On September 22, 2009, EPA released final regulations that require approximately 10,000 facilities to report their greenhouse gas (GHG) emissions annually.[1] Covered facilities must begin monitoring January 1, 2010, and file their first annual reports by March 31, 2011. The reporting rule generally applies to facilities that emit more than 25,000 tons of GHG a year, although some sources with lower emissions also will be subject to the rule. EPA estimates that the reporting rule will cover about 85 percent of GHG emissions in the United States.

EPA’s final rule identifies 29 specific categories of covered sources, such as oil refineries, pulp and paper manufacturing, landfills, manure management, and producers of aluminum, cement, iron and steel, glass, and various chemicals, as well as a residual category for facilities with large stationary fuel burning sources.[2] Sources in 15 of these categories will have to report their GHG emissions even if they do not exceed the generally applicable 25,000 ton threshold.[3]

In addition to requiring reporting from facilities with direct GHG emissions, the rule also applies to “upstream” GHG sources, including producers, importers, and exporters of petroleum products, natural gas, and industrial GHGs.

They will be required to report based upon the GHG content of the fuels or gases they supply into the market.[4] The rule excludes coal suppliers and underground coal mines, apparently because emissions from burning coal will be reflected in reports from sources that generate electricity. The rule also applies to the makers of certain mobile sources: heavy-duty trucks, motorcycles, airplanes, and nonroad engines. The makers of cars and light-duty trucks are excluded, but EPA intends to cover them in a rule under development that would set standards for GHG emissions from those vehicles.

Background

EPA’s reporting rule originated from a provision included in the Consolidated Appropriations Act for federal fiscal year 2008. That Act directed EPA to develop final rules for mandatory GHG reporting “above appropriate thresholds in all sectors of the economy of the United States” by June 26, 2009.[5] EPA released its draft regulations on March 10, 2009, and announced a 60-day public comment period. The proposed rule understandably drew a raft of public comment. See Hundreds Send Comments to EPA On Proposed Greenhouse Gas Reporting Rule, Set To Begin In 2010, Marten Law Group Environmental News (June 23, 2009).

In issuing this final GHG reporting rule, EPA has relied upon its existing authority under provisions of the federal Clean Air Act, sections 114 and 208,[6] that allow the agency to gather information from regulated stationary sources, and from the manufacturers of mobile sources. The new reporting rule creates a new chapter in EPA’s regulations (40 C.F.R. Part 98) and amend 13 other existing regulations.

Covered Sources

EPA has identified three groups of GHG sources subject to the rule: “downstream,” “upstream,” and mobile sources.

Some source categories that would have been included under the proposed rule have been removed from the final rule and “deferred” for further consideration, including electronics manufacturing, food processing, underground coal mines, and the suppliers of coal.

Downstream sources are commercial and industrial plants and other types of facilities that have the potential to directly emit significant amounts of GHGs. Sources in 15 categories – including

• aluminum
• cement
• petrochemical producers
• petroleum refineries
• ectricity generators subject to the acid rain program

– must report regardless of the volume of their GHG emissions.

 Most other covered sources must report if their emissions exceed 25,000 tons of GHG per year.

Landfills must report based on their methane emissions, and “manure management systems” based on their methane and nitrous oxide emissions.

Upstream sources are fuel suppliers – the makers and importers or exporters of petroleum products, natural gas, and coal-based liquid fuels – as well as suppliers of industrial GHGs.

Reporting the GHG content of the fuels and gases supplied by these companies serves as a surrogate for the GHG emissions that occur from use of their products.

It does not account for the role of these products in processes or products that sequester the potential GHG emissions for indefinite periods. However, it avoids the likely futile and certainly burdensome alternative of attempting to determine actual GHG emissions from end uses of these products.

For mobile sources, reporting is required by the manufacturers and importers of vehicles and engines that are outside the “light duty” category (cars and light trucks).

Makers of heavy-duty trucks, motorcycles, and off-road engines will have to report carbon dioxide (CO2) beginning with model year 2011, and other GHGs starting in later model years. Cars and light-duty trucks are excluded from the rule.

The proposed rule had a “once in-always in” requirement; once a facility is subject to the rule, it would have to continue reporting emissions even if it later dropped below the reporting threshold.

But the final rule contains several off ramps that allow a facility to stop monitoring and reporting GHG emissions. For example, if a facility’s emissions are below 25,000 tons for five consecutive years, then it can stop monitoring and reporting, but must notify EPA, including an explanation of why emissions declined.

 The same is true if reported emissions are below 15,000 tons for three consecutive years. A facility also may stop reporting if it ceases operating the GHG-emitting equipment or processes, but again must notify EPA.
Monitoring Methods

EPA has adopted a hybrid approach to GHG monitoring, with specific monitoring and emission estimating methods for individual source categories and general criteria for fuel combustion sources that do not fall within specific source categories.

•  Facilities that already collect and report their emissions data, like power plants that are subject to the federal acid rain program, must directly measure and record their GHG emissions.
• Other source categories can use facility-specific calculations to estimate their emissions. Vehicle and engine manufacturers generally are required to use existing certification and test protocols. Oil, natural gas, and industrial gas suppliers will report the amount and type of products they produced, imported, and exported.

