April 17, 2009

EPA Publishes Proposed Rule on Reporting of GHG Emissions and Conducts California Hearing

Holland & Knight Alert
Beth A. Viola

On April 10, 2009, EPA published a proposed rule on federal reporting of greenhouse gas (GHG) emissions in the Federal Register. 74 Fed Reg. 16448 (available at: https://www.gpo.gov/fdsys/pkg/FR-2009-04-10/html/E9-5711.htm). On April 15, 2009, EPA Region 9 conducted a public hearing on the rule. The proposed rule aims to meet a statutory mandate in the Consolidated Appropriations Act of 2008 that, by June 26, 2009, EPA "require mandatory reporting of GHG emissions above appropriate thresholds in all sectors of the economy." On April 17, EPA issued its much anticipated endangerment finding for CO2 and five other GHGs, paving the way for the regulation of GHG under the Clean Air Act. 

As proposed by EPA, mandatory GHG reporting would be required for:

  • large downstream industrial facilities in listed source categories that typically emit 25,000 metric tons or more per year of carbon dioxide equivalent (CO2e)
  • upstream industrial gas and fossil fuels suppliers
  • vehicle and vehicle engine manufacturers

Data collection would begin in 2010 and covered facilities would be required to submit annual reports in 2011 for calendar year 2010. Reporting would include total GHG emissions in metric tons of CO2e aggregate and emissions in CO2e and metric tons of each covered gas: (carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFC), perfluorocarbons (PFC), sulfur hexafluoride (SF6), and other fluorinated gases including nitrogen trifluoride (NF3) and hydrofluorinated ethers (HFE)).

The agency estimates that this new rule would apply to approximately 13,200 reporters accounting for 85 percent to 90 percent of U.S. GHG emissions. The estimated annual cost for reporting private sector entities is estimated to be $160 million for the first year and $127 million thereafter. 

California Hearing on April 16, 2009

EPA held a public meeting to accept stakeholder comments on the proposed rule on April 16, 2009, in Sacramento, providing a preview of the likely written comments to the agency. Those present included representatives of industries subject to existing GHG reporting regimes under the Clean Air Act, voluntary climate initiatives and the new California GHG emissions reporting rule. These commenters generally encouraged EPA to incorporate existing requirements and calculation methods into EPA's rule to avoid duplicative reporting and higher administrative costs. The commenters also raised concerns about the looming deadlines imposed by the rule's initial reporting date. Notably, many commenters raised the issue of third-party verification of the GHG data reported. EPA considered but did not require third-party verification in the proposed rule, however, third-party verification is part of California's mandatory GHG reporting rule. Industry representatives highlighted the cost of such a requirement, while others argued that third-party verification was important to assuring data quality, particularly because a future cap-and-trade system for GHG emissions is likely.

Objectives of the Proposed Rule

EPA's goal with the proposed rule is to gather "comprehensive and accurate data" that would be used to "inform future climate change policies." Specifically, the mandatory GHG reporting program was designed to gather data that could be used "to support a range of [policy and regulatory] approaches" and to create a universe of reporting entities that would maximize the total amount of GHG emissions reported while excluding small sources.

EPA is attempting to reduce reporting burdens on the regulated community by harmonizing, where feasible and appropriate, the proposed requirements with existing GHG emission estimation and reporting methodologies. Analysis of existing federal and state, as well as international, mandatory and voluntary GHG emission reporting programs and protocols, influenced EPA's policy decisions. For example, electrical generating facilities that are already subject to mandatory federal reporting of CO2 under 40 CFR Part 75 would use that data for reporting CO2 under the new federal rule. Similarly, requirements for vehicle and engine makers build on EPA's existing emissions testing and certification programs for these products.

The rule notes that none of the existing federal or state programs that it reviewed were designed to provide mandatory GHG reporting by facilities in a large number of sectors, and the programs differ among themselves. As a result, the federal proposed rule may not coincide with existing federal and state GHG reporting requirements for all sectors and facilities.

Who Must Report

The proposed rule imposes reporting requirements on both downstream industrial facilities as well as upstream fuel suppliers.

