Alert March 19, 2009

EPA Proposal Mandates Greenhouse Gas Reporting

Under significant new regulations proposed by the U.S. Environmental Protection Agency (“EPA”),[1] many major industrial and power generating facilities will be required to track and annually report to EPA their greenhouse gas (“GHG”) emissions. See EPA, Proposed Mandatory Greenhouse Gas Reporting Rule (March 16, 2009) available here. The Proposed Rule requires stationary fuel combustion sources that emit more than 25,000 tons of carbon dioxide equivalent per year as well as numerous other specified sources – from cement producers to owners or operators of wastewater treatment plants – to determine and report their GHG emissions. Large industrial operations and virtually all fossil fueled electric generating facilities will almost certainly meet the threshold requirements for stationary fuel combustion sources, and the Proposed Rule also triggers reporting requirements for many other types of operations. Covered entities will be required to report their 2010 GHG emissions to EPA by March 31, 2011. Thus, they will have to start tracking GHG emissions by January 1, 2010. The Proposed Rule is lengthy and complex, with its text comprising 592 pages, and an 818-page explanatory preamble.

The Proposed Rule will create substantial compliance obligations for covered sources. For some, emissions estimation will be relatively straightforward, involving calculations based on readily accessible data. Other source categories, however, will have to install expensive monitoring equipment accompanied by detailed quality assurance protocols. In addition, the Proposed Rule serves as a precursor to GHG emission regulation. As a result, all industrial facilities, especially those that fall under the source categories specifically delineated in the rule, should closely examine the Proposed Rule and consider commenting on it.

Statutory Basis

This wide-reaching GHG reporting proposal is authorized by a single sentence in the Consolidated Appropriations Act for fiscal year 2008. That provision requires EPA to “publish a [rule] to require mandatory reporting of greenhouse gas emissions above appropriate thresholds in all sectors of the economy of the United States.”  The Conference Report for the Appropriations Act indicates that EPA should use its “existing authority under the Clean Air Act” to issue the rule. EPA has relied on sections 114 and 208 of the Clean Air Act (“CAA”), which give it broad authority to require emission monitoring and reporting from any entity that has any information related to any of EPA’s responsibilities under the CAA. EPA’s relevant responsibility here is its consideration of regulation of GHGs in the wake of Massachusetts v. EPA, 549 U.S. 497 (2007), under which EPA is expected to issue an “endangerment” finding  for GHGs in the near future.

Covered Sources and Reporting Thresholds

The Proposed Rule governs a subset of GHG-emitting entities, which according to EPA accounts for 85-90% of total U.S. GHG emissions. For the rule to trigger reporting requirements, a “facility” must fall into one of four source categories. “Facility” is defined as “any physical property, plant building, structure, source, or stationary equipment located on one or more contiguous or adjacent properties in actual physical contact or separated solely by a public roadway or other public right-of-way and under common ownership or common control, that emits or may emit any greenhouse gas.”  Proposed Rule § 98.6.

The first category of covered facilities consists of specified types of sources of GHGs, such as cement production, petrochemical production, and underground coal mines. Proposed Rule § 98.2(a)(1). Table 1 at the end of this advisory provides a full list of these sources. Facilities of this type must report GHG emissions from all source types covered by the rule, even if some of those source types would not independently trigger reporting requirements.

The second category of covered facilities includes GHG sources such as electric generation, photovoltaic manufacturing, industrial landfills, and wastewater treatment facilities. Proposed Rule § 98.2(a)(2). A facility that contains one of these types of sources is only required to report its GHG emissions when its total emissions exceed 25,000 metric tons of carbon dioxide equivalent[2] (CO2e) per year. Table 2 provides a complete list of these sources. Facilities in the second category must also report GHG emissions from all source types covered by the rule, even if some of those source types would not independently trigger reporting requirements.

The third, and broadest, source category consists of facilities that contain “stationary fuel combustion sources” but that do not fit into one of the first two categories. Proposed Rule § 98.2(a)(3). According to the proposed regulations:

Stationary fuel combustion sources are devices that combust solid, liquid, or gaseous fuel, generally or for the purposes of producing electricity, generating steam, or providing useful heat or energy for industrial, commercial, or industrial use, or reducing the volume of waste by removing combustible matter. Stationary fuel combustion sources include, but are not limited to, boilers, combustion turbines, engines, incinerators, and process heaters.

This broad definition will capture nearly every large industrial source not specifically delineated by the first and second categories. Facilities in this category need only report emissions when the combustion units at a facility i) have an aggregate heat input capacity of 30 mmBtu/hr or greater and ii) emit at least 25,000 metric tons of CO2e per year. Further, qualifying facilities need only report their combustion-related GHG emissions, not their emissions from other source types.

