-unit analysis of Illinois' fleet of coal-fired electric
generating units. The results of this analysis are found in Section 8 of
the mercury rule's technical support document. In general it was found
that a 90 percent reduction in mercury was widely achievable in Illinois
in a cost effective manner. Overall, the costs per pound of mercury
removed for compliance with the Illinois rule was estimated to be around
\$8,100 per pound of mercury captured. For comparison, the estimated
cost to comply with the 2010 CAMR state budget through use of control
technology was lower at around \$5,800 per pounds of mercury removal,
for far fewer reductions.

The use of halogenated activated carbon injection (ACI) was found to
provide a high level of mercury control at reasonable costs for the
majority of Illinois' units. ACI has been used for years to reduce
mercury emissions on municipal waste combustors with mercury removal
efficiencies of more than 90 percent. There has been wide-scale testing
of ACI systems on numerous coal-fired power plants with mercury
reductions of greater than 90 percent achieved and ACI is now beginning
to be deployed on coal-fired units in the United States. ACI vendors
have stated they are able to provide large scale installation of ACI
systems on power plants in Illinois and we are aware of several
negotiations underway between the parties to test and install ACI
systems.

Of course the ultimate decision of strategies and controls employed will
be made by the owners and operators of the power plants themselves, and
most likely be governed by the economics at the time. Attempts to
predict these decisions are \"best guesses\" of the types of controls
that will be actually put into practice. The noted trend that is
expected to continue is one where technological advances lead to
decreasing costs, increasing control efficiencies, and expanding
options.

[Illinois Mercury Rule]{.underline}

The rule requires mercury reductions from Illinois' coal-fired power
plants in two phases. During Phase I, which begins on July 1, 2009,
coal-fired power plants must comply with either an output-based emission
standard of 0.0080 lbs mercury/gigawatt hour (GWh), or a minimum 90
percent reduction of input mercury, both on a rolling 12-month basis.
However, plants with the same owner/operator may elect to comply with
the limit on a system-wide basis by averaging across their entire fleet
of plants in Illinois, provided that each plant meets a minimum
output-based emission standard of 0.020 lbs mercury/GWh or a minimum
75-percent reduction of input mercury.

In Phase II, beginning January 1, 2013, plants must comply with either
an output-based emission standard of 0.0080 lbs mercury/GWh or a minimum
90 percent reduction of input mercury, both on a rolling 12-month basis.
The rule does not allow for the trading, purchasing or the banking of
allowances.

Flexibility provided by the rule includes the following:

-   The source has the option of complying with either a mercury
    reduction efficiency or an output based emission rate;

-   The proposed rule does not prescribe how compliance with the
    selected standard is to be achieved, instead, the affected source
    makes the ultimate decision on how compliance is obtained;

-   The proposed rule phases in standards over a period of 3 ½ years,
    with a less restrictive standard in Phase 1;

-   The rule allows a source to demonstrate compliance by both
    system-wide and plant-wide averaging in Phase 1, and plant-wide
    averaging in Phase 2; and

-   The rule allows for sources that commit to shutdown within a certain
    timetable to avoid installing controls.

-   The rule has a temporary technology based option that provides
    relief for a limited number of emission units that install
    appropriate mercury controls but are unable to achieve compliance.
    Eligible units are only required to operate the mercury controls in
    an optimal manner to be deemed in compliance. This provision is
    available through June 2015 and can be used by up to 25 percent of a
    company's generating capacity.

-   Perhaps most importantly, the rule allows for sources to opt-in to
    multi-pollutant standards (e.g., MPS or CPS) which allow additional
    flexibility in regard to mercury for sources that commit to
    reductions in SO~2~ and NO~x~. The primary mercury compliance
    flexibility provided by the MPS and CPS is that, although companies
    are still required to install mercury controls able to achieve a 90
    percent reduction on all but a few of the smallest units by no later
    than mid 2009, actual compliance is not required until 2015 provided
    they operate the mercury controls in an optimal manner.