Industrial Facilities. Section 98.2 ("Do I need to report?") of the proposed rule sets out three ways industrial facilities can be subject to mandatory GHG reporting. These three reporting categories are:

1) Specifically Listed Source Categories

Facilities with any of 20 specifically listed industrial processes will be required to report emissions from all sources in this source category. Proposed 40 CFR 98.2(a)(1). Emission calculation methodologies are specified in the corresponding subpart of the proposed rule. (See subparts B to JJ). The listed industrial processes in this reporting category range from electrical generation facilities to semiconductor manufacturing facilities. Some of the source categories are defined to include express process thresholds (e.g., electrical power systems with specified nameplate capacity) or an express emissions threshold of 25,000 metric tons or more per year CO2; other source categories are defined with no explicit threshold (e.g., cement production, ammonia manufacturing). However, EPA indicates that the typical existing facilities captured by this reporting category do emit 25,000 metric tons or more per year CO2e. This category also includes two types of facilities outside the traditional industrial sector: municipal landfills with methane production equivalent to 25,000 metric tons or more per year CO2e, and manure management systems with methane and nitrous oxide emissions equivalent to 25,000 metric tons or more per year CO2e.

2) Source Categories Combined Emissions Threshold

Facilities that emit 25,000 metric tons or more per year CO2e of combined emissions from stationary fuel combustion units and 16 specified source categories are subject to reporting requirements. Proposed 40 CFR 98.2(a)(2). These facilities would report (i) their fuel emissions and (ii) their emissions from each listed source category located at the facility for which emission calculation methodologies are set out in the corresponding subpart of the proposed rule. See subparts B to JJ. The 16 processes listed in this reporting category range from pulp and paper manufacturing, glass production and zinc production to subsidiary processes such as industrial landfills and wastewater.

3) Default Stationary Fuel Emissions Threshold

Certain facilities that do not contain any of the source categories identified under either of the two above reporting categories may fall into the third reporting category based on their stationary fuel combustion. Reporting thresholds for this reporting category are (i) stationary fuel combustion units at the facility which have aggregate minimum rated heat input capacity of 30 mmBtu/hr or greater and (ii) emissions of 25,000 metric tons per year or more CO2e from the facility's stationary fuel combustion sources. Proposed 40 CFR 98.2(a)(3). These facilities will be required to report their emissions from stationary fuel combustion.

Upstream Sources. A unique feature of the proposed rule is the coverage of two major categories of upstream sources: fuel suppliers, and vehicle and vehicle engine manufacturers.

1) Fuel Suppliers

This reporting category covers all suppliers of traditional fuels (coal and coal-based fuels, petroleum products and natural gas fuels). Proposed 40 CFR 98.2(a)(4). It also includes producers, importers and exporters of industrial GHG and CO2 whose total bulk imports exceed 25,000 metric tons CO2e per year. These suppliers will report GHG emissions for all of their covered products based on the calculation methodologies set out in corresponding subparts of the rule. See subparts KK through PP. These methodologies calculate the GHG emissions that would be created by complete combustion of the fuel product. EPA is not proposing to require reporting from suppliers of biomass-based fuels or renewable fuels, since emissions from combustion of these fuels are traditionally captured at the point of biomass production; however, EPA requests comment on this point.

2) Vehicle and Vehicle Engine Manufacturers

This category covers a broad range of vehicles from cars and trucks to highway motorcycles and personal watercraft. Vehicle engines also include locomotive, marine diesel, and jet and turboprop aircraft engines. Vehicles and engine manufacturers in this reporting category would report GHG emissions from their products based on an emissions rate. These manufacturers will add the GHG pollutants to the sampling and reporting already performed under EPA's established programs for fuel economy testing and vehicular emissions control.

EPA recognizes that the inclusion of upstream fuels suppliers in the mandatory GHG reporting program inevitably results in double counting or double reporting of emissions. EPA's rationale is to obtain a more accurate view of the total fuel supplied, which will also result in capturing data on emissions from a larger number of small sources, particularly in the commercial and residential sectors of the economy. The data can also inform evaluation of policy options based on regulation of fuels, such as low carbon fuel standards.

Next Steps

Comments on EPA's proposed rule are due by June 9, 2009. All industrial facilities, fuels suppliers, and vehicle and vehicle engine manufacturers should carefully review the reporting thresholds and the data required to be reported under the proposed rule. Facilities and companies that would be covered by the rule may wish to consider commenting on the differences between their reporting burden under the proposed rule and those under any existing GHG reporting program, including any increased cost of compliance. In addition, EPA has requested comments, data and suggestions in numerous areas including:

  • whether EPA's review and assessment of existing GHG reporting programs is accurate
  • whether the calculation methodologies selected by EPA are appropriate
  • the frequency of reporting and whether there should be a sunset of these reporting requirements

It is clear that in its effort to collect more accurate data, EPA is looking for industry's expertise to ensure that its expectations can be met and to confirm EPA's assumptions. Holland & Knight looks forward to assisting our clients in reviewing the proposed rule and submitting comments to help inform EPA's final reporting rule.

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