As a concession to concerns raised in comments on the proposed rule, the final rule allows covered sources to use “best available monitoring methods” for the first quarter of 2010. This is intended to give facilities additional time to install equipment or develop more detailed methods, as required by the monitoring provisions of the rule. The rule also allows facilities to request waivers to extend the period during which “best available” methods may be used.

Reporting and Records Retention

EPA’s regulations set out the elements that must be included in annual emission reports, beginning March 31, 2011.These include

• Specifying the volume of CO2, methane, nitrous oxide, and fluorinated GHGs emitted by each regulated source category present at a facility
• The aggregate GHG emissions for the facility.
• Facilities will be able to report aggregated emissions for smaller sources.

Facilities will be required to retain emission records, calculations, and other information supporting their reports for 3 years.

This is a change from the proposed rule, which would have required retention for 5 years (EPA’s other Clean Air Act recordkeeping provisions also generally require retention for 5 years).

Emissions Verification

• Reporting companies will be required to self-certify their emissions reports.
• Facilities are required to identify a “designated representative” who will certify all emission reports, and must formally designate that individual in a submittal to EPA at least 60 days before submitting any emission report certified by that individual.

EPA will verify emission reports through audits and investigations, and can take enforcement actions against facilities that fail to report or misreport their emissions.

In response to the proposed reporting rule, which also called for self-certification of emission reports, EPA received comments from states, environmental organizations, and some covered industries encouraging the agency to adopt a third-party verification system for GHG emission reporting.

Europe’s existing GHG cap-and-trade program relies on third-party verification, as do voluntary and mandatory GHG reporting programs developed by a number of states and other organizations. The expectation is that a U.S. cap-and-trade program also is likely to rely on third-party verification, at least for some aspects of the program.

Some companies that have been voluntarily reporting GHG emissions noted that third-party verifiers also have helped correct errors in their emission estimates, producing higher quality data in the end.

The third-party verification model would be more similar to the approach used in oversight of financial reporting by publicly traded companies, where regulated companies are privately audited and audit results are reported and subject to verification by federal regulators.

But rather than shift to that model, EPA’s GHG reporting rule sticks with a direct regulatory oversight model, as it has used in other environmental programs.

Relationship to State Programs

EPA’s reporting rule does not preempt states from requiring their own GHG emission reporting.

• At least 17 states have developed or are developing mandatory GHG reporting programs.
• Currently, 12 of those programs are in effect, and the other 5 are slated to begin between 2010 and 2012.
• For example, the State of Washington has recently announced that it will release its final rules next month (October 2009), requiring reporting of 2009 emissions in early 2010.
• The State programs vary in reporting thresholds, the criteria for covered facilities, what emissions must be reported (only CO2, or some or all of the 6 primary GHGs), and monitoring and data verification requirements.

In addition, 41 states, the District of Columbia, a number of Canadian provinces and Mexican states, and several Indian tribes are members of a non-profit entity – the Climate Registry – that operates a voluntary GHG emission reporting program, and has developed extensive protocols for emission monitoring, verification, and reporting. Some states have integrated their reporting programs into the Climate Registry.

The Climate Registry’s reporting protocols vary from EPA’s new rule in several respects.

• For example, the Climate Registry calls for collective reporting of emissions from all sources controlled by a reporting entity, rather than facility-specific reporting,
• Third party verification of GHG emissions data,
• Reporting of “indirect” emissions that are emitted in generating electricity used by the entity’s facilities.

 EPA’s rule requires facility-level reporting, self-verification of emissions, and no reporting of indirect emissions.

EPA has stated that it wants to be able to share data with the states and the Climate Registry, and harmonize data systems to the extent possible. EPA also indicated it will work with the states and the Climate Registry on a data exchange standard. This may prove difficult, however, given the divergence in reporting thresholds and other varying elements of the reporting programs.

Other Pending EPA Regulatory Actions

EPA also has pending a number of other regulatory actions affecting GHG emissions, including:

• Notice of Proposed Rulemaking to Establish Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Fuel Economy Standards (signed September 15, 2009);
• Proposed Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act, 74 FR 18886 (April 24, 2009);
• Reconsideration of “EPA’s Interpretation of Regulations that Determine Pollutants Covered By Federal Prevention of Significant Deterioration (PSD) Permit Program” 73 FR 80300 (December 31, 2008);
• Granted California’s request for a waiver for its GHG vehicle standard, 74 FR 32744 (July 8, 2009)

This new GHG reporting rule is independent from these other regulatory actions, but will interact with other EPA actions – particularly if, as expected, an “endangerment” finding leads EPA to consider limits on GHG emissions from stationary sources under the Clean Air Act.
Conclusion

Congress directed EPA to use its existing authority under the federal Clean Air Act to develop rules requiring the reporting of GHG emissions. EPA has now done so. These new rules do not limit or control GHG emissions, although they certainly point in that direction.

For the most part, EPA’s GHG reporting rule follows the same monitoring, recordkeeping, and reporting structure as existing Clean Air Act regulations, and so they should be familiar to the regulated sources. Still, many regulated facilities may face duplicative or conflicting state reporting requirements.

The Rest @ Martin Law Group by By Svend Brandt-Erichsen