The final category of covered facilities consists of suppliers of certain products that result in GHG emissions. Proposed Rule § 98.2(a)(4). These products include coal, natural gas, and industrial greenhouse gases. Table 3 provides a complete list of sources that fall under the fourth category. Covered facilities must provide information with regard to their facilities that produce all products listed in Table 3. These facilities may also separately fall into one of the GHG generator categories discussed above.

Reporting Requirements

If a facility meets the threshold requirements of the Proposed Rule, the owner or operator of the facility must comply with GHG emission tracking, reporting, recordkeeping, and verification requirements. Some requirements apply to all facilities, while others are particular to the types of sources present within a facility.

Most significantly, all facilities must report their 2010 GHG emissions to EPA by March 31, 2011. This means that covered facilities must be ready to track their emissions by January 1, 2010. All facilities are also required to keep for five years various records that document their emissions calculations. In addition, facilities must prepare Quality Assurance Performance Plans to ensure the integrity of their emissions inventory and reporting.

The exact contents of an emissions report depend on the source categories present within a facility. For example, a facility that contains a stationary fuel combustion source would have to report carbon dioxide, methane, and nitrous oxide emissions from that source. Other sources must report the emissions of different types of GHGs.

The type of emissions monitoring or calculation that must be performed also depends on source characteristics. For example, large coal-fired stationary fuel combustion sources must utilize CO2 monitoring equipment to monitor actual emissions. Large coal facilities currently part of the Acid Rain Program must continue to use already existing monitoring equipment, while other large coal facilities must install that equipment by 2011. Meanwhile, small natural gas combustion sources may use information on the quantity of fuel used and default emission factors to estimate CO2 emissions.

In many cases, EPA attempted to make its monitoring or emissions estimation requirements consistent with existing GHG emissions reporting protocols. See Preamble at 43. Protocols that EPA examined included those established by the Intergovernmental Panel on Climate Change (“IPCC”), European Union Emissions Trading System, Regional Greenhouse Gas Initiative, State of California, and World Resources Institute/World Business Council for Sustainable Development. While the Proposed Rule does not itself explicitly incorporate these protocols, for many source types the Preamble discusses the Proposed Rule’s consistency with existing protocols. For example, the chosen estimation method for adipic acid, which involves periodically taking measurement to establish a ratio of nitrous oxide emissions to adipic acid production, is consistent with an IPCC “Tier 3” estimation method.

Other Issues on Which EPA is Seeking Comment: Mobile Sources and Electricity Use

The Proposed Rule currently does not contain any reporting requirements for motor vehicle owners or electricity users. However, EPA is contemplating requiring various types of reporting for these categories. For example, it is considering requiring motor vehicle fleet owners to report the number, type, age, and miles traveled of vehicles they own. It is also considering requiring large electricity users to report on their usage patterns. EPA is seeking comment on whether the final rule should address these subjects.

Penalties

The Preamble to the Proposed Rule broadly cites CAA penalty provisions – sections 113 and 203-05 – as authority for future enforcement actions. The Preamble states that EPA may penalize those who fail to comply with monitoring, reporting, and recordkeeping requirements with fines up to $32,500 per day as well as other administrative, civil, and criminal measures. Thus, this rule will create a potentially significant new source of regulatory liability for inaccurate GHG emissions reporting or failure to report for numerous sources under the CAA.

Ambiguities

Several ambiguities exist in the Proposed Rule that threaten to expand its applicability far beyond what EPA appears to have intended. Most prominently, EPA’s drafting of a core provision of the Proposed Rule that indicates which entities must report leaves significant uncertainty as to which owners of combustion sources must report emissions. Specifically, Proposed Rule section 98.2(a)(3) provides that facilities that do not fall into the other categories need only report stationary combustion emissions if a facility emits more than 25,000 metric tons CO2e per year and has a capacity of at least 30 mmBtu/hr. However, section 98.2(a)(2) states that “[a]ny facility that emits 25,000 metric tons CO2e or more per year in combined emissions from stationary fuel combustion units, miscellaneous uses of carbonate, and all source categories that are listed in this paragraph and that are located at the facility in any calendar year starting in 2010” must report its emissions. Thus, a facility that contains only a stationary fuel combustion source with a capacity of less than 30 mmBtu/hr but that emits more than 25,000 metric tons of CO2e per year apparently would be required to report under 98.2(a)(2) (its “combined” emissions would be greater than 25,000 tons per year) even though it would not be required to report under 98.2(a)(3). Thus, as the Proposed Rule is currently drafted, the capacity requirement established in 98.2(a)(3) appears to be without effect.