The monitoring requirements of the rule are essentially the same as
those outlined in the model federal CAMR. However, in addition to
monitoring outlet mercury emissions, the Illinois mercury rule also
requires sources complying with the rule via the 90 percent reduction
standard to determine, through coal analysis, the input mercury in order
to determine the removal efficiency.

[Effect of the Illinois Mercury Rule]{.underline}

The mercury reductions obtained from Illinois' rule will be beyond those
of the federal CAMR and will occur more quickly. Whereas CAMR would cap
Illinois' annual mercury emissions at 3,188 pounds by 2010 through 2017,
the Illinois rule results in annual mercury emissions of only around 770
pounds beginning mid-2009. Therefore, the rule is anticipated to
eliminate approximately 2,418 additional pounds per year of harmful
mercury pollution, and do so six months earlier than the federal CAMR.
The reductions obtained under the Illinois rule will likewise be greater
than those required in Phase II of CAMR, which does not go into effect
until 2018. The CAMR budget for Illinois in Phase II is 1,258 pounds per
year, but with banking allowed under CAMR, it is not expected that
actual emission reductions will occur until 2020 or later. Compared to
CAMR, the Illinois rule should result in 488 fewer pounds of mercury
emissions per year about seven years sooner. It is important to note
that CAMR is a cap and trade program and therefore, under CAMR, Illinois
power plants could postpone or avoid some mercury reductions through the
purchase or banking of allowances, an option not allowed under Illinois'
rule.

Over time, Illinois expects to see reductions in mercury water
deposition to Illinois' lakes and streams and corresponding
methylmercury decreases in Illinois fish tissues, making fish caught in
Illinois waters safer to eat.

We also expect to see significant benefits to human health, although it
is difficult to estimate a dollar value for such things as improvements
in IQ and less cardiovascular disease. There could also be several
recognized benefits to Illinois beyond the expected public health
benefits that come with a reduction in water and fish methylmercury
levels. Such benefits include support for existing, and the potential
for additional, jobs resulting from the installation and operating
requirements of additional pollution control devices. There also exists
a potential for an increase in tourism and recreational fishing as
mercury levels drop in fish, bringing an associated positive impact to
local economies and the State overall. With a possible increase in the
use of bituminous coal, there should be a positive economic impact on
the Illinois coal industry and Illinois coal mining jobs.

## Economic Considerations

In evaluating the economic impacts of the rule, Illinois EPA consulted
and retained the services of experts, stakeholders and interested
parties, conducted literature reviews, and utilized internal staff.

In order to better understand the economic effects of the mercury rule,
Illinois retained the services of ICF Consulting Inc. (ICF), the same
firm used by U. S. EPA for CAMR. ICF conducted a study evaluating the
economic impacts of the mercury rule using the Integrated Planning Model
(IPM^®^). This study focused on the impacts of the mercury rule in terms
of costs to the power sector and costs to electricity consumers.

Of significant importance is that a "more stringent" rule than the final
adopted rule was modeled and therefore the results are considered
conservative. Illinois EPA discussed modeling parameters with ICF prior
to the modeling and it was determined that where the modeling inputs
allowed discretion, we would err on the side of being conservative. Some
examples of this are that the IPM^®^ was unable to reflect the mid-year
Phase 1 compliance date of July 1, 2009 and therefore for modeling we
moved the compliance date up to January 1, 2009, six months sooner than
that required by the Illinois rule. Also, the IPM^®^ model assumed a
mass emissions cap on each and every unit where the rule does not cap
emissions but requires compliance with a standard that allows for growth
in electricity generation. Emission caps as used in the IPM^®^ Model are
more stringent than a percent reduction control requirement or emissions
rate since they also limit growth. As a result, the plant output might
be severely limited depending upon the cap. This implicit limit to the
plant output could create a situation where the modeling forecasts the
plant is no longer economically viable whereas it might be viable under
a 90 percent reduction requirement or 0.0080 lbs Hg/GWh emissions rate
that allows output growth. For accurate assessment of what the modeling
predicts, it is critical that the modeling results be viewed in context,
i.e., taking the above into consideration.

ICF prepared a comprehensive report for the Illinois EPA in which it
provides a summary of the modeling results and identifies what it
believes are the principal findings of the study. Of note is that
modeling shows only a 1 - 3.5 percent increase in retail electricity
prices and costs across all sectors (e.g., residential, industrial and
commercial) from the rule relative to the CAMR. On an average bill
basis, residential customers in Illinois would pay less than \$1.50 per
month more under the Illinois rule relative to CAMR across the study
horizon.

IPM^®^ modeling predicts that two power plants may be adversely impacted
to the extent that some small, older coal-fired units are retired,
potentially resulting in some corresponding job loss. Note that economic
experts consulted by the Illinois EPA who have reviewed the IPM^®^
modeling believe that the modeling is not accurate in predicting the
retirement of these plants as a result of the rule. The modeling also
forecasts an increase in the use of bituminous coal as a direct result
of the mercury rule. This increase should have a positive impact on
Illinois coal related operations, such as Illinois coal mines and jobs,
since most of the bituminous coal fired in Illinois is mined in
Illinois. The modeling further shows corresponding decreases in the use
of subbituminous coal, which is mined in western states. Of particular
interest is that were Illinois to implement CAMR instead of the mercury
rule, IPM^®^ modeling shows a decrease in bituminous coal use.

The Illinois EPA found that there would be no significant adverse impact
to the safety and reliability of the electricity distribution grid as a
result of the rule. We also found that there could be significant
economic benefits as a result of the rule in the form of support for
existing jobs and potential for new jobs in the pollution control device
installation industry, fishing industry, and Illinois' coal industry.

The Illinois EPA retained the services of Synapse Energy Economics, Inc.
(Synapse) to review the modeling performed and to testify before the
Board on issues related to the IPM^®^ modeling. In addition, Synapse was
asked to assist the Illinois EPA in understanding a wide range of
economic issues related to the rule. These include the potential effect
of the rule on the reliability of the electricity grid, Illinois jobs,
consumer electric rates, competitiveness of coal-fired power plants, and
potential for retirement of coal-fired units, and costs to the power
sector. In particular, due to the serious nature of any potential unit
retirements and loss of competitiveness of Illinois' coal-fired owner
plants in comparison to other states, the Illinois EPA requested further
review of these issues by its economic experts, (e.g., Synapse). The
Illinois EPA also believed that these issues warranted further review
due to the conservative representation of the rule by the modeling and
the corresponding potential for the modeling results to overestimate any
negative impacts.

The above considerations focus on the economic impacts associated with
issues outside of public health benefits. However, when evaluating the
appropriateness of the potential costs of any rule, the costs associated
with the rule must be measured against the costs to society of continued
contamination from the targeted pollutant and the intimately related
monetized health benefits expected from reduced emissions. Illinois
reviewed the numerous studies on the monetized health benefits of
mercury control of coal-fired power plants nationwide and found that the
annual benefits are conservatively estimated in the range of \$10.4 to
\$288 million. Notably, in the rule development process of the federal
CAMR, the U. S. EPA may not have recognized the full societal cost
benefit of controlling mercury emissions. This is highlighted by the
fact that U. S. EPA did not consider the results of the Harvard/NESCAUM
study as well as other recent studies in its analysis of the full
benefits of mercury control. Illinois' expert on the health effects of
mercury, Dr. Rice, found that the costs to society from cognitive
deficits in adults, accelerated aging, and impairment of elderly to live
independently due to methylmercury exposure have not been monetized.
Therefore, the costs to society from mercury pollution from coal-fired
power plants, although extremely large, may be substantially
underestimated. The preponderance of available information indicates
potentially huge monetized health benefits from mercury control.

## Conclusion

Recent advances in mercury control technology have improved control
efficiencies and reduced the costs to control mercury. The federal CAMR
does not account for these advances and does not go far enough or go
fast enough in reducing the emissions of this highly toxic pollutant.
Illinois coal-fired power plants are the largest source of man-made
mercury emissions in the State and as such, the Illinois mercury rule
aims to eliminate as much of the mercury emissions from these sources as
is reasonably possible, and to do so as quickly as possible. The
Illinois EPA used several avenues, including the retention of services
of nationally recognized mercury and economic experts, in order to
obtain the latest, most accurate information on mercury and mercury
controls, as well as to assist in rule development and impact analyses.
We feel that the rule provides for deep, attainable cuts in mercury
emissions while providing compliance flexibility and other measures
designed to minimize costs to affected sources. The non-public health
economic implications of the rule, although difficult to forecast, are
variable with some potential benefits provided in the area of jobs and
increased recreational activity and possible negative impacts such as
increased costs to the power sector and the potential for the retirement
of some coal-fired units. The impact to Illinois consumer electricity
bills should be minimal. The potential benefits to the public health of
Illinois citizens from the proposed rule are substantial, as the harmful
effects from mercury to IQ and cardiovascular systems, to name a few,
are lessened. We expect to see lower mercury deposition to Illinois
waterbodies and corresponding decreases in methylmercury fish levels,
making fish caught in Illinois safer to eat.

The SO~2~ and NO~x~ reductions agreed to under the MPS and CPS are
expected to go a long way toward helping Illinois achieve its attainment
goals for ozone and particulate matter. The final estimates on emission
reductions are enormous. The Illinois EPA estimates the total emission
cuts from all three power companies at 233,600 tons per year of SO~2~,
61,434 tons per year of NO~x~ and 7,040 pounds per year of mercury. This
equates to reductions of SO~2~ of 76 percent for Ameren, 65 percent for
Dynegy, and 80 percent for Midwest Generation. These SO~2~ cuts begin no
later than 2013 and continue on through 2018. The reductions in annual
NO~x~ emissions average around 52 percent and occur no later than 2012.

Under CAMR, coal-fired power producers in Illinois would have only been
required to reduce their mercury emissions by 47 percent in 2010 and 78
percent by 2018, not the 90 percent reduction by 2009 required in the
Illinois rule.  The amount and general timing of mercury reductions for
those sources that opt-in to the MPS or CPS are estimated to be
essentially the same, although they will not be required to comply on a
12 month rolling basis until 2015. Sources under the MPS and CPS are
expected to have mercury emission reductions that exceed even the
required 90 percent in the Illinois mercury rule after 2015 due to the
co-benefit reductions achieved from the installation of new controls
needed to comply with the corresponding SO~2~ and NO~x~ standards.

The benefits of removing SO~2~ and NO~x~ are well established and most
notably will result in reductions in both particulate matter and ozone.
SO~2~ is a precursor to particulate matter and NO~x~ is a precursor to
both particulate matter and ozone. Particulate matter related annual
benefits include fewer premature fatalities, fewer cases of chronic
bronchitis, fewer non-fatal heart attacks, fewer hospitalization
admissions (for respiratory and cardiovascular disease combined) and
should result in fewer days of restricted activity due to respiratory
illness and fewer work loss days. Moreover, there should be health
improvements for children from reduced upper and lower respiratory
illness, acute bronchitis, and asthma attacks.

Ozone health-related benefits are expected to occur during the summer
ozone season and include fewer hospital admissions for respiratory
illnesses, fewer emergency room admissions for asthma, fewer days with
restricted activity levels, and fewer days where children are absent
from school due to illnesses. In addition, there should be ecological
and welfare benefits. Such benefits include visibility improvements;
reductions in acidification in lakes, streams, and forests; reduced
nutrient replenishing in water bodies; and benefits from reduced ozone
levels for forests and agricultural production.

Thank you again to the committee for allowing me to testify today on
behalf of Governor Rod Blagojevich and the Illinois EPA.