Since the Environmental Protection Agency unveiled in March its first proposal to force companies to monitor and report their greenhouse gas emissions, the move has raised an abundance of questions from Corporate America.
As previously reported by Compliance Week, the EPA’s 818-page proposed rule would require that businesses and utilities file reports if their annual greenhouse gas emissions exceed 25,000 metric tons (a threshold that would let most small companies off the hook). The EPA estimates that the rule would affect roughly 13,000 facilities; they would need to start monitoring and recording emissions at the start of 2010, and then start filing annual reports in the first quarter of 2011.
The EPA proposed the rule on the heels of a directive by Congress established in the fiscal year-2008 appropriations law, authorizing $3.5 million for the agency to develop such a rule. In addition, Congress directed the agency to use existing authority under the Clean Air Act, but didn’t offer much more directive than that.
“Typically, when we get language to do such a thing, there are quite a few more details spelled out by Congress,” said William Irving, chief of the EPA’s Climate Change Division, which is responsible for preparing the annual inventory of greenhouse gas emissions. “In this case, they’re keeping it fairly general and requiring the EPA to use a lot of discretion and make decisions about various things.”
In an April 29 Webcast by the Conference Board, Irving discussed specific aspects of the rule, and its implications for companies. Following is the question-and-answer session that took place:
How did the EPA narrow down emission source categories?
We spent a lot of time looking at what was out there already. We did not want to reinvent the wheel. There are only so many ways to estimate emissions, and they range from basic calculation approaches on the general end to a lot more specific continuous monitoring approaches.
U.S. GHG EMISSIONS (2006)
Greenhouse Gas Emissions Allocated to Economic Sectors in 2006:
Sector
Percentage
Electricity Generation
33%
Transportation
28%
Industry
20%
Agriculture
8%
Commercial
6%
Residential
5%
Source
Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2006 (April 2008).
We looked at the California program, the Air Resources Board. We looked at our own acid rain program; climate registry; other federal and voluntary programs. We also looked at some of the standards and protocols that other industries and industry associations came up with on their own.
We spent a lot of time meeting with stakeholders. In some ways, this was an unprecedented effort to do outreach with the numerous different affected stakeholders, who might either represent reporters or non-governmental organizations or states that have created their own reporting programs. [W]e got a lot of great input from a lot of these stakeholders into the rule-drafting process.
How were the thresholds determined?
This was a fairly data-intensive and tricky part of the rulemaking. We assessed what the coverage and the administrative burden would be under four different threshold scenarios: 1,000 tons; 10,000 tons; 25,000 tons; and 100,000 tons per year.
Those four threshold scenarios span the range of thresholds that are in discussion broadly in the U.S. in terms of climate policy. It’s very rare that you would see thresholds seriously considered below 1,000 tons, and I certainly have never seen a threshold that goes above 100,000 tons.
And given the administrative burden where you do start to pull in some small businesses at 10,000 tons, we proposed a 25,000-ton per year hybrid. We also looked at 100,000 tons, but what you end up doing at 100,000 is splitting up major energy-intensive industries into covered and uncovered facilities, and there’s a serious equity concern there.
KEY ASPECTS
Two “Key Aspects” of the Proposed Mandatory GHG Reporting Rule:
Who Reports
Who reports in the range of current programs?
Most mandatory reporting programs have facility-level or unit-level reporting (e.g.,
CA, EU ETS, TRI, NEI, etc.)
Most voluntary GHG programs have corporate-level reporting, but encourage
facility-level reporting (e.g., Climate Leaders, TCR)
Who is the appropriate reporter for a mandatory reporting program?
When reported at facility-level, data can be aggregated to corporate-level but
disaggregating from corporate-level to facility-level data is more difficult
Relying exclusively on corporate-level reporting would minimize usefulness of data
for developing new policy or implementing current CAA programs (e.g., NSPS, NSR)
EPA would need to define organizational boundaries for corporations (i.e., equity
share or control approaches)
Frequent changes in corporate structure and ownership over time could make data
from particular facilities difficult to track
A threshold at the corporate level would likely encompass more and smaller facilities
than if thresholds applied at the facility level
Should the reporter be uniform for all source categories in the program?
Could be difficult to define facility for all reporters (e.g., importers)
Proposal: Hybrid-Primarily facility, with limited exceptions (e.g., fuel importers, vehicle, and engine manufacturers)
Thresholds
What is the form of the threshold?
Capacity, Emissions, Hybrid
What is the level of an emissions threshold (in CO2e)?
1,000 tons, 10,000 tons, 25,000 tons, 100,000 tons, etc.
Proposing lower thresholds will likely increase pressure for less rigorous
measurement methods
What data are available to support the threshold determination?
Examples of existing GHG programs:
CARB uses a hybrid approach
25,000 tons of CO2e for most source categories
Capacity or other for specific source categories (e.g., electricity generation, oil refineries)
EU uses a capacity approach
Each source category has a specific capacity threshold (e.g., 500 tons of clinker/day for cement facilities)
Relationship between level of threshold and rigor of monitoring method
Proposal of a lower threshold could increase pressure to use less rigorous monitoring methods.
Proposal:
Capacity-based threshold, where appropriate and feasible
Emissions-based threshold of 25,000 metric tons of CO2e/yr for other
sources
Source
Proposed GHG Reporting Rule: Overview (April 29, 2009).
In some cases in EPA programs, we’ve gone with capacity-based thresholds. The acid rain program is an example of that. That program includes electricity-generating units. We think that type of threshold is a good way to go, and if we had that information for all the types of sources we might have proposed that approach.
What individual or organizations should be reporting to EPA?
In many voluntary programs, particularly at the corporate level of voluntary programs … the reporting is a corporate-wide approach. In a lot of the mandatory programs and the compliance programs, the reporter is actually the designated operator of a facility. So there are very different ways of approaching reporting.
In one case, you have an effort to look broadly across a company’s operations. In the other case, you have a list of major emitting facilities across the country. And from the EPA perspective, we would like reporting of what happens at those facilities, but are less interested in looking at the overall corporate footprint.
This is consistent with the way we get reporting under other parts of the Clean Air Act, and it’s also consistent with the way the California Air Resource Board has proceeded, and also the European Union.
How frequently should reporting take place?
We did not opt for quarterly reporting; we chose to propose annual reporting. Our submission date would be the last day of March every year for the previous year’s emissions. We would not change requirements under existing programs where they are different. For example, the acid rain program is quarterly, and we would not change requirements for those facilities.
What penalties exist for not reporting?
There are quite strong enforcement and compliance provisions under the Clean Air Act, generally. It starts with each reporter. There is a designated representative who needs to sign off on the estimate, saying that, to the best of his or her knowledge, these are the accurate estimates. And there are very severe penalties for misrepresenting that.
Who is responsible for verifying that information?
There are three general approaches to verification that have been talked about. One is self-certification. That’s basically a statement by the reporter attesting that the numbers are correct. There’s third-party verification, and then there’s centralized verification by the regulator, in this case, the EPA.
We did not consider self-certification on its own. We are proposing that, in addition to self-certification, we would have the EPA as the regulator do the verification with the option that we can bring in support from contractors or regions or states, as needed.
How important is this effort to the EPA? What is the most complex obstacle?
This is a hugely important effort, and it was one of the first things that the new political leadership asked about. So it’s very high profile. It has a lot of support.
As far as the hardest thing, it’s an incredibly complex rulemaking and a very aggressive deadline. So we’re not getting much time off these days.
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