The results of this internal drafting conflict are even more wide-reaching because of the manner in which a facility must determine whether it has to report. In order to determine whether it must report, a facility with a stationary combustion source must calculate or monitor its emissions. Thus, any facility that believes it may have a source large enough to produce 25,000 tons of CO2e would have to monitor or calculate its emissions even to determine whether GHG emissions tracking and reporting are legally required. Without the capacity threshold of section 98.2(a)(3), the number of facilities that would have to set up tracking systems just to determine whether they have to report may be quite large.

There is no doubt that several other areas of the proposed regulations would benefit from clarification resulting from independent review and the specific industry knowledge that companies can bring to the table.

Conclusion

The proposed GHG reporting requirements will  create significant regulatory compliance obligations and potential liabilities for a wide range of energy and industrial entities. Each major facility will have to assess whether its emissions trigger reporting requirements. If so, each entity will have to inventory its GHG emission sources, calculate or monitor its emissions, publish emissions reports, and set up an internal quality assurance system. All of these tasks must be performed within a relatively short time period, as covered facilities must begin recording their emissions on January 1, 2010. Also, it should be noted that several states such as California, Connecticut, Massachusetts, New Jersey, Wisconsin, and Washington have recently issued or proposed GHG reporting regulations applying to certain sectors and sometimes with lower GHG emission thresholds (e.g., 5,000 tons per year of CO2 in Massachusetts or 10,000 tons per year CO2e in Wisconsin).

As such, many companies have a significant interest in ensuring that the regulations are reasonable and economically feasible to comply with. There are several areas in which comments to EPA could meaningfully improve the Proposed Rule. For example, significant ambiguity exists in a core provision of the regulations that lays out which facilities must report their emissions. Further, companies could provide insight into the appropriateness of vehicle fleet and electricity use reporting. They could also comment on the particular burdens placed on their facilities and industry by the monitoring requirements for certain source types. It would therefore be wise for potentially affected companies and trade associations to perform a thorough review of the proposed regulations and consider submitting comments to EPA.

 

Table 1

Sources Categories Identified in Proposed Rule Section 98.2(a)(1)

  • Electricity generating facilities subject to the Acid Rain Program, or that contain     electric generating units that collectively emit 25,000 metric tons CO2e or more per year
  • Adipic acid production
  • Aluminum production
  • Ammonia manufacturing
  • Cement production
  • Electronics - Semiconductor, microelectricomechanical system (MEMS), and liquid crystal display (LCD) manufacturing facilities with an annual production capacity that exceeds any of the following thresholds:
                (A) Semiconductors: 1,080 m2 silicon
                (B) MEMS: 1,020 m2 silicon
                (C) LCD: 235,700 m2 LCD
  • Electric power systems that include electrical equipment with a total nameplate capacity that exceeds 17,820 lbs (7,838 kg) of SF6 or perfluorocarbons (PFCs)
  • HCFC-22 production
  • HFC-23 destruction processes that are not collocated with a HCFC-22 production facility and that destroy more than 2.14 metric tons of HFC-23 per year
  • Lime manufacturing
  • Nitric acid production
  • Petrochemical production
  • Petroleum refineries
  • Phosphoric acid production
  • Silicon carbide production
  • Soda ash production
  • Titanium dioxide production
  • Underground coal mines that are subject to quarterly or more frequent sampling by MSHA of ventilation systems
  • Municipal landfills that generate CH4 in amounts equivalent to 25,000 metric tons CO2e or more per year
  • Manure management systems that emit CH4 and N2O in amounts equivalent to 25,000 metric tons CO2e or more per year

 

Table 2

Sources Categories Identified in Proposed Rule Section 98.2(a)(2)

  • Electricity generation
  • Electronics – photovoltaic manufacturing
  • Ethanol production
  • Ferroalloy production
  • Fluorinated greenhouse gas production
  • Food processing
  • Glass production
  • Hydrogen production
  • Iron and steel production
  • Lead production
  • Magnesium production
  • Oil and natural gas systems
  • Pulp and paper manufacturing
  • Zinc production
  • Industrial landfills
  • Wastewater treatment
  • Coal
  • Coal-based liquid fuels
  • Petroleum products
  • Natural gas and natural gas liquids
  • All producers of industrial greenhouse gases
  • Importers or exporters of industrial greenhouse gases with total bulk imports or exports that exceed 25,000 metric tons CO2e per year
  • All producers of carbon dioxide
  • Importers or exporters of CO2 or a combination of CO2 and other industrial GHGs with total bulk imports or exports that exceed 25,000 metric tons CO2e per year