Companies that create petroleum coke would need to fully enclose the material if it is within 5,000 feet of communities under legislation proposed by Illinois Attorney General Lisa Madigan and state Rep. Barbara Flynn Currie.
The proposal, announced Wednesday, was expected and was in response to what Madigan's office said were "growing air pollution violations" linked to storage sites in the area.
"Petcoke," as it's known, is a byproduct of oil refining. Residents on Chicago's southeast side have recently complained of health and pollution fears after piles amassed along the Calumet River.
Homeowners last October filed a class action lawsuit against KCBX Terminals Co., owned by the Koch brothers, and George J. Beemsterboer Inc., alleging the material is contaminating their property.
Statewide rules proposed in January that would require companies to install equipment that monitors wind speed, add dust suppression systems along conveyor belts that carry the material and submit plans to enclose their operations to the Illinois Environmental Protection Agency drew sharp criticism from business groups, who called it unnecessary, and residents, who said they didn't go far enough.
The city of Chicago wants to ban any new facilities that handle petroleum coke or coal and prevent existing terminals from expanding. Industry officials said the city and state are overreacting because petcoke and coal have been handled safely in the area for years.
The Associated Press contributed to